CIC - Construction Intelligence Center

China's involvement in construction in the CEE region

13 Sep 2018

China has been investing heavily across the Central and Eastern Europe (CEE) region in recent years in order to boost its economic and political reach, foster trade partnerships, increase influence and the projection of “soft power”.

 

Concerted investment efforts started with the 2012 launch of the “16+1” Cooperation Framework, which included 16 countries in Central, Eastern, and South-Eastern Europe. The initiative was initially embraced across the region, as China promised substantial loans and investments for countries reliant on EU development funds or desperate for outside money to build physical infrastructure such as railways, roads, airports, and power stations. More recently, the 16+1 initiative has been more closely integrated with the Belt and Road Initiative (BRI), China’s enormous infrastructure investment strategy.

 

Despite this investment drive, some CEE countries are complaining about a dearth of results, combined with operational difficulties such as the requirement to use Chinese labour and materials, constraints from financial and contractual terms, and difficulties complying with EU standards. Moreover, there are concerns in the EU that China is seeking to shift the Eastern Europe region away from the West through increased trade, investment, and political ties.

 

A number of CEE countries are complaining that Chinese investments have not met expectations, although the exact investment levels are unclear, and some information around project completion remains vague.

 

China’s commerce ministry announced that China’s cumulative investment in CEE countries had reached in excess of US$8 billion by 2016. Another estimate by the Center for Strategic and International Studies think-tank states that the Chinese government pledged around US$15 billion in investments between 2012 and 2016. These figures cover Chinese investment across a broad range of sectors, not just construction and infrastructure.

 

According to GlobalData’s meag-projects database, there are a number of Chinese firms investing across the CEE region. Around 36% of all these projects with Chinese involvement  are in the energy and utilities sector, followed by 22% in the industrial construction sector. The next largest segment is infrastructure, accounting for 20%.

 

China maintains a distinct advantage in the arrangement with the reigon. The 16+1 scheme does not allow its members to function as a collective regional bloc in negotiating with China; rather, it maintains 16 bilateral relationships. This collection of bilateral partnerships makes it easier for China’s government to overcome existing alliances and dictate financial and contractual terms.

 

Further, China’s investment model continues to come up against EU standards. For example, after the agreements for the Belgrade-Budapest rail link, which bought in 2016 by China’s Cosco Pacific, were signed, the European Commission initiated an inquiry into a suspected breach by Hungary of EU rules mandating public tenders. Such incidents are expected to continue to occur.

 

In conclusion, although Chinese investment flows into the CEE region have received mixed results and a relatively lukewarm reception thus far, construction investment into the region is expected to continue over the coming years as China looks to cement its position.