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China’s One Belt, One Road Initiative And Europe Is Destination For Links From Asia- European Region 2- Lithuania, Maldives, Moldova, Poland, Russia, Slovakia, and Ukraine

ArmchairTechInvestor, June 8, 2018, by Brad Peery

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Below are summaries of the OBOR initiatives in the countries covered in European Region 2.

Lithuania

*”Lithuania is bound by Latvia to the north and Poland to the south. Lithuania is the largest country among the Baltic States in terms of population, territory and economy. It is located at the intersection of three very large markets of almost 800 million consumers in total. Lithuania provides access to the Western markets of the EU and Scandinavia, and the Eastern markets of Russia and the other former Soviet states.”

Tensions between Russia and Lithuania has been increasing since the Ukrainian Crisis began in 2013. However, economic co-operation between China and Lithuania has been deepening. There is the 16+1 formula promoting regional co-operation between Central and Eastern Europe and China, plus the expressed interest of Chinese participation in the Rail-Baltic project. This project could looks enhance regional cooperation, and bring Chinese-Lithuanian relations to a higher level. The EU-backed railway will connect Lithuania with the other Baltic States, Finland and Poland.

Lithuania is improving its maritime access as a way of boosting its economy. The port of Klaipeda, which is a company owned by Lithuania, brings 6% of GDP. The OBOR Initiative is developing four modes of improvement.

“The port is well located, and can serve Scandinavia, Eastern Europe and Great Britain, using the very dense network of container lines connections. Currently Klaipeda serves 42 million tons of goods annually. This fact places it on the third place among the ports of this part of the Baltic Sea, behind the large Russian ports of Primorsk and Ust-Luga. The average annual increase in port operation efficiency is 6.4%”.

**The construction of infrastructure for LNG handling is in progress. Creating a transshipment center for railway transport in both directions for goods transported between China and Europe is also being considered, which will allow loading of goods directed to the Chinese market. Klaipeda is just starting cooperation under the OBOR Initiative. The contractor of the high quality terminals, which are currently being built, is a single company, named Company Investment Limited.
**Lithuania’s investments within the framework of ‘One Belt One Route’ projects, Coordinating Secretariat for Maritime Issues, “16 + 1”, October 26, 2017

Maldives

Maldives is a small island country in the Indian Ocean, about 620 miles southwest of Sri Lanka. A middle-income country with a small population inhabiting some 200 of its 1,000 islands, Maldives relies on its tourism and fishery sectors for economic growth. Maldives is one of the countries along China’s Maritime Silk Road under the MBOR Initiative.

*”China provided financial aid, and assisted with the construction of China-Maldives Friendship Bridge, which will increase connectivity between the islands in Maldives. The project was started in 2015 and is scheduled to be complete in August 2018. In addition to inviting Chinese airlines to land in Maldives, the government is building a new runway at the Velana International Airport with Chinese loans and infrastructural assistance, which was expected to be completed in mid-2018”.

***The Maldives has and autocratic president, Abdulla Yameen. “If he cracks down on the opposition to consolidate power ahead of another election, analysts and diplomats warn that the small nation’s troubles could provoke a larger crisis that draws in China and India, which have long competed for influence in the Indian Ocean region”.

“Mohamed Nasheed, the opposition leader, has largely lived in exile since his term as the country’s first democratically elected president ended in a ‘coup of sorts’ in 2012. He expressed fears that an expansionist China is propping up Mr. Yameen to lock the country into a ‘debt trap’, a term that refers to China’s taking over of infrastructure projects when a country cannot pay back its loans, such as the recent takeover of a port in Sri Lanka.”

Indian officials have expressed concern about the situation, but have had a weakk response. Indian influence in the Maldives has declined since 2012, when it did not stand firmly behind Mr. Nasheed, who had been an ally, as he was removed from office. Anand Kumar, a fellow at the Institute for Defense Studies and Analyses in New Delhi, said “although India was clearly alarmed about losing influence to the Chinese in the Indian Ocean, it had struggled to respond”.
***Maldives Crisis Could Stir Trouble Between China and India, New York Times, By Mujib Mashal, February. 14, 2018

Moldova

*Moldova is located in Southeastern Europe and is north of the Balkan Peninsula. Moldova is landlocked Moldova is located between Romania and Ukraine. “Its favorable location and good transportation infrastructure provides easy access to the EU and the former Soviet countries. The longest Pan-European Corridor IX (connecting Helsinki in Finland and Alexandroupoli in Greece) crosses Moldova from north to south, while the Corridor VII (connecting Passau-Germany with the Black Sea) passes through the Giurgiulesti Port on the Danube River.”

Historically, Moldova’s largest industries have been manufacturing, agriculture and food processing, textiles, apparel and footwear. However, Information, Communication Technology (ICT), medicine, automotive and renewable energy are emerging growth sectors, with many foreign investors entering the market.

Moldova is a member of the Central European Free Trade Agreement (CEFTA) which includes Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro and Serbia. Also, in June 2014, Moldova and the EU signed an Association Agreement (AA). The AA introduces a preferential trade regime. the Deep and Comprehensive Free Trade Area (DCFTA), which sets up a free-trade area between Moldova and the EU.

****If China can reach an OBOR deal with Moldova, it could set an example in the region. China has invested heavily in the country since the late 2000s, including agreeing a $1 billion loan in 2009. The former Soviet Union’s second-smallest state, by area, after Armenia, is anxious about getting foreign funds. In 2016, it had a gross domestic product of US$6.75 billion and a GDP per capita of $1,900, according to World Bank figures. The corresponding numbers for China were US$11.2 trillion and $8,123.

Moldova exported US$14.5 million worth of goods – mostly wine and furniture – to China in 2016, while the value of its imports from the world’s second-largest economy, including electrical machinery, plastics, rubber and chemical products, totaled US$394 million. This is another example of the very large trade deficits that countries such as Moldova run with China.

In addition to free-trade negotiations, representatives from China National Nuclear Power Company, and their Moldovan counterparts have held talks to boost cooperation in the energy sector.
****Can a China-Moldova free-trade deal give Beijing a foothold in Eastern Europe?, South China Morning Post, Liu Zhen, December 29, 2017

Poland

*Poland is a member of the European Union (EU), and its trade relations with the Chinese mainland are affected by EU’s common external trade policy and measures. Under a new structure, tariff preferences are removed for imports into the EU from countries where per-capita income has exceeded $4,000 for four years in a row. As a result, the number of countries that enjoy preferential access to EU markets was reduced from 176 to under 80 markets.

“While the Chinese mainland remains a beneficiary, many of its exports such as toys, electrical equipment, footwear, textiles, wooden articles, and watches and clocks have already been “graduated” from the preferential treatment. A number of Chinese mainland-origin products are subject to EU’s anti-dumping duties, including bicycles, bicycle parts, ceramic tiles, ceramic tableware and kitchenware, fasteners, ironing boards and solar glass.”

The author argues that at the moment cooperation with China neither poses a serious political threat per se, nor represents a source of sustainable economic growth in the region.

*****The underlying problems of Sino-Polish cooperation remain the same. In other words:
• The trade deficit has been growing steadily; while,
• The most needed greenfield investments have been minimal;
• The importance of China for the region is still marginal in comparison to Western Europe;
• Cooperation should be continued but it should focus more on areas that would actually be profitable for the CEE economies in the longer perspective, bearing in mind each economies’ comparative advantage:
o e.g. food processing or the aviation industry in Poland.
• When it comes to long-term risks, the biggest threat might come from potential Chinese acquisitions of European know-how in sensitive sectors, such as high-tech or telecommunications;
o This way, Central and Eastern European (CEE) countries should cooperate closer with the rest of EU in order to pressure Beijing to open up its domestic market, while closely monitoring Chinese investments in Europe in sensitive sectors.
*****China, Poland, and the Belt and Road Initiative – the Future of Chinese Engagement in Central and Eastern Europe, Geopolitica, Alicja Bachulska, December 12, 2017

Russia & Ukraine

*”To stimulate investment with an aim to diversify its economy, the Russian government is providing a wide array of incentives for investors developing new product, technology in the energy efficiency, nuclear engineering, space technology, medicine and IT industries. Other key sectors for development include pharmaceutical and medical, real estate, innovations and technology, infrastructure, aluminum, iron and steel, lead, platinum-group metals, precious metals, nickel, copper, zinc, coal, telecommunications, transportation, agriculture and food and gas.”

The Ukraine crisis made Russia embrace the OBOR Initiative by:
• Beginning confrontation with the West and Russia’s deteriorating economy due to U.S.-led sanctions and falling oil prices left Moscow little choice.
• Without Ukraine, the second-largest post-Soviet economy and a market of about 44 million people, Moscow’s hopes to create an integrated bloc that would be on par with the European Union and other centers of global economic power were essentially dashed.
• Lacking a market of sufficient size to create its own viable geo-economic area, Russia was left with the only option of moving into another nation’s economic orbit.
• Russia joined the China-controlled Asian Infrastructure Investment Bank in March 2015; but
• The most decisive step came a few months later in May, when Xi and Russian President Vladimir Putin met in Moscow to pledge to work toward a “link-up” between Russia’s Eurasian Economic Union (EEU) and China’s OBOR Initiative.

Still, while praising the OBOR Initiative plan, Moscow seeks to prevent China’s geopolitical domination of continental Eurasia. Instead of wholeheartedly endorsing China’s Initiative, Russia pushes its own vision of “a larger Eurasian partnership” or “Greater Eurasia,” a network of existing and emerging integration formats.” Beijing’s OBOR would be just one element, alongside the EEU, the Shanghai Cooperation Organization, the Association of Southeast Asian Nations and potentially even the EU.
Putin’s Silk Road gamble, The Washington Post, By Artyom Lukin. February 8, 2018

Slovakia

*Slovakia is uniquely situated in the heart of the Europe, between East and West, and between Poland, Hungary, Austria, the Czech Republic and Ukraine. The country has an inland hub. “It connects Europe with China over three transit corridors, the Trans-Siberian transit (Slovakia-Manchuria), the Kazakh transit (Slovakia-Alashankou) and the Trans-Caspian transit (Slovakia-Alashankou via Azerbaijan and Georgia). This location has enabled Chinese manufacturers to ship parts and components directly by rail in about 12 days to factories in Slovakia for processing near their final European market.”

*”With its strong industrial base, Slovakia’s economy has become one of the fastest-growing in the EU. It has had an average annual GDP growth of 1.9% since its adoption of the euro in 2009. It is the best-performing EU member in the 16+1 format (co-operation between 16 CEE countries and China)”.

Slovakia has had an economic concentration on export-led development. It has aggressively developed export-oriented manufacturing, especially in the automotive and electronics industries. It has also become strong shared services centers (SSCs) and business process outsourcing centers (BPOs).

******To further develop bilateral relations, China needs to take into account the public discourse of target countries. The importance of understanding other cultures and domestic settings is not a new concept in Chinese political philosophy. Recently, Zhao Lei, a professor at the Chinese Central Party School, recognized the need to use other countries’ domestic media outlets to spread a positive image of China.

******“To generate soft power, China will likely deploy narratives tailored to the specific perceptions of target audiences. Beijing already relies on controversial means to control media narratives, namely buying foreign media outlets. In 2015, it came to light that China Radio International (a state-owned radio broadcaster) was covertly backing at least 33 foreign radio stations that broadcasted positive news of China”.
******Do the Central European media show caution towards China?, Matej Šimalčík, East Asia Forum, Institute of Asian Studies, February 14, 2018

Ukraine

*”Ukraine sits at the crossroads of Eastern Europe and Russia. Aside from a heavy reliance on commodities such as coal and steel and industries like transport equipment manufacturing, Ukraine’s resources and economic strengths include rich agricultural land, a strong scientific establishment and significant mineral reserves.”

WTO membership in 2008 has brought Ukraine significant benefits, including access to steel and textiles to the EU. Recently, the EU has surpassed Russia to become Ukraine’s most important trading partner.

*******“Despite the 2014 Ukrainian revolution and the subsequent Russian annexation of Crimea, the Association Agreement with the EU, including a Deep and Comprehensive Free Trade Area, aims to deepen political and economic relations between the EU and Ukraine, and to pave the path to gradually integrate the country with the EU’s Internal Market.”
*******As Trump Is Distracted, The Chinese Are Moving In On Ukraine. Newsweek, By Nolan Peterson, December 12, 2017

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