Where does the Silk Road lead? – China’s ambitions in Hungary and the CEE region

The “New Silk Road”, or China’s Belt and Road (BRI) project, is set to pass through Hungary. What does this mean for the Central and Eastern European region? Where does it stand now, and how successful is it? What are the risks for us? We talked to Dr. Tamás Matura, China expert and lecturer at Corvinus University.
Written by: Engelbrecht Azurea

Real threat or Western propaganda?

“It’s very difficult to separate propaganda from reality: is it true that some countries are in a debt trap? It is true. Is it true that the Chinese are deliberately pushing the Silk Road countries into a debt trap, as some American experts claim? Well, that is not entirely true,” – says Tamás Matura.
According to Dr. Matura, Hungary is not in danger of a debt trap, because if the costs of the Budapest-Belgrade railway and the proposed campus of Fudan University in Budapest are added together, the amount is still manageable for the size of the Hungarian economy. In some Western Balkan countries, Chinese projects account for 20-40% of GDP, but in Hungary they would add up to 2-3% at most.
“We’ve been talking about it for seven or eight years, but I haven’t seen any serious analysis that says it’s the investment of the century,” says Dr. Matura about the railway project.
China is not deliberately pushing other countries into debt traps. There are a few embarrassing cases, such as Sri Lanka and Malaysia, where the government had to hand over ports and other parts of critical infrastructure, but the failure rate is not much worse than that of the IMF’s or the World Bank’s similar projects.
“The Chinese side signs contracts that secure their side up to 100,000 percent, and they don’t really care whether the government that signs it does so responsibly,” says Matura. Western banks and organisations, on the other hand, conduct due diligence procedures, look at the environmental impact, sustainability, feasibility and potential risks, and only then do they offer loans.
China also needs to change its practices, says Matura. “The Chinese have started to cut back on their own lending because they had realised that if there are too many failed or defaulted loans, it hurts their own financial system after a while. They are slowly realizing that the Western standards that big Western institutions and banks follow are not the way they are by accident.”

Economic development – China’s internal motivations

The economic and financial dimension constitutes the core of the New Silk Road project. Due to the rapid growth of the Chinese economy, the internal market has been unable to absorb all the industrial capacity, especially in construction and finance. Beijing had to look abroad for contracts and, as a result, projects are based on lending and infrastructure investment. “This is what happened in the US 60-70 years ago, and before that with the British, the French, and now China has come to this,” says Tamás Matura, pointing out the pattern.
The New Silk Road’s operating model is all about circulating money. China gives loans on a broadly market basis, for which the recipient country is required to provide a state guarantee. “For the Chinese side, there is not too much risk from here on,” says Tamás Matura. In addition, it is often a condition that the host country has to hire Chinese companies to deliver the construction, so that a large part of the money goes back to China immediately.
The project also aims to develop Western China. For hundreds of years, China has had a geographic-regional divide, with coastal areas and their cities always being richer and more developed, because they could participate in regional and later global trade. In comparison, Central and Western China can be seen as landlocked countries, and these parts have always been less developed. Trains to Europe depart from cities of Central and Western China, which also helps reduce economic disparities within the country.
Furthermore, the New Silk Road is Xi Jinping’s personal political ambition and legacy. Every Chinese leader has had a flagship project – and Xi Jinping has two. The domestic policy is the Chinese Dream, the foreign policy is China’s leadership in world politics, in defiance of Deng Xiaoping’s low profile foreign policy guideline.

Geostrategic project – foreign policy motivations

The project is of great geostrategic importance for China. As most of China’s population and economy are located in the east and south of the country, it is highly dependent on maritime routes for both transport and foreign trade, and vulnerable to powers with strong fleets, and potential blockades. According to Tamás Matura, it is important for Beijing to shift some of its foreign trade exposure to land routes and not only to import raw materials by sea.
The New Silk Road also serves to counter US projects that exclude China from megaregional trade and investment cooperation. “China has begun to build a parallel international institutional system, which is against the interests of the existing world order and could become its competitor. Of course, the US says that China is buying influence. That’s not necessarily true, but it is inevitable that where China – or any country – emerges economically and that third country starts to depend on it, it is bound to create political influence,” says Tamás Matura. “Overall, it is not presented by the Americans in the way it actually works, but the end result is really the same: along with China’s economic influence, its political influence is growing.”
Finally, the programme also aims to improve China’s image and international standing. According to official communications, China is creating win-win situations, helping to develop countries in Central Asia, South Asia or even Africa. However, the anomalies and scandals surrounding the BRI and the pandemic have completely invalidated the country’s image-building efforts.

How does is project present in Central and Eastern Europe?

As the initiative is Xi Jinping’s political flagship, all projects in Eurasia and East Africa are labelled with the stamp of the BRI, even if they are not about infrastructure but something else entirely, “like a Chinese language competition for secondary school students”, says Tamás Matura.
Still, there are few tangible Silk Road-related projects in the CEE region, but the expert says it is difficult to disentangle what is actually part of the project. For example, in addition to the Budapest-Belgrade railway line, which is still only in the planning stage, there is an intermodal terminal in Poland for trains from China to Germany.
The 17+1 cooperation was intended to revitalise relations between the countries of Central and Eastern Europe and China, but this seems to be fading. The latest China-Central Europe summit was held online and, according to Tamás Matura, it was a diplomatic failure: six out of twelve EU member states were represented only at ministerial level, while the Chinese side raised it to presidential level for the first time. The disappointment is also evident from Lithuania’s announcement of its withdrawal, which may be followed soon by Estonia and Latvia.
“The spectacular collapse of the 17+1 cooperation is unlikely, but the Chinese and Central Europeans’ calculations have not worked out either, so I expect the project to phase out in a slow and quiet manner. There has been little economic benefit, but politically there has been a lot of criticism of the Central European countries – so what’s the point?” says Tamás Matura.

“Gateway to Europe” – how important is the region for China?

According to Tamás Matura, both the governments of the region and China have claimed in vain that the 17+1 and the New Silk Road would make Central and Eastern Europe China’s centre and bridgehead in Europe – this has not come true at all, and in his opinion, it was not justified. There has been a huge trade flow between China and Europe for decades, and the ports of Rotterdam, Liverpool or Hamburg are still the main entry points. It is therefore difficult to say how important it is for China to save the project in the region.
“Because of the Chinese culture, diplomacy and diplomacy in general, I don’t expect the Chinese to throw in the towel and say let’s leave it all alone, because that would be a huge loss of face at home and a huge victory for the Americans and Western Europeans,” says the expert.
Tamás Matura says that if China wanted to pour more money into the region, it could have done so already – so either they do not want to or they cannot. “Chinese companies make decisions based on financial considerations rather than politics, and it doesn’t help their presence in Central and Eastern Europe that the economies here are not complementary to but rather competitive with China: because we are at a similar level with China, we don’t complement each other well.”
It is possible that the Chinese will abandon the 17+1 for one reason or another, if no country will be present at the summit. “This would not be a solution, it would be a constraint, and therefore we would return to bilateral relations with countries that are still willing to do so in a meaningful way, such as Hungary. I don’t think they know how to proceed, how to fill this cooperation with substance. Some people think that the proposed campus of Fudan in Budapest is intended as a gesture by the Chinese, but it is rather awkward, because it sends the message that if something is not working, let’s give more of it. I can understand the Hungarian government’s motivation, but I’m not sure that this will reassure other Central European countries that 17+1 is good after all, that we should stay in it and use our own money to build a Chinese university with Chinese companies.”

Fudan, EU policy – Chinese influence in Hungary?

According to Tamás Matura, it is not clear whether Fudan’s campus in Budapest can be considered part of the New Silk Road – as he said earlier, everything “could be labelled as BRI”.
“No one in China will say that this has nothing to do with the Silk Road. I didn’t see it mentioned in the official Chinese news that it’s another stop on the Silk Road, it’s simply an increase in China’s international presence. But you can call it an Educational Silk Road or an intellectual Silk Road.”
Hungary often stands up for China in the European arena – it is hard to put it in words other than Chinese influence. However, this is not the case, according to Tamás Matura: “It should not be seen as the Chinese calling Budapest and asking Hungary to veto this and that within Europe, but rather as the Hungarian side doing this independently and proactively, as far as we know.”
According to him, the Chinese are not always happy about the spectacular Hungarian support, as it reinforces the Western perception that China is using Hungary and members of the 17+1 as a kind of Trojan horse to break the unity of the EU. And such conclusions worsen China’s image and relations in Europe. It is also worth noting, the expert says, that Hungary is not only protecting China, but also Russia, Turkey and Israel, among others, from the EU’s criticism.

China’s image in Hungary

In Hungary, research shows that the opposition, most of society, most of the economic players and the media do not have a favourable opinion of China. According to Tamás Matura, the opposition parties, like the government, saw China as a partner, but the events of the past year – the coronavirus epidemic and the issue of Fudan University – have led to a deterioration in the perception of China. Negative opinions of China are in the absolute majority in society.
“In the last few months, we have conducted opinion polls in 13 European countries, including Hungary. 35 percent of Hungarian respondents said that their perception of China had worsened in the past three years, 14 percent said it had improved, and the rest said it had not changed. The absolute majority of people have a bad or very bad opinion of China, with perhaps only a quarter saying they have a good or very good opinion of the country, and the remaining quarter being neutral.”
There is also a sense of disillusionment in the business world: in recent years it has become clear that China is not living up to expectations and will not be a catalyst for the Hungarian economy. Cultural differences can also cause difficulties in terms of organisation and work culture, and Tamás Matura believes that the combination of these factors has “brought the business elite back down to earth.” According to a 2017 survey, the media’s tone on China is also negative in Hungary.
If the current government remains in power after the 2022 elections, there are only two cases where significant changes in Hungarian China policy can be expected, according to the expert. If, after the upcoming German elections, Berlin introduces a new China policy that is significantly different from the current one, the Hungarian government may have to adapt to it. The other option is that the Hungarian China policy goes too far according to Washington, and the US government tries to impose some changes – but this is rather unlikely.

The original article in Hungarian is available on the website of Közgazdász Online.