More Talk Than Outcomes

15. 3. 2017

Chinese investments in Central Europe are by no means the clear-cut success story that some politicians suggest.

If the influx of Chinese investment into the Czech Republic were to be rated on the basis of the recent results of the Slavia football club, owned by CEFC China Energy Company, the Chinese have not exactly hit the jackpot with their purchases and should not expect very much in the future. Nevertheless, the Chinese President Xi Jinping’s visit to Prague and other Central European countries earlier this year has resulted not only in a surge in Chinese interest in investing in the region but also spurred discussions about the size and significance of these investments and their impact.

The politicians are prone to boasting of the billions that have yet to materialize, likewise of the thousands of promised new jobs, as the Chinese investors have so far focused primarily on buying up existing companies. It is just as difficult to put an exact figure on the rate of investment in Hungary, a country that—thanks to the sizeable Chinese community that settled there after visas for Chinese citizens were abolished in the late 1980s—developed somewhat closer and more extensive links with China than other Central European countries.

“Although direct Chinese investment in Hungary is hard to quantify precisely, by the end of 2014 it probably amounted to 2.5 to 3 billion US dollars. Unfortunately, a single transaction– the purchase of the chemical company Borsodchem by the Chinese Yantai Wanhua Group–accounts for some 75 percent of the total amount,” says Tamás Matura, professor at the Corvinus University of Budapest and President of the Central and East European Center for Asian Studies (

The Chinese regard Hungary as a part of their south transport corridor, which they intend to develop and connect to the Greek port of Piraeus that they acquired during the crisis. Their plan further envisages investing in a high-speed rail link between Budapest and Belgrade.

But that is still in the distant future. Currently around fifty thousand Chinese reside in Hungary and some five thousand businesses with Chinese capital are registered in the country, albeit mostly very small ones. Nevertheless, in 2002 the Bank of China opened a branch in Budapest, its first in Central Europe, and the city also boasts a Chinese elementary school and, most recently, a high school, providing infrastructure for new Chinese investors.

Another important factor is the policy of “Opening to the East,” which the Hungarian government under Viktor Orbán has been promoting for several years now. It involves diversifying the country’s economic interests and attracting investors from countries beyond the West, as well as opening new export markets for Hungarian goods. However, this policy has yet to prove successful with regard to China, even though companies such as Huawei, ZTE, Lenovo, Sevenstar Electronics, BYD Electronics, and Comlink have set up in Hungary. In fact, Prime Minister Viktor Orbán had hoped that Chinese monies might help Hungary service its debt at the time when its rift with the European Union was at its widest. Nonetheless, his mission in Beijing has failed in this respect.

“Unfortunately, although Hungary needs new jobs, green field investment is not typical of Chinese investors,” explains Tamás Matura, pointing out that the Chinese prefer buying up existing firms.

Hungary’s government would also like to export Hungarian firms’ products do China. While exports have been rising, 93 percent consist of goods produced by Hungarian branches of multinational companies (car, electronics, and chemical plants) rather than indigenous Hungarian ones.

Enter Poland

To use sporting vocabulary, Poland has recently threatened Hungary’s position as the Central European favorite in terms of cooperation with China. Since entering into a strategic partnership with China five years ago and being the largest country in the region, Poland has pinned great hopes on cooperation with Beijing. It was in Warsaw in 2012 that the 16+1 formula—i.e. political and economic dialogue between sixteen Central European post-communist countries and Beijing, primarily consisting of meetings at the prime-ministerial level—came into being. Warsaw sees itself as a future base for Chinese investment both in manufacturing and infrastructure, as reflected in the development plan of Deputy Prime Minister Mateusz Morawiecki, whose own deputy, Radosław Domagalski, had for many years represented European companies in China.

However, the Poles have been more cautions due to bad experience with Covec, the Chinese construction firm that failed to deliver a section of a motorway for an agreed price in time for the Euro 2012 football championship.

“Growing Chinese interest may also produce new challenges. There is a risk that the Chinese may be the primary beneficiaries of their way of operating, which relies heavily on mergers and acquisitions and on projects implemented mostly by Chinese companies and with Chinese labor. They might purchase technology and know-how, and increase their exports without offering much to Poland in return,” wrote Justyna Szczudlik, an analyst with the Polish Institute for International Affairs, before the Chinese President’s Warsaw visit this June.

Poland is particularly keen on exports to the Chinese market but is currently running a large deficit and any exports consist mostly of raw materials and semi-finished products. So far, Chinese investments in Poland have been few and far between, comprising less than one percent of the total foreign investment in the country. The two key Chinese acquisitions are the civilian part of the Stalowa Wola steel mill and the bearing factory in Kraśnik.

Like other nations, the Poles hope to connect to the New Silk Road (as the road, rail, and energy belt the Chinese are building out of Central Asia is known) and to become a European hub for Chinese goods.

During his June visit to Warsaw, President Xi Jinping also signed some agreements on the cooperation between the countries’ stock markets. In the hope that these agreements herald a potential influx of Chinese capital, the Poles have started negotiating the option of issuing bonds in Chinese yuan.

The Chinese are interested in infrastructure investments, particularly ports and railways, as well as energy. “The President hasn’t brought specific investments. Warsaw now has to define the conditions under which it is willing to allow Chinese capital and businesses to invest in infrastructure and energy projects – for example, whether Chinese companies will be allowed to operate Polish ports or highways,” says Dominik Sipiński, an analyst with the Polityka Insight think-tank.

State-owned construction and rail companies such as CRCC, CREC, and Sinohydro, a hydropower engineering, road, and rail construction company, are particularly keen to invest in Poland. Sinohydro has recently completed the modernization of the Wrocław Floodway at a cost of 306 million złotys (70 million euros), the biggest Chinese project in Poland so far. The company is also constructing part of a power line.

BYD Auto, a private electric car and bus manufacturer, is also interested in the Polish market. However, they failed to secure a contract for producing electric buses in Warsaw following a protest from rival companies against unlawful government support.

The largest Chinese investment in Poland, the civilian part of the Stalowa Wola steel mill, is yet to deliver a major success. The Guangxi Liugong Group promised massive investment and the famous construction machinery brand was supposed to become China’s calling card in Europe. Instead, before two years were up, Polish trade unions rose in protest as they felt that not only were the Chinese not investing in production, but they started lay-offs on the quiet, offering golden handshakes to those willing to leave immediately, despite promising— back in 2012 when the contract was signed—to retain all current staff for five years. The Poles were not pleased when the company imposed a new logo on excavators and other machinery produced at the mill, which had been slowly losing market shares in countries where its own Dressta brand still enjoyed a high reputation. The promised modernization never happened. Former Polish managers of Stalowa Wola have recently claimed anonymously on the portal that the Chinese company had bought its rival in order to eliminate it in due course.

The Prague Bargains

The Czechs may feel about Chinese investment the same way as the Hungarians and the Poles do. Earlier this year, when the Chinese President visited Prague, President Miloš Zeman promised billions, yet CEFC—the company that has spearheaded Chinese investments in the Czech Republic—has recently been in the news rather because of its links to the Chinese government than because of its investment plans.

The trading company CEFC has spent some ten billion crowns in the Czech Republic. It has bought shares in Travel Service, an air company which owns shares in ČSA, the Czech air carrier. The news of the Chinese investment has not exactly been welcome, to put it mildly, by the majority shareholder, Korean Air.

The Chinese have further acquired the Lobkowicz Breweries, the Slavia football club, and shares in media companies Médea Group and Empresa Media. CEFC has also increased its holdings in the J&T Finance Group and has bought several choice properties in Prague, including the historic Živnobanka in the city center.

“However, these are all acquisitions of existing companies or in high-profile real estate rather than investments in new projects. Given that CEFC is a trading conglomerate that doesn’t produce anything, nothing else could really have been expected,” sinologist Martin Hála explained in the daily Hospodářské noviny. “Also, CEFC is a company entangled in a rather suspicious web. Several studies have depicted it as a platform for Chinese military intelligence and an agency of ‘political struggle’” said Hála. CEFC rejects this accusation, its founders insisting that they are only interested in business and have never been officially charged with any wrongdoing.

CzechInvest, the Czech government’s business and investment development agency, reports that it has so far brokered Chinese investments totaling up to 96 million euros and that it is in the middle of negotiating a further 185 million euros. Until recently the largest Chinese investment has been the 8.7 million euros that Maling, a Shanghai company, put into setting up a meat canning factory and luncheon meat producer near Teplice. Since its opening in 2008 the company has got into financial difficulties on several occasions.

The oldest Chinese investment in Czech manufacturing is a TV factory near Nymburk. Changhong Europe Electric invested 38 million USD in this firm and is now reportedly planning to invest a further 24 million euros.

Chinese firm YAPP Czech Automotive has produced plastic fuel tanks for the Škoda automobile factory since 2011. Last year they announced their intention to double production and invest 9 million euros.

Czech commentators see no reason to believe that the Chinese regard the Czech Republic as a destination of special interest in terms of investment, as President Zeman suggested in the spring. David Marek, chief economist at Deloitte Czech Republic, says that Chinese investments in the Czech Republic comprise 0.004 percent of assets that Chinese businesses or the state own abroad. In 2015 the total of Chinese investment in Europe grew by 28 percent, to 23 billion USD.

It is worth comparing Chinese investments with those of other direct investors. By the end of 2015 China had invested around 6 billion crowns (222 million euros) in the Czech Republic, which comprised 0.22 percent of the total foreign investment and was comparable with the amount invested by, for example, Finnish companies. If China’s investments planned for 2016 were to be included, the Chinese share would go up to around 3.7 billion euros, increasing the total of the country’s investments in Czechia to 3.5 percent, i.e. the same level as that of Belgium or Cyprus.

Slovakia Bringing up the Rear

In this context Slovakia may justifiably feel like the last in the queue, provided we disregard the fact that by investing in the J&T Finance Group, China’s CEFC has actually bought into a firm originating in Slovakia. Lin Lin, China’s ambassador to Slovakia, has also admitted in an interview with the daily SME that economic relations between Slovakia and China are only just starting to develop and that at 50 million euros the volume of Chinese investment in Slovakia is quite low.

Peter Paulen, Slovakia’s former ambassador to Beijing and chairman of the Slovak-Chinese Chamber of Commerce, also told the Slovak daily Hospodárske noviny that major Chinese companies are interested in setting up centers for development in Slovakia, as they have done elsewhere in Europe, and that Huawei and ZTE were about to sign agreements with Slovak universities.

Slovak politicians have travelled to China in an attempt to attract Chinese investors, including CEFC, a company active in the Czech market. In early September 2016 Slovakia’s Ministry of Finance reported that CEFC is interested in investing hundreds of millions of euros in energy, heavy engineering, logistics, and tourism. And the CEO of Bratislava Airport, Ivan Trhlík, said in early September that China’s Hainan Airlines expressed interest in leasing the airport on a long-term license. The airport, which has suffered from the proximity of a rival airport in Vienna, has long been on the lookout for any foreign investor.

As we have seen, Chinese investments in Central Europe are not the clear-cut success story some politicians would make them out to be. Chinese investors’ suspected links to the government and a level of government support that would be inadmissible in Europe undermine the principles of the market economy. In addition, China’s political system raises the question of a political motivation behind some of the investments. Ultimately, Central Europe has yet to see a Chinese investment that is as successful in commercial, social, and political terms as, for example, Korea’s car factories or Foxconn, the Taiwanese company that has created thousands of jobs and entire industries throughout Central Europe without great publicity. For example, Taiwan has invested five times as much in the Czech Republic as China, even though Beijing regards that island as a breakaway province.

Martin Ehl

has been working for different Czech print and online media since 1992, from 2006 to 2018 as Chief International Editor and now Chief Analyst at Hospodářské noviny daily. He writes a regular bi-weekly column Middle Europe for the English language internet magazine Transitions Online, for this column he was awarded the „Writing for Central Europe“ prize in Austria in 2012. Co-editor of Visegrad Insight magazine.

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