In the analytical part of my thesis, I am going to measure qualitatively implications resulting from BRI initiative using different available statistics and current news. I will assess the development from European as well as for China´s view. At the end of the chapter, I will compare trade balances, importance of trade for V4 countries and China as well as foreign direct investments.
There was a research conducted by Institute of International Relations in Prague44 aiming to measure the attractiveness of China for countries in 16+1 format. It was conducted twice, in 2014 and updated in 2016. In the below mentioned tables, you can observe view on different categories of relations with China, from the European point of view as well as from China view. Black numbers in the table indicate the status in the year 2014; the red numbers indicate the status of relations in 2016. According to this research, China as a business partner is the most relevant and interested for Hungary, even if Hungary gained significantly less points in the category China as an investor in 2016. Hungary together with the Czech Republic is the most perspective countries for investments. According to this research, the greatest shift of relations with China is visible in the Czech Republic from both points of view. Except of Hungary, the relations of China with V4 countries are stagnating or even diminishing in case of Slovakia. Despite of Poland´s advantageous location on the economic corridor, Poland´s attractiveness for trade is lower in comparison with 2014.
Table 6 Attractiveness of China for V4 Countries. Source: Fürst, 2016
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Table 7 Attractiveness of V4 Countries for China. Source: Fürst, 2016
According to research of Liu Zuokui named The Analysis of China’s Investment in V445 conducted in 2016, V4 countries are perceived as the best countries for investments from the whole 16+1 platform. In his research, he evaluated political environment (government stability and effectiveness, control of corruption, rule of law, external or internal conflicts, economic environment (size, development, growth rate, debt burden, etc.), social environment (restriction of capital and personnel movement, commercial control, unemployment, social safety) and bilateral relation indicators). According to the below mentioned table, all V4 countries scored very good or good. Poland is the most favourable market thanks to its strategic location near Germany and Polish market is the only big market in the whole 16+1 platform. The Czech Republic scores significantly less in the column of bilateral relations otherwise it would gain even more Chinese investments.
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Political relevance of partners
Relevance of trade
Relevance of investment into those countries
Aver age
Czech 2/4 2/3 2/5 2/4
Hungary 3/4 2/3 4/4 3/4
Poland 4/4 4/3 3/3 4/3
Slovakia 2/2 1/1 1/1 1/1
China view
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Table 8 Investment Attractiveness of 16+1 Platform. Source: Zuokui, Liu
Trade balance
This part contains a complete trade balance analysis between China and V4 Group. At first, all V4 countries have negative trade balance with China. Secondly, all V4 countries have better position for trade or investment within 16+1 platform. V4 countries gain more attention from the whole 16+1 platform thanks to investment advantages - geography, industrial base, resource endowment and labour force quality. According to all researches available, China is exporting to all V4 countries the same products – telephones, broadcasting accessories or equipment, office machinery or LCDs.
For the trade indicator analysis, I used the database The Economic Complexity of Observatory of AJG Simoes. However, I had to convert values from USD to EUR, using the exchange rate valid for 1.1.2016. Data for the year 2016 are still not available because of regular revisions. All data for 2016 mentioned in the analytical part were expected data or calculated data based on different indicators.
The volumes of Chinese export to V4 countries are not that significant for Chinese economy because all countries are very small. All V4 market represents only 2 % of total Chinese
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Poland and to the Czech Republic. For these two countries imports from China represent 11-13 % of total country´s imports.Table 9 Trade Indicators of Analysed Countries. Source: (OEC, 2016). Author´s calculations.
Graph 1 V4 Imports from China. Source: (OEC,2016). Author´s calculations.
Exports to China from V4 countries have low importance for V4 countries so far, even though all countries see opportunities in the bilateral trade with China. The importance of V4 countries for Chinese importers is even lower, reaching 0,61 % for the whole V4 group. China imports cars or vehicle parts and other machinery from V4 countries. All of
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very positive for none of V4 countries that would better profit from growing their exports, instead of import growth.Table 10 Trade Indicators of Analysed Countries. Source: OEC, 2016. Author´s calculations.
Graph 2 V4 exports to China. Source: (OEC, 2016). Author´s calculations.
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Based on research conducted by AMSP46, small and medium size enterprises see trade barriers in export to China. They lack market knowledge, they are afraid of unfair business practices and of receivables default. Searching for an appropriate partner in China, language barrier, currency risk and customs are other trade barriers.
Foreign Direct Investment
Despite of the size of V4 market, investments to V4 countries are gradually emerging.
Chinese investors typically target secondary and tertiary sectors of V4 countries. These investments do not include only investments into local companies but went also to globally exporting companies. On the other hand, some investments have not targeted very profitable industries.
Chinese investments target mainly infrastructure construction along with the BRI, followed by development of information and communications technology, clean energy and machinery processing and manufacturing. However, most of investments in V4 countries are non-directly BRI related. Only minor of projects are directly related to BRI. This is influenced by the European Union public tender policy for infrastructure projects and size of projects. Chinese enterprises prefer large projects with no tender.
Investments in V4 countries have relatively large impact for Chinese enterprises and serve for further development of enterprises, especially after obtaining intellectual property rights and trademarks. Their motivation includes growth or brand value or learning of new technologies.
To strengthen investment efforts, many industrial parks were newly built in V4 to serve Chinese needs. As the part of strategic partnership, China promotes cultural and student exchanges between China and V4. In addition, China holds various investment forums and seeks for joint researches.
All V4 countries have one in common - all seek for becoming a major travel or cargo hub and benefit in this way from BRI, even if they are not located along the Belt. Additionally, Czech
46 (AMSP, 2016)
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and Hungary seek for becoming a Chinese financial centre for Europe. However, there is no common attitude as V4 Group to China and all V4 countries act independently when closing bilateral deals with China.
Based on data provided by fDI markets of Financial times Ltd47, none of countries profited much from the Strategic Partnership in the field of foreign direct investment. Investments are growing but all countries expected even higher investments from China which were promised.
Secondly, some investments include only buying shares in the current businesses in the lower value than foreign direct investments, providing investors no decision-making power.48 However, volumes of these investments might be presented in various statistics and in fact have no or very little impact on company. Thirdly, there is not significant change in investments after launching of BRI.
In the last five years, foreign direct investments in all V4 countries reached 1632,44 million EUR. In total, there were 64 foreign direct investment projects that created 11752 job positions. Hungary and Poland have become more important partners from the V4 Group that can be accounted also to the fact that both economics are located within BRI countries. None of the ten biggest China-EU deals in 2016 went into V4 countries; the biggest investments
Table 11 FDI into V4 2012-2016. Source: fDi markets, 2016. Author´s calculations.
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48 Foreign direct investments are characterized by investment into shares, usually in a higher value than 10 percent threshold of voting shares.
49 (Mitchell, 2017)
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According to the research of foreign direct investments in Europe between years 2000-201650, Chinese foreign direct investments to V4 countries are minor in comparison with investments to the most of European countries. This research together with above mentioned research confirms the fact that V4 countries except Hungary are not that attractive for Chinese investors at this point of time. Even if investments are growing annually, the trend might be changed. Lower political stability with changes of governments and their attitude to China, lower purchase parity, smaller size and other factors contribute to the lower attractiveness of V4 countries in the long-term perspective.
Picture 1 Chinese FDI in Europe 2000-2016. Source: Hanemann, et al., 2017
The upgrading of V4 countries attitude to China is driven by the recent discovery of investment opportunities, deeply discussed in this chapter. However, the direct effects on the
50 This research was conducted by Rhodium Group in cooperation with Mercator Institute for China Studies.
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economics are expected to be minor. The share of Chinese foreign direct investments to total foreign direct investments is very low. For example, in 2016 the share of Chinese foreign direct investment on the Czech Republic’s total foreign direct investment reached less than 4 % of total foreign direct investment in the Czech Republic.51 Additionally, China usually promises more investments to its partners than they fulfil. Moreover, some of these new financial linkages have a strong political component and are being discussed as a potential security risk.
51 (AMSP, 2015)
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