Chapter 3: Economic Cooperation
3.2. Import and Export Between Czech and China
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partnership. Czech-China cooperation, as we nowadays know it, started in 1993 and since then was supported by CzechInvest. CzechInvest is an investment and business development agency of the Czech Ministry of Industry and Trade that aims to attract FDI (CzechInvest, 2016). China Global Investment Tracker shows that China’s investment counting $100 million is invested into the energy sector in Czech (American Enterprise Institute, 2005-2016).
3.2. IMPORT AND EXPORT BETWEEN CZECH AND CHINA
Since the year 2000 value of imported goods from China to Czech (Figure 2) has been slowly increasing until 2005, when after joining the EU Czech experienced the big increase in China’s import. In 2009 there was a significant decrease in the import. In 2009 Europe experienced debt crisis, it the same year Czech Koruna became much weaker – normally 1 EUR equals 25,8 Czech Koruna (CZK), but in February 2009 1 EUR was worth 29,7 CZK (Lopatka, 2009).
Looking at the situation of the economic cooperation between Czech and China, as it as been said previously, it is more and more positive as years go by.
Czech Economic Newspaper says that by 2015 Czech import to China has raised by 19%, which counts for 27,7 billion CZK, (ČTK, 2015). Czech Deputy Minister of Industry believes this achievement will make China see Czech as a country that shows interest in further cooperation, the Deputy Minister also says that Czech companies succeeding in China are mostly Czech traditional industrial firms, such as firms focusing on a car industry (ČTK, 2015). Despite this improvement, there is still a lot to improve, the Czech Republic still cannot compare with Western European countries and their export to China.
Graph Import to Czech from China is a good evidence of the importance of examination Czech-China relations after 2004. Since Czech joined the EU, we can see a big increase in China’s import to Czech, which was definitely positive for the Czech Republic. While seeing this connection of Czech and EU as an improvement of the Czech economy, I would like to demonstrate another element of this joint on this very graph (Figure 3). As mentioned before, there was a decline in value of China’s
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import to Czech in 2009, which was undoubtedly influenced by EU’s debt crisis, which occurred at the same time. Those two examples show us that Czech-China trade is currently dependent on the economic situation of the EU, or we can say situation within Europe. Since 2010 Europe started implementing various
mechanisms to improve this situation, we can see an increase of China’s import value to Czech during same years. After 2011 another decline occurred (Figure 3), it was stabilized by 2012−2013, since 2013 there have been less steep (compared to previous instances of import’s increase from Figure 3), but stable increase.
Figure 3: Import to Czech from China
Source: Created by the author using data from Český Statistický Úřad 2016
0 2000000 4000000 6000000 8000000 10000000 12000000 14000000 16000000 18000000 20000000
THOUSAND USD
YEAR
Import to Czech from China
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Figure 4: Export from Czech to China
Source: Created by the author using data from Český Statistický Úřad 2016
Figure 5: Imports from China as a percentage of total imports of goods, on a cost, insurance, and freight basis
Source: Created by the author using data from Český Statistický Úřad 2016
0 500000 1000000 1500000 2000000 2500000
THOUSAND USD
YEAR
Export from Czech to China
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0
PERCENTAGE
YEAR
Imports from China as a percentage of total
imports of goods, on a cost, insurance, and
freight basis
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On the other hand, the value of export from Czech to China (Figure 4) seems more stable than import from China to Czech (Figure 3). Data show a very low amount of export in 2000, but since then we can see an increase, which is stable but not rapid until 2006. I see the start of an increase in Czech export by 2005−2006 as a consequence of joining the European Union in 2004. Evidently, Czech export was not hit by 2009 EU debt crisis and value went steeply up, there was short-period
stabilization during 2011−2012, which soon changed into an increase that continued until 2014. There has been a decline in Czech export to China in 2015; however, data is too new to conclude any particular reason for that. If this decline stops by 2016 and following years, we can conclude possible reasons for that; however, in case this decline disappears by the following year, I believe that it is not very significant for us to elaborate about short-term decline. Based on the recent research, Czech Republic is one of the main EU exporters to China (Heiduk & McCaleb, 2014).
“Cost, insurance and freight (CIF) is a trade term requiring the seller to arrange for the carriage of goods by sea to a port of destination, and provide the buyer with the documents necessary to obtain the goods from the carrier […] the seller is obligated to insure the goods while in transit for 110% of their value” (Investopedia, 2003). CIF includes the cost of goods, necessary insurance, and costs of the
transport, all paid by the seller. CIF ensures that whatever possible happens to goods before they are delivered to their final destination [Czech], seller [China] is
responsible for that. Data show that import from China to Czech and a percentage of total imports of goods on CIS basis increases (Figure 5). It shows us two things: first, import of non-containerized goods from China to Czech by sea is growing; second, there is an obvious use of CIF when it comes to China-Czech trade. Using CIF is important in order to protect the customer, and in Czech, but also some other European countries, there have been spread an impression that Chinese business counterparts are not always reliable. In my opinion, use of CIF for imports from China can help to improve this impression.
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CHAPTER 4:
CHINA AND V4
To be able to evaluate the relationship between the Czech Republic and
China, we need to look at it from a wider perspective. In this section, I will provide an examination of the relationship between China and countries of the Visegrád Group.
When we question the reason why is China interested in this region, cheap labor comes to mind; however, this is not the case. If China were to seek cheap labor, then investments would rather go to Bulgaria or Romania, then to Hungary, Czech
Republic, or Poland, where the cost of labor is higher, but China does the opposite (Szunomár, 2014). All V4 countries are member states of the European Union, they all joined the EU in 2004.
Comparing V4 countries, Poland is the largest one by land, followed by Hungary, Czech Republic, and Slovakia. Poland also has the highest population amongst those four countries, followed by Czech Republic, Hungary, and Slovakia.
V4 country with the highest GDP per capita is the Czech Republic, followed by Slovakia, Poland, and Hungary. Poland tops with the gross domestic product, followed by Czech Republic, Hungary, and Slovakia. Stock of inward foreign direct investment per capita reaches the highest number in the Czech Republic (Figure 6).
Figure 6: Stock of inward foreign direct investment per capita
Stock of inward foreign direct investment per capita (USD) 2006 2007 2008 2009 2010 2011* 2012*
Czech Rep. 7,761 10,828 10,812 11,976 12,200 11,880 12,310 Slovakia 6,166 7,822 9,339 9,667 9,305 9,430 9,780 Hungary 5,558 5,965 6,555 6,779 7,026 7,490 8,270 Poland 3,298 4,680 4,311 4,853 5,261 5,000 5,120
Source: Fürst, 2014 *estimate
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Figure 7: Chinese investment in Visegrád countries
Chinese investment in Visegrád countries country
Investment sector (USD)
total energy transport chemicals technology real estate Hungary $6.1B - $2.32B $2.11B $1.5B $170M
Poland $1.79B $1.69B $100M - - -
Czech Rep. $100M $100M - - - -
Slovakia - - - -
Source: Created by the author using data from American Enterprise Institute, 2005−2016
If we compare Chinese investment in V4 countries during the period
2005−2016, there have been not a single one investment tracked in Slovakia, on the other hand, Hungary receives the most investment out of all V4 countries, followed by Poland, with Czech Republic with least investment coming from China (Figure 7).
In the Czech Republic, China’s investment goes to Energy sector. In Poland, the majority of investment goes to Energy sector and rest is invested into Transport sector. In Hungary, the majority of investment goes to Transport sector, then almost a same amount goes to Chemicals sector, $1.5 billion is invested into Technology sector, and the rest of investment end up in Real estate sector.
European Chamber interviewed 69 Chinese enterprises they asked following question: Which country/countries have you invested in? 17 enterprises responded they invested in Poland, 15 enterprises responded Hungary, 9 enterprises responded they invested in the Czech Republic, 4 enterprises responded they invested in Slovakia (European Chamber, 2013). By comparison, Germany was mentioned by respondents 46 times, which was the highest number listed in this survey. Poland was mentioned the same amount of time as Romania, while Hungary was mentioned the same amount of time as Sweden. This survey shows that while Sweden is considered as richer and more developed country than Hungary by many Europeans, for Chinese investors these two stand in the same position. Poland and Hungary were in the first
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half of mentioned countries that are being chosen by Chinese investors, while Czech and Slovakia were in the second half, with Slovakia almost at the end of the scale.
While talking about country’s relationship with China, an economy is not the only discussed topic, people often raise a question regarding human rights, and other related topics, graph published in the Power Audit of EU-China Relations (Fox &
Godement, 2009) shows attitudes of EU states towards China (Figure 8). The Czech Republic is assertive industrialist12, has the most critical political attitude within V4, and within the EU, Czech is considered more liberal regarding her economic attitude.
As mentioned before in this research, nowadays Czech Republic is rather less critical towards China and puts economic interest in the first place, her liberalism is
deepening. Poland was categorized as assertive industrialist12 as well, Poland’s political attitude is less critical than the attitude of Czech; however, more critical compared to Slovakia or Hungary. Poland has protectionist economic attitude, the most “extreme” within V4. Slovakia is accommodating mercantilist13 with a political attitude more supportive of China. Slovak economic attitude is also protectionist, same as in the case of Poland. Hungary is accommodating mercantilist 13, same as Slovakia; however, Hungary’s political attitude is the most supportive of China within V4, her economic attitude is rather liberal.
The figure was created in the year 2009, therefore I decided to evaluate the current situation of the Czech Republic based on my findings, I will not evaluate other countries’ changes of their attitudes because it is not focus of this research. An economic attitude of the Czech Republic is more and more liberal, which is current trend, although only time will show whether this trend will prevail when a new President will be elected. On the Figure 08 Czech economic attitude is already liberal by the year 2009, which means that the change is not as obvious as for a political
12 Assertive Industrialists are “willing to stand up to China vigorously on both political and economic issues”, their acting could “put it at the heart of a stronger EU approach towards Beijing”, they do not agree that “market forces should shape the nature of the EU-China relationship”, they “stand ready to pressure China with sector-specific demands, to support protective anti-dumping measures against unfairly subsidized Chinese goods, or to threaten other trade actions” (Fox & Godement, p.5, 2009).
13 Accommodating Mercantilists believe that “good political relations with China will lead to commercial benefit”, and that “economic considerations must dominate the relationship with China;
they see anti-dumping measures as a useful tool and oppose awarding China market economy status.
They compensate for their readiness to resort to protectionist measures by shunning confrontation with China on political questions” (Fox & Godement, p.6, 2009).
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attitude. I believe that a political attitude of the Czech Republic is currently not critical. Based on my findings I would even move Czech behind the central line to the more supportive section.
Figure 8: EU Member State attitudes towards China
Source: Fox & Godement, 2009
4.1. HUNGARY
Hungary’s case is similar to the Czech Republic – interest of China in the country raised after joining the EU in 2004 (Turcsányi, 2014a; Szunomár, Völgyi, &
Matura, 2014). Turcsányi (2014a) further supports his statement by the situation in 2012, when Hungary wanted to deepen its connection with China; however, China preferred Poland, which was more supportive of the EU. Despite Turcsányi’s argument, Bank of China and Industrial and Commercial Bank of China have their
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branch in Hungary, and since 2010 there is also the office of Yingke Law Firm, Dacheng Law since 2012, and other large Chinese law offices (Szunomár, 2014).
This evidence shows that even if China decided for greater support of Poland rather than Hungary, they still did not abandon their efforts to strengthen influence on Hungarian soil. Also, Hungary is one of the main EU exporters to China (Heiduk &
McCaleb, 2014), which puts the country into an important position between EU and China. If Hungary does not support the EU, as Turcsányi (2014a) suggests, it will more likely not be beneficial for the EU than for China, because one of the biggest exporters should go along with the EU policies and believes. In favor of the EU, China has shown so far that she has the interest to have good relations with the EU, mostly because of an economic potential. China does not only have to have a good relationship with the EU, she also wants to have an influence over countries that have a power within the EU, which, in my opinion, will further determine which of V4 will become the most important for China.
By 2010 China’s investment in Hungary counted for 89% of all China’s investment into CEE, the investment increased by 2013 (Szunomár, Völgyi, &
Matura, 2014). That makes Hungary the most important destination also among V4 for China’s investment. Hungary further encourages foreign investors outside the EU by offering special visa for them that ensures them with resident visa if they fulfill a certain amount of investment in Hungary. “Applicants are required first to subscribe to the Fund’s shares with a lock-up period of minimum 5 years. The minimum initial investment by each subscriber is EUR 300,000. Shares will be 100% redeemable after the lock-up period” (Ministry of Foreign Affairs of Hungary, 2016). Besides this obvious advantage for foreign investors, Hungary has the biggest Chinese population in the region and good educational relations with China (Szunomár, Völgyi, &
Matura, 2014). That also attracts more investors to go there, as it is easier for them to create new contacts and to penetrate a local market. Educational exchange, on the other hand, helps promote the country in China, as well as helps to assimilate Chinese people in Hungary. In V4 countries, in general, it is to some extent difficult for local society to accept foreigners, especially because historically, these countries have homogeneous society and opening to the outside world, especially beyond European borders started in recent years. Education and educational exchange help people to
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overcome this trend from a past, therefore, I consider it as one of the crucial elements while engaging with foreign partner.
4.2. POLAND
Poland has a great potential to attract FDI as the biggest market in terms of population (Demography report 2010, 2011). For Poland, same as other V4 countries, the important moment of Poland-China relations occurred in 2004, when Poland joined the EU. Same year China’s President Hu Jintao visited Poland’s capital Warsaw, it was the first visit of China’s head of state to Poland, later on in 2012 Premier of the PRC Wen Jiabao visited Poland (Heiduk & McCaleb, 2014). Since 2004, cooperation with China have been ongoing. Poland established wide specter of cooperation with China, such as in “industry and mining, science and technology, energy, communication, transport, environmental protection, maritime economy, architecture and construction industry, urban planning and housing, and cooperation among small and medium enterprises” (Heiduk & McCaleb, 2014, p. 56). Bank of China and Industrial and Commercial Bank of China have their branch in Poland, and since 2012 there is also the office of Yingke Law Firm, Dacheng Law since 2011, and other large Chinese law offices (Szunomár, 2014). Heiduk and McCaleb (2014) see a problem of Poland in a lack of necessary steps done by the Polish government to support a relationship with China. This is not the only case among V4 where scholars believe that much could have been done better and that government lacks much-needed expertise when dealing with China. If gaining an expertise, then a government would be able to establish a suitable strategy to promote itself among Chinese
investors, as well as to make a country more attractive and accessible to FDI mainly.
Among concerns influencing Poland-China relations and cooperation, there is a question of human rights, Tibet, and Taiwan. Polish society has expressed their opinion several times about disagreement with China’s acting in Tibet. Dalai Lama paid a visit to Poland in 2008 and was received by members of Polish Parliament (The Office of His Holiness the Dalai Lama, 2014). Acts like this make it more uneasy for China to be fully determined to engage with Poland.
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After Czechoslovakia dissolved, Czech and Slovak Republics were established in 1993, since then, both countries continue maintaining the official relationship with the People’s Republic of China. Based on the recent research, Slovakia appears as the weakest trading partner from all four V4 countries for China;
however, their relationship is positive and stable. In 2013 Both countries, Slovakia and China established a new goal to strengthen their mutual relationship in the future.
Meeting of both countries’ representatives – Zhang Dejiang, chairman of the Standing Committee of the National People's Congress and Slovak President Ivan Gashparovic – is about to bring a boost for their cooperation, which will be ensured by bilateral agreements that were signed during this meeting (Global Times, 2013). Zhang said that “Slovakia has become an important economic and trade partner for China in Central and Eastern Europe” (Global Times, 2013). Zhang’s comment shows us that China sees in the relationship an opportunity to establish a stronger connection with the whole region of CEE. In that case, Czech and Slovakia could be competing for an identical post. In my opinion, no competition will be needed, because those two countries have a lot to offer and each of them concentrates on different things. For Slovakia, car industry became crucial for their economy. Slovakia is the country with the largest car production per capita (Liptáková, 2015). Slovakia’s current policy is to support Small & Medium Enterprises (SME), as well as to support FDI. When it comes to China’s acting in international economic, suitable conditions for their investment could be the right way to for Slovakia.
Slovakia is one of the main EU exporters to China, and Slovakia as the only V4 country has a positive trade balance with China (Heiduk & McCaleb, 2014). And also the only V4 country using Euro currency, other three countries still keep their original currency, despite being part of the EU.
If we rely on Slovak statistical data that are compatible with Eurostat or other international statistical data, stock amount of Chinese investment shows positive numbers until 2011, then in 2012 there have been observed a stagnation and decrease in 2013 (Turcsányi, 2014b). According to Turcsányi (2014b), China does not
cooperate with IMF or with any other statistical data gathering organizations,
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therefore, only data available about China’s investment would be data released by China, Turcsányi says that there are Chinese acquired companies’ shares in Slovakia and 99% are in the steel products and machineries. To conclude, overall Slovakia is in the worst position in V4 with a negative growth of Chinese investment (Turcsányi, 2014b).
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CHAPTER 5:
CONCLUSION
The aim of the research was to provide true and relevant information about current Czech-China foreign relations. With provided understanding of the history of
The aim of the research was to provide true and relevant information about current Czech-China foreign relations. With provided understanding of the history of