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China's Eastern Europe Bonds
By John Ross | NO. 23 JUNE 9, 2016

There has recently been a major increase in economic and diplomatic exchanges between China and Central and Eastern Europe. In March, Xi Jinping paid the first

state visit by a Chinese president to the Czech Republic. In April, Poland's Foreign Minister Witold Waszczykowski visited Beijing and specifically underlined the importance of China's Silk Road Economic Belt and 21st-Century Maritime Silk Road (Belt and Road) Initiative. As Poland is the largest economy in Eastern Europe after Russia, the Polish Government's conclusions are worth looking at.

Waszczykowski said, "With regard to the economic aspect of EU-China contacts, I would single out the Belt and Road Initiative as the most promising platform for cooperation between Europe and China. Poland has high hopes for this majorinitiative… The Belt and Road introduces a new dimension into Europe-Asia

relations. If the initiative succeeds, it will work out a new formula for a strategic relationship between our two continents."

Slawomir Majman, President of the Polish Information and Foreign Investment Agency, similarly analyzed China and Poland's major common opportunities, "China's initiative to strengthen the economy along the Silk Road is very much in our interest because Poland is interested in operating in the Euro-Asia region with our trade and investment. We are very interested to be much more active in Pakistan, Azerbaijan, Turkmenistan and all the countries along the Silk Road."

After the disintegration of the Soviet Union, Central and Eastern Europe experienced drastic fragmentation. The former Soviet Union went from one state to 15, Yugoslavia from one to five (six if the disputed status of Kosovo is included), and Czechoslovakia split in two.

The outcome has been dominated by Russian economic influence among individual East European states. Russia's 2015 GDP of $1.325 trillion at current prices is 69 percent of the former Soviet Union's and 5 percent larger than the whole of the rest of Eastern Europe outside the former Soviet Union put together. Russia also dominates logistical aspects of the Belt and Road Initiative. Goods can pass from China almost to the borders of Eastern Europe, and vice versa, exclusively on Russian territory.

If Russia forms a firm land bridge for China with Eastern Europe, Poland is the key state in Central and Eastern Europe outside the former Soviet Union—having 34 percent of the region's population and 38 percent of its GDP. This far exceeds any other state. Excluding Albania, whose population is less than 3 million, Poland also has had the region's most rapid economic growth—greatly aided by budget transfers from the EU. It is for this reason that the strong support given by Poland to theBelt and Road Initiative is so significant.

Given that geopolitical relations between Poland and Russia are at present not favorable, the fact that Poland is not allowing such complications to get in the way indicates the great economic importance Poland is attaching to its relationship with China.

The reason Central and Eastern European states are paying major attention to China is clear. Since the 2008 international financial crisis, growth in most of Western Europe within the EU has been slow. Taking a five-year average to remove the effect of short-term fluctuations, recent average EU GDP growth has only been 1 percent and only 0.6 percent in the Eurozone. It has therefore become important for Central and Eastern European states to establish economic relations with more rapidly growing regions—and China is the world's most dynamic major economy.

For China the attraction of Central and Eastern Europe is evident. The Internal Monetary Fund (IMF) recently noted, "Economies in Central, Eastern and Southeastern Europe are poised to overtake the continent's traditional economic powerhouses like Germany and France in terms of rate of growth…robust growth continued in most central and Southeastern European economies…despite problems plaguing wider Europe such as deflation in the eurozone." The IMF predicted Central and Eastern European growth this year at 3-4 percent, compared to 1.6 percent for the eurozone.

Very firm economic fundamentals therefore underpin China and Eastern Europe's recent increase in mutual contact despite the considerable distances and geopolitical complications involved.

The author is a senior fellow with the Chongyang Institute of Financial Studies of Renmin University of China, and the article was originally published on

Copyedited by Dominic James Madar

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