China forges new ties in Central and Eastern Europe

China continues to invest in energy, infrastructure and agricultural projects in the region, with the aim of building a trade corridor as an 'East-West' gateway

China is leading a bold new initiative to deepen economic and political ties with 16 Central and Eastern European Countries (CEEC) that seeks to double trade with them over the next five years in the key areas of energy technology, industrial projects, agriculture and transportation. A high-level meeting in Bucharest, Romania, at the end November between officials from China and 16 Central and Eastern European countries resulted in an agreement on guidelines for future cooperation and dozens of deals for specific projects.

The first China-CEEC summit took place in Warsaw in April 2012, which resulted in an agreement to establish regular exchange. By the time the countries next met, in Chongqing in July 2013, China had already set up a special US$10 billion credit line to the CEEC and sent over 30 trade promotion delegations to the countries.

The November summit made further progress by agreeing the Bucharest Action Guideline on China-CEEC Cooperation, under which an investment fund was officially launched with US$500 million available in its first stage.

Li Keqiang, the Chinese Premier, said that China has its eye on financing big industrial projects such as equipment manufacturing within the cooperation framework, and that it is also looking to build a new "artery" for China-Europe logistics through the construction of land and sea transportation infrastructure.

Construction of nuclear power and other electric power projects is another area of potential interest, as is agricultural trade.

China’s interest in the region is due to lower labour costs, access to major sea ports, less strict visa regimes and higher growth rates in the Central and Eastern European (CEE) region, according to Chinese business officials.

Coal expansion in Ukraine

At the same time, China is pursuing a strategic partnership with another Eastern European country, one outside the EU.

Ukrainian President Viktor Yanukovich and Chinese General Secretary Xi Jinping signed a strategic cooperation agreement in Beijing in December, at the same time protesters were gathering in Kiev calling for Ukraine to restart free trade talks with the European Union.

Yanukovich said the cooperation with China could attract up to US$8 billion of investment to Ukraine.

"We need new Chinese technology and high tech products," Yanukovich said in a statement in 2012. "For our part, we are ready to offer Chinese entrepreneurs interesting proposals in the field of exploration and mining, metallurgy and the chemical industry."

In Beijing, the countries finalised a major investment project for conversion of coal to gas. The deal will see China finance and provide the technology for coal gasification plants in Ukraine. Ukraine will expand its coal production by 10 million tons annually under the deal, according to a statement from the Ukrainian Energy Ministry.

A loan for the project to Ukrainian state oil and gas company Naftogaz from China Development Bank for over US$3.6 billion had already been agreed in December 2012. The loan will finance the construction of five coal gasification plants, according to a press release from the Ukrainian government at the time of the loan agreement.

Romania focus of investments

Among the CEE countries, Romania is emerging as a country of particular focus for China. The Chinese premier’s visit to Romania in November was the first by a Chinese official to Romania in 19 years. Romania is already one of the largest investment destinations for China in the CEEC, including investment in photovoltaic and wind power projects.

New deals were signed in Bucharest for development of nuclear, coal, hydroelectric and wind power. Romania will also receive investment in transportation projects to create trade corridors between Eastern Europe and Asia.

Romania is also ready to provide agricultural exports. A deal to provide beef and pork for the Chinese market was finalised at the November summit.

Romanian Prime Minister Victor Ponta called the prospect of broad cooperation with China "historic" and "a new moment of great opportunity for our country".

"The door of historic opportunities for China-CEEC cooperation has opened," Premier Li Keqiang of the State Council said at the Bucharest Summit. "The key now is to turn the blueprint into a reality."