China’s foreign direct investments within the ‘16+1’ cooperation formula: strategy, institutions, results

Abstract:

The ‘16+1’ formula of cooperation between the countries of Central and Eastern Europe (CEE) and China was launched in 2012. One of its priorities involved increasing the inflow of China’s foreign direct investments (FDI) to the region. China has been interested in carrying out investments which are likely to help Chinese companies gain competitive advantage in areas such as advanced technologies, recognizable brands and distribution channels. The following sectors were identified as areas of priority importance in CEE: construction and modernisation of transport infrastructure, including motorways; development of the network of railways, airports and sea ports; energy, in particular renewable sources of energy and nuclear energy; companies trading in commodities; the food production sector. China’s strategy mainly involved purchasing existing companies, preceded by cherry picking the most favourable candidates for investment, rather than making large greenfield investments.

Due to the involvement of the state in the process of locating investments abroad, which is typical of the Chinese economic model, stable bilateral relations with CEE partners became key determinants for achieving these goals. In this context, the stabilisation of China’s political relations with CEE observed in 2011–2014 could be viewed as a success on China’s part. However, the process of creating multilateral institutions to offer substantive and financial support to Chinese companies was beset with difficulties. These included the lack of willingness on the part of CEE partners to carry out coordination tasks, the inexperience of Chinese companies in pursuing this model of cooperation, as well as failure to adjust the instruments created under this cooperation initiative to the region’s economic reality. The credit line worth US$ 10 billion offered by China has been used only in infrastructural projects carried out in non-EU member states in the Western Balkans. A specialised investment fund known as China CEE Investment Co-operation Fund turned out to be more successful. However, investments carried out under this Fund in Poland, Hungary and Bulgaria were worth a mere US$ 0.5 billion. It could be expected that China would seek other models of financing its investments in the region and would use such instruments as the Silk Road Fund or the Asian Infrastructure Investment Bank (AIIB).

ESO: Background information: A partial success of trade cooperation within the ‘16+1’ formula: the case of food exports to China http://www.europeansources.info/record/a-partial-success-of-trade-cooperation-within-the-161-formula-the-case-of-food-exports-to-china/

Politico, 12.05.16: What China’s checkbook diplomacy means for Europe http://www.politico.eu/article/what-chinas-checkbook-diplomacy-means-for-europe/

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