Huawei scandal bares rift among Europeans chasing Chinese cash

By James Gomez  /  Bloomberg

Wed, Jan 23, 2019 - Page 9

In 2010, the Dalai Lama received honorary citizenship of Budapest, the sort of symbolic gesture that risks drawing Beijing’s ire — even if bestowed by the city’s opposition mayor at the time.

By last year, it was Hungarian Prime Minister Viktor Orban who was met by Chinese President Xi Jinping (習近平) at the International Import Expo in Shanghai. That level of attention was emblematic of the Hungarian leader’s emergence as a forceful advocate for closer ties between China and Europe’s former communist countries — a blooming relationship now tested by the arrest of a now former Huawei Technologies Co employee on espionage charges in Poland.

China has been courting eastern European governments to widen its footprint on the continent, even if progress has been halting. For the Hungarian leader and his populist allies, the stronger ties offer a potential counterbalance as their conflicts elsewhere in the EU pile up. And while some countries in the region are more skeptical of China, Hungary is opening its doors.

“For Orban, the relationship with China is as much about politics as about economics,” said Agnes Szunomar, an expert on China at the Hungarian Academy of Sciences. “The aim is to show that if we’re outcasts in the EU we can always turn toward China.”

Huawei has made Hungary its main launch pad in Europe, according to a study by the European Council on Foreign Relations (ECFR). It has invested US$1.2 billion in the country, rotating chairman Guo Ping (郭平) told the Emerging Europe news Web site.

While Poland’s security service has recommended that government officials stop using Chinese mobile devices, Huawei handles the Hungarian government’s mobile phone network and also manages the national emergency number, the ECFR said.

Huawei is not the only Chinese firm whose troubles have clouded relationships in the EU’s east. Last year, CEFC China Energy Co chairman Ye Jianming (葉簡明) fell under investigation, derailing his firm’s rapid ascent in the Czech Republic, where some politicians hoped it could help turn the nation into a gateway for Chinese business.

CEFC’s purchases in the country included an airline, a soccer team, a brewery, a heavy machinery maker and a media company, while Czech President Milos Zeman appointed Ye as his personal adviser.

Hungary has among the deepest ties to China in Europe, but it is far from alone. Countries, including many in the former Soviet bloc, take part in an annual leaders’ forum known as the 16+1 — with the one being China — that is regarded with suspicion by the EU.

“Whether it’s a deliberate act or something that happens in the process of China getting out there promoting bilateral interests, the EU is weakened and it’s undermined ultimately,” said Jan Weidenfeld, head of European affairs and business strategy at the Berlin-based Mercator Institute for China Studies.

China’s effort to woo the region took center stage at Euromoney’s Central and Eastern European Conference in Vienna, once a springboard for Western companies looking to invest in the region.

Jiang Jianqing (姜建清), the chairman of Beijing-backed fund focusing on investing in central and Eastern Europe — SINO-CEEF Capital Management Co — painted a bright future of cooperation.

China is not looking to divide and conquer Europe, Jiang said in a keynote speech to an audience of government officials, corporate executives and economists at one of the region’s marquee annual gatherings. The intention is to create “mutual trust” among potential partners and markets, he said.

An increase in cooperation would not only benefit China’s economy, but central and eastern Europe’s as well, he said.

“The development potential for bilateral investment in both directions is very huge and the prospects are bright,” he said. “Stable EU-China relations and their long-term cooperation are very critical to a peaceful and stable development.”

Chinese-backed infrastructure projects include a bridge to unite Croatia, a railway connecting Hungary and Serbia and a motorway in Montenegro. In the past year, Chinese firms also bought a copper mine and a steelmaker in Serbia and Slovenia’s largest appliance maker.

Even with the increased focus on the region, post-communist countries have a ways to catch up to the continent’s richer half in attracting Chinese cash, still dwarfed by EU funding and inflows from the West.

Between 2000 and 2017, Chinese foreign direct investments in the east totaled US$6.3 billion, compared with more than US$140 billion in western Europe, according to a Mercator Institute study.

Still, the signs of China’s influence are clear. Zeman, an enthusiastic promoter of Chinese investment in Europe, has said that scrutiny of Huawei might trigger retaliation. Orban opened the first 16+1 conference of central bankers in Budapest on Nov. 9 last year, which was attended by the People’s Bank of China governor.

The 16+1 format carries other risks, including financing. Chinese investments are usually accomplished through loans, as opposed to the EU’s funding through grants, which also raises concerns over graft and compliance with EU rules.

“Loans are given without public procurement proceedings, without tenders, so in this way they are not transparent and it may definitely breed corruption,” said economist Amat Adarov, at the Vienna Institute for International Studies. “And that is not consistent with European values and regulations.”

The plan to build a US$2 billion rail link between Budapest and Belgrade was twice rejected by EU authorities on grounds that the process violated rules and was not transparent enough.

The project, now at a standstill, might finally start up again next year, Adarov said.

“It’s not about the fundamental breaking up the European Union, but it’s about the erosion of its rules and standards and values,” Weidenfeld said.