China builds strong alliances in eastern Europe

It’s a paradoxical sight: at Prague’s Airport, named after Václav Havel, the country’s celebrated playwright turned dissident turned president, a large Bank of China poster says “Renminbi: A New Choice. The World Currency.” Nearby, a large Hainan Airlines Airbus is parked. Since September 2015, the airline has operated direct flights to Beijing three times a week. As the world’s eyes are turned towards the Kremlin’s covert and explicit moves aimed at influencing politics in Central Europe – and rightly so – Beijing is building leverage in a region that was once alert – under leadership of the likes of President Havel – to the dangers of flirting with autocratic regimes.

China’s economic rise, which has raised hundreds of millions from abject poverty, is something to be celebrated – as is the country’s economic engagement around the world. What leaves a bitter aftertaste, however, is the autocratic character of the one-party regime, the government’s control of the banking sector, and the resulting crony capitalism. The combination of all three makes Chinese investment overseas something much more than a purely economic, value-neutral matter.

As of now, Chinese investment in Central Europe remains small, especially compared to FDI flows from South Korea and Japan. However, it is highly visible and appears to be structured in strategic, political ways. The state-owned Bank of China entered the Czech market in 2015, followed by the Industrial and Commercial Bank of China (ICBC) this year, also in the government’s hands. CEFC, an opaque private entity with ties to the Communist Party, bought shares in the country’s national carrier, Czech Airlines, took over Lobkowicz Breweries, and purchased a majority stake in SK Slavia Prague, one of the Czech Republic’s most beloved football clubs. This year, it also entered into J&T Finance Group, a private equity and banking group, and the largest investment group in Slovakia. In Poland, meanwhile, the Chinese are pushing for an intensification of rail transport links to China under the New Silk Road initiative.

The growing Chinese economic presence, alongside meticulously organised business fora, conferences, and official visits, is slowly shaping politics in the region. Mr. Havel was a vocal supporter of China’s dissident movement, as well as of Tibet’s right at self-determination, and hosted the Dalai Lama in Prague at numerous occasions, invariably prompting grumbling from the Chinese Embassy. Today, similar gestures are unthinkable.

Instead, the current President, Miloš Zeman, appointed CEFC’s chairman, Ye Jianming, as his economic advisor. During President Xi Jinping’s visit to Prague in April last year, Czech police went out of their way to clear all pro-Tibet demonstrators and symbols out of the Chinese delegation’s sight. Even the leading pro-Western voices, such as the foreign minister Miroslav Zaorálek, are careful to avoid any controversy. At his working visit to Beijing in 2014, Mr. Zaorálek issued a sycophantic statement which affirmed that the Czech government “oppose[d] the independence of Tibet in any form.”

The winner of last month’s election and aspiring Prime Minister, Andrej Babiš, is known for ruthless pragmatism. His government cannot be expected to adopt a more circumspect attitude towards China. For one, there is no domestic political pay-off for increased wariness, whether in the Czech Republic or elsewhere in the region. Few in Prague, Budapest, Warsaw, or Bratislava see the Chinese regime as a threat – and indeed at the present time, there is little reason to see it that way.

Yet, that can be short-sighted. Barring a handful of prescient intellectuals and statesmen with direct knowledge of the nature of the Kremlin’s regime, Vladimir Putin’s Russia did not look dangerous for a long time either – until it did. True, unlike in Russia’s case, Central and Eastern Europe does not face the direct threat of Chinese political or military domination. However, leaders in this part of the world ought to be aware of the wedge that the Chinese government is driving between the key stakeholders in the Western-led liberal international order. If there is ever a confrontation between the world’s liberal democracies and China in any way – over North Korea, South China Sea, Taiwan, or myriad other issues – Beijing’s hyperactive diplomacy in Central Europe is now making it almost certain that there would not be a united European front standing side by side with the United States, Taiwan, South Korea, or Japan.

Central Europeans have to stop being naïve about an autocratic one-party regime which, for all the differences, bears important similarities to totalitarian dictatorships that they themselves were living under until 1989. The EU’s leaders at large need to ditch their illusions, too and push for greater scrutiny of China’s state-led investment in Europe, including on security grounds.

Although we are indeed witnessing America’s retreat from its traditional geopolitical roles, it is both misguided and dangerous to believe that Mr. Xi’s China is becoming a benign guarantor of the rules underpinning the globalised world. If Washington wants to get back into the game, it would benefit – just like the EU and Central Europe itself – from a Havel-like clarity about the true incentives facing rulers of autocratic regimes.

Dalibor Rohac is a research fellow at the American Enterprise Institute (AEI), where he studies European political and economic trends. Specifically, he is working on Central and Eastern Europe, the European Union (EU) and the eurozone, US-EU relations, and the post-Communist transitions and backsliding of countries in the former Soviet bloc. He is concurrently a visiting junior fellow at the Max Beloff Centre for the Study of Liberty at the University of Buckingham in the UK and a fellow at the Institute of Economic Affairs in London.