The EU and China: The Rising Rivalry Next Door

The Belt and Road Forum (BRF) for International Cooperation took place on October 18^th in Beijing. In early November, the European Commission will put forward its next “Enlargement Package”. These two events seem to be unrelated, but they aren’t: Both point to the role China is playing in the EU’s immediate neighbourhood, which poses an undisputable challenge to the EU. In some cases, it may even undermine the enlargement process, which has gained momentum again in response to Russia’s large-scale war against Ukraine. The EU thus has all the reasons to take China’s impact on this region seriously.

When China proclaimed the Belt and Road Initiative in 2013, expectations rose, especially in developing economies, that this mega infrastructure initiative would finally bring much-needed investment and boost development. A surge of countries signed memoranda of understanding.

With Italy, even a G7 member joined the BRI in 2019. By the BRI’s tenth birthday, however, everyone had sobered up, as its record is mixed: new infrastructure and a meaningful contribution to development in some countries, over-indebtedness and unfinished or unused projects in others. Moreover, countries have started to pay close attention to China’s growing political clout over them as economic ties deepen as a consequence of BRI investment.

Italy has already announced its plans to leave the BRI. European leaders’ participation in the third BRF dropped sharply from eleven top leaders at the second BRF in 2019 to just three in 2023 (Aleksander Vučić, Vladimir Putin and EU member country Hungary’s Viktor Orbán).

In 2019, three senior politicians from EU member states (Greece, Italy and the Czech Republic) even travelled to Beijing. Important reasons for their absence this time certainly were the above-mentioned issues with the BRI as well as the presence of Vladimir Putin.

But the frictions go deeper: 2019 and 2023 are worlds apart when it came to China’s relations with the EU and some of its neighbouring countries. The mixed record of the BRI, disillusionment with the 14+1 initiative (a summit between China and originally 17, now down to 14 Eastern and Central European countries) and most importantly, China’s stance on the war against Ukraine, which some observers have come to describe as “pro-Russian neutrality”, are at the heart of this development. China’s willingness to instrumentalise its economic relations to achieve political goals to the detriment of its “partners” has made many European countries wary of their relations with China and put “de-risking” at the forefront.

China could still shake the EU’s reconciling its Neighbourhood and Enlargement policies

Hungary and Serbia, nonetheless, continue to foster robust ties with China. The presence of their top leaders at the BRF easily proves this. Aleksander Vučić’s choice to travel to Beijing over Tirana, where a summit meeting of the Berlin Process took place a day later, and to sign a free trade agreement with China reflects his stance on the EU accession process.

When meeting Vučić at the BRF, Xi highlighted their two countries’ “ironclad” friendship as a “prime example of friendly relations between China and European countries”. This charm offensive comes at a crucial time for the EU’s relations with its neighbours: Russia’s full-scale invasion of Ukraine ended Brussels’s balancing act between its Eastern Partnership (EaP) and its Enlargement policy. The EaP encompasses six eastern European countries: Belarus, Ukraine, the Republic of Moldova, and the three South Caucasus states Georgia, Armenia and Azerbaijan. Enlargement used to be aimed at the Western Balkan countries exclusively (and, at least on paper, Turkey). Especially the so-called Associated Trio (Ukraine, Moldova and Georgia) were keen to turn into a “Candidate Trio” and longed for a realistic EU membership perspective.

While Ukraine and Moldova were given EU candidate status in 2022, for Georgia, this path still depends on whether the country addresses “the issue of political polarisation” and implements “the commitment to ‘de-oligarchisation’”. It would be almost tragic if China upended the unexpected opportunity for Georgia at a moment in time when the EU, formerly categorical against further enlargement, has been shifting gears in its neighbourly relations.

For the EU, this should be yet another wake-up call to pay closer attention to China’s economic activities in its neighbourhood, as China’s intention is to buy its own government significant political influence. While its reputation most certainly has suffered damage in the past few years, a recent Bertelsmann Stiftung study shows that China has still managed to turn into a serious competitor to the EU: in trade, where China is more and more a source of inputs for production; in finance, where it engages in (less conventional forms of) debt financing for investments as part of the BRI; in technology and knowledge exchange, where China’s share of high-tech imports has considerably increased; and in infrastructure, where China is challenging the EU by going for strategically important transport and logistics infrastructure.

Ports, roads, trade and weapons – China’s influence in Europe’s Eastern neighbourhood and the Western Balkans

From state-owned enterprises to finance and trade facilitation, the Chinese party-state has access to a broad range of tools to promote its influence in Europe’s Eastern neighbourhood and the Western Balkans. This enables China to make individual, tailor-made offers to its partners, which account for the preferences and interests of local elites or certain factions thereof.

Three cases can illustrate these dynamics: Georgia, with its newly signed strategic partnership with China that leaves many open questions; Montenegro, whose previous government has embarked the small country on a costly highway project; and Serbia, which has not only struck a trade agreement with China but also increasingly relies on Chinese arms deliveries to replace missing deliveries from Russia.

On July 31st, Georgia and China surprised many, including Georgians themselves, with the elevation of their bilateral relations to a strategic partnership. With 89% of Georgians in favour of EU accession, many wonder whether deeper relations with China will herald a shift in Georgia’s foreign policy away from the EU. It was only in June 2022 that the EU held out the prospect of EU candidate status for the small 3-4 million nation located in the so-called “Middle Corridor” of the BRI and, therefore, a crucial gateway for trade and transport between China, Central Asia, the Caucasus and Europe.

In practical terms, the Georgian government’s new plans to deepen cooperation and coordination with China in various sectors and in the framework of the BRI also dominated the Tbilisi Silk Road Forum. The Georgian Prime Minister presented BRI as key for Georgia to be a “bridge between Asia and Europe”. Where the EU hesitates, China and the Georgian government seem ready to move ahead, and, as is also a familiar Chinese pattern, economics and logistics may be linked to security and surveillance: The planned deep sea port in Anaklia would grant China direct access to trade networks in the Black Sea, and to a prime location for gathering naval intelligence.

In the Western Balkans, the highway from the port city of Bar in Montenegro to Serbia is one of China’s BRI signature projects. However, out of 163 km originally planned and to be completed by 2019, only about 41 km are operational so far. The highway is a prime example of China’s wholesale approach to infrastructure construction abroad, as it is built by the state-owned China Road and Bridge Corporation (CRBC) and financed with a $1 billion loan from China’s Export-Import Bank.

Observers criticise the secretive way in which Montenegro’s previous government pursued the project, which had failed several feasibility studies. Transparency in public contracts is a recurring issue in several candidate states and may be a serious obstacle to EU accession. Moreover, it became clear to Montenegro, following the financial shock of the COVID-19 pandemic, that project debt of more than a quarter of GDP was unsustainable. Its loan with the Exim Bank had to be restructured in a deal with four European banks brokered by the EU Commission. In the case of this project, a risk-prone lender found a less-than-responsible borrower.

In Serbia, the tensions between China’s influence and the EU’s interests become the most apparent. In light of the country’s status as an EU candidate, the trade agreement Serbia signed with China at the BRF this October sends a strong signal: If Serbia were to join the EU, the agreement would have to be cancelled, as trade is an exclusive EU competency, and the EU does not have an FTA with China. This is legally possible but adds another stone to the already rocky road towards enlargement.

At the same time, Serbia stands a lot to gain from the agreement: As the country is not a member of the WTO, there are currently no binding rules for its growing trade with China. In 2022, Serbia purchased arms worth $310 million from China, including air defence missiles and drones, in an attempt to modernise and reduce dependency on Russia.

China is not the only exporter Serbia’s recent military buildup relies on, but it has quickly become one of its largest suppliers, and this reduces the EU’s leverage. In a context where the Serbian government actively fosters destabilisation in Northern Kosovo, China’s engagement contributes to a brewing crisis in Europe’s periphery.

The EU needs to offer feasible alternatives to counter Chinese influence in its neighbourhood

These three examples show clearly that although the EU remains the more important economic partner to its Eastern and Southeastern neighbours, China’s influence in the region is significant and even growing. More often than not, Chinese interests run counter to the EU’s principles and policies in the region. Weak state institutions, problems with government accountability and low transparency provide opportunities for Chinese businesses and patronage networks around illiberal leaders alike.

The prospect of EU accession threatens these networks, whose interests often converge with Russia’s agenda in the region. This latter axis of convenience should not surprise policymakers in the EU: Counteracting Russian malign influence in neighbouring countries is a continuous challenge despite the fact that Russia may be straining its resources in the current large-scale war. China’s offers for more trade and economic cooperation may be less straightforward, but should not cover the fact that the Chinese business model is fundamentally incompatible with countries’ choices for the European model of democratic development.

Especially those neighbouring countries wavering in their geo-economic alignment need to have clear incentives to side with the EU, as well as feasible alternatives to China’s offers and protection from potential negative consequences. To achieve this, the EU should seek to understand the challenges posed by China’s activities in its immediate neighbourhood, as well as their interplay with Russia’s influence. Within the EU’s own vision for the region, this can then become the basis for smart, specific and targeted policies.

About the authors

Etienne Höra is a project manager in the ‘Europe’s Future’ programme at Bertelsmann Stiftung. His focus lies on the EU’s trade policy in a geoeconomic age, as well as the consequences of China’s increasing assertiveness for the EU.

Cora Jungbluth is a senior expert in the Europe’s Future Program at the Bertelsmann Stiftung. Her research focus is on China, foreign direct investment and international trade (especially the role of emerging economies).

Miriam Kosmehl has been Senior Expert Eastern Europe with the Bertelsmann Stiftung’s “Europe’s Future” Program since 2017. From Berlin, she works primarily on the Eastern Partnership region, since 2022 with a particular focus on the strategic management of global interdependence.

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