The Victims of Communism Foundation's Blog

To the Budapest Station: China’s Expanding Lines of Influence

To the Budapest Station: China’s Expanding Lines of Influence

In November 2017, Chinese and Central and Eastern European leaders signed off on a Chinese-funded high-speed rail line that will bring Chinese goods—and influence—into the heart of the European Union. The railway line, which will stretch from the Chinese-controlled port of Piraeus in greater Athens through Belgrade to Budapest, is part of China’s ambitious “One Belt, One Road” (OBOR) infrastructure initiative.

The Piraeus-Belgrade-Budapest line is the first major OBOR project within Europe. It marks a concrete step forward in the relationship between China and 16 Central and Eastern European countries (CEEC), collectively known as the 16+1. China, Hungary, and Serbia originally signed on to the project back in 2014. When completed, the $3.8 billion project will become the main entry route for Chinese goods into the EU, China’s biggest trading partner. Construction on the Serbian segment began in late November.

The project has seen some roadblocks in Hungary. The initial Chinese-Hungarian agreement was investigated by EU officials who suspected it failed to meet EU bidding requirements for infrastructure projects. In response to these concerns, Hungary announced a public tender process during the 16+1 summit, in which the China Railway International Corporation, the state-owned enterprise originally tasked with the project, will be just one of the bidders. Competition between firms might improve Hungary’s options for financing the $2.1 billion project, but it harms China’s ability to control the construction, implementation, and management of the strategically important line. Construction is slated to being in 2020.

Despite challenges with the EU over the tender process, China remains focused on strengthening its economic ties in the region. The 16+1 format began in 2012, as a way of developing closer economic and political ties with CEEC. China has invested over $12 billion in its relationship through development and project funds, and Chinese loans have financed infrastructure improvements and energy projects throughout the Balkans.

In Europe, as elsewhere along the “New Silk Road,” the upside for China is significant. Trade between China, Greece, Macedonia, and Serbia amounted to around $6.3 billion, with Chinese imports accounting for nearly $4.7 billion in 2014, according to the EBRD. Completion of the Piraeus-Belgrade-Budapest line could increase the flow of these goods into Europe, the largest market in the world. Interest, potentially $500 to $800 million for the Hungarian line alone, and stipulations for utilizing Chinese labor and materials during construction also provide tremendous economic benefits for China. Meanwhile, Hungary and Serbia would face increased debt obligations, without clear benefits.

For the moment, the prospect of easy financing seems to dominate CEEC’s reception to Chinese interest. The Export-Import Bank of China provides competitive and favorable rates for countries seeking investment for much-needed infrastructure upgrades. While the EU does provide infrastructure funds, recently committing $1 billion to transportation projects, this does little for the countries outside the bloc. EU enlargement in the region has stalled, leaving aspirant nations looking for new ways to boost economic activity and upgrade infrastructure. China’s financial clout and political desire to establish itself as a major global power offers CEEC that alternative source for infrastructure and development investment.

But CEEC countries, especially EU members, should also consider the implications of economic cooperation with a state committed to conflicting political values. The EU’s Charter of Fundamental Rights declares that “the Union is founded on the indivisible, universal values of human dignity, freedom, equality and solidarity,” including freedom of thought, religion, expression, and assembly. China, on the other hand, explicitly refers to Western values like freedom of speech, civil rights, and judicial independence as “threats.” The recent abduction of Swedish citizen Gui Minhai shows that China has no objection to blatantly violating the legal rights of European citizens, if it can get away with it.

A single railway project does not signal the end of Greece or Hungary’s commitment to these values, or the aspirations of Serbia to join the EU. But China’s global economic power, combined with its indifference to democracy, the rule of law, and other classical liberal values, can exert a corrupting influence on unstable political situations, as is the case in Cambodia, where Prime Minister Hun Sen continues to suppress pro-democracy forces. Greece and Hungary, both involved in the new rail project, are implicated in blocking UN statements on human rights in China.

Despite everything, the nations of Central and Eastern Europe are looking eastward. It remains to be seen how China’s increased investment approach in Central and Eastern Europe will impact the region’s political and economic development. The tussle over Hungary’s procurement process highlights underlying tensions about governance between the EU and China. If China gains the Hungarian contract, the completion of the first major OBOR initiative in Europe would be a significant victory for Xi Jinping’s vision for Chinese global leadership. China’s regional status as a supporter of infrastructure development and improvement could open doors for future projects throughout Central and Eastern Europe, pulling them into an alternative sphere of influence, fundamentally opposed to the values and political economic system of the European Union.