China shops in CEE but gives Czech Republic a wide berth

Chinese investors have promised to spend $10 billion over the next few years in Central and Eastern Europe

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What does a Chinese person say upon entering a shop? I’ll take everything! Enthusiastic customers from China are welcome around the world because their pockets are full of cash. The same goes for Chinese investors. The countries of Eastern and Western Europe are seeking to attract their favor — but thus far the Czech Republic is lagging well behind.

At the end of April, the Chinese Prime Minister Wen Jiabaomade a tour of Europe. At the beginning of May it was the turn of Deputy PM Li Keqiang. As well as observing the customary formalities and stressing how important it is to strengthen relationships between European countries and China, the men had a significant message for business: over the next few years the Chinese are planning to invest $10 billion in the region of Central and Eastern Europe.

The Chinese have pinpointed infrastructure, technology and ecology as the spheres they are interested in. The amount being promised is proof that China is interested in Europe, but that it would prefer to concentrate on the real economy rather than pouring money into the purchase of the debts of problematic states of the eurozone. The buying spree has already begun in Central and Eastern Europe.

Not even fiasco is a turnoff

Let’s start with Poland, which was visited by the Chinese premier. The Polish have plans to build a road network and railway corridors. The Chinese will put together a group of experts in transport infrastructure which will look for business opportunities.

The Chinese are not opposed to the creation of roads in Poland, despite the fact that their first attempt to penetrate the European construction market ended up being a fiasco. Three years ago the Chinese state company Covec won a tender for the construction of two sections of the motorway A2. From the start the victory of the Chinese provoked controversy, with construction firms in particular up in arms about what they saw as price dumping.

Covec found itself with liquidity problems shortly after beginning work and was late in paying invoices to local subcontractors. Instead of a road the Chinese left behind a large dirt track. “If the Chinese want to participate on the European infrastructure market, they should learn how things work here,” the French news agency AFP quoted the Warsaw-based economist Witold Orlowski as saying. “It seems that they were convinced that there is a similar game being played here as is played in Africa,” he added

Both the Chinese and the Polish have shrugged off this unfortunate experience. The Polish media is now speculating that the Shanghai Electric Group will participate in the construction and operation of a new coal-fired power station for almost € 1.2 billion. And let’s not forget that in January the company LiuGong purchased the Polish bulldozer manufacturer HSW along with its distribution network for € 56 million.

As Polish premier Donald Tusk confirmed during his meeting with Wen Jiabao, the Polish government would like to see its country become the hub of Chinese investment in Central and Eastern Europe. The Polish will have to offer more than at present if they want to achieve this aim. So far Hungary is the clear number one in the region for the Chinese. The list of Chinese activities in Hungary is a long one.

Hungary is number one

Some facts selected at random: the Bank of China opened a branch in Budapest as far back as 2003, and at the end of this March a second office was opened. These branches in Hungary act as a beachhead for Chinese advances in Central and Eastern Europe. Information from the bank shows that last year the Hungarian branches reported profits of nearly $5.5 million. In terms of market capitalization, the Bank of China is the seventh largest bank in the world.

There is a direct air link between Budapest and Peking operated by Hainan Airlines. Shortly before the end of 2010, Yingke-Várnai, the first Chinese international law firm in the region, opened in Budapest. Seven years ago the first school was established in which tuition is conducted in Hungarian and Chinese. The school is sponsored by the Chinese government.

The Chinese premier Wen Jiabao visited Hungary halfway through last year, and last week it was the turn of Deputy PM Li Keqiang. And it is clear that Chinese investment in Hungary will again increase in the near future. The company China Civil Engineering Construction has signed a memorandum relating to the construction of a 20-kilometer rapid transit system linking the centre of Budapest with the airport. Finance has not yet been found for the project.

The telecoms giant Huawei has confirmed that it is constructing a logistics center in Hungary and creating more than 1,000 jobs. Last year the company announced that it would build a production center in Hungary. Huawei is at present the largest Chinese investor in Europe, employing more than 7,000 people around the continent.

Huawei’s competitor ZTE is also preparing to consolidate its position in Hungary. It is building a customer services centre from which it will provide services to European clients. However, ZTE wants to increase its presence in Europe as a whole and not simply in Hungary. Its portfolio includes telecommunication infrastructure equipment, smartphones and telecommunications solutions for the public sector and businesses.

Europe is better than the USA

ZTE was founded in 1985 in Shenzhen, Southern China. Today it is the fourth-largest producer of mobile telephones in the world and the fifth-largest producer of telecommunications equipment. The newspaper China Daily writes that last year ZTE reported revenues of almost $7.5 billion from its foreign activities, which is more than half of the company’s total revenues.

There is an obvious reason why ZTE is focusing on Europe. In the USA it would be almost impossible for ZTE to cooperate with the most important telecommunications operators for political reasons. “The European market is more open and receptive to foreign telecommunication players,” Taj Shu, communications director at ZTE, told China Daily.

The Czech Republic would also like to receive some of the Chinese investment earmarked for Central and Eastern Europe. Czech Prime Minister Petr Nečas (Civic Democrats, ODS) has been lobbying hard, and the week before last met the Chinese premier Wen Jiabaoin Warsaw. However, the truth is that the Czech Republic does not figure in any of the plans of Chinese investors made public up to date.

As far as Nečas is concerned, credit where credit is due. However, the Czech premier is in a difficult position. At the end of 2011 he welcomed the Dalai Lama to Prague, who also had a meeting with Karel Schwarzenberg, Minister of Foreign Affairs. Although the leader of TOP 09 emphasizes that this was a private matter, for the Chinese a foreign minister is a symbol of a state’s foreign policy — and they were clearly not too happy with the meeting with Schwarzenberg.

Furthermore, the Chinese have still not forgotten Mirek Topolánek (ODS), Nečas’ predecessor. In the summer of 2008, while Czech premier, Topolánek announced his participation at the Peking Olympics sporting a Tibetan flag on his jacket lapel. If the Czechs continue dealing with the Chinese in this way, they can’t expect receptiveness on their side.

However, there are business opportunities for the Chinese in the Czech Republic. This autumn there is to be an auction of available frequencies for mobile services, which estimates say could fetch up to Kč 10 billion. For over a year there has been speculation that the Chinese will figure among the bidders. The company most often spoken of in this regard is China Mobile, the largest mobile operator in the world. ZTE and Huawei (both of which already operate on the Czech market) could throw their hats into the ring as technology suppliers for the construction of networks.

Bárta’s overtures

In addition, there is infrastructure here. The ex-minister of transport Vít Bárta (Public Affairs, VV) attempted to attract Chinese construction companies to the Czech Republic. He was inspired by the example set in Poland. However, Bárta’s overtures to the Chinese started with a bang and ended with a whimper.

Czech Position sent a series of questions to the Ministry of Transport as to whether negotiations were underway with China at present on the participation of their companies in public tenders. “Negotiations were being held under ex-minister Bárta. Subsequently none have been held,” replied Andrea Volaříková of the Ministry’s press department. “The department is interested in PPP projects. Everyone, even foreign companies, will have the opportunity to submit a bid. It will depend on the specific conditions which individual parties offer.”

According to the Euro-China Investment Report 2011-2012, which was conducted by the Antwerp Management School, the quintet of European countries enjoying the most significant inflows of Chinese investment comprises Luxemburg, Russia, Germany, Sweden and Great Britain. If we look at the representation of Chinese companies in Europe, we see that most are concentrated in Russia, Germany, Hungary, Romania and Great Britain. Let’s see what effect the $10 billion which the Chinese are planning on spending in Central and Eastern Europe has on this table.

Current Chinese projects in the Czech Republic

Firm

Level of investment

Subject of business activities

CITIC Marmes Bicycles 

A joint enterprise for the production of bicycles involving the Chinese state company Citic Tianjin and the Czech company Marmes founded in September 2007 in Lanškroun. However, the original plans for the construction of a new plant were not realized and in summer 2010 the company ended up in liquidation.

Changhong

CZK 660 million

In March 2006 the foundation stone was laid of a factory for flat-screen color televisions in Nymburk. This is the largest Chinese investment in the CR to date.

Shanghai Mailing Aquarius 

CZK 450 million

In 2007 a Chinese grocery company in cooperation with Gastro Sunwick built a plant for the production of Chinese luncheon meat, pork in its own juice and traditional canned ham. 

Huawei, ZTE 

The Chinese telecommunications giants established a presence in the CR and cooperate with Czech telephone (mobile and landline) and data operators on many projects.

Noark

A company involved in the development, production and distribution of electronic appliances and components has its European headquarters in the CR. It is considering creating a research and development department.

Shanxi Yuncheng Plating Group

The company makes discs for printers in Nymburk.

Shandong Linyi Yuli Foodnuts 

more than CZK 50 million

A deposit in the KK Foodstuffs nut roasting plant.

Beijing Fight Company 

CZK 12 million

The purchase of operations for the manufacturer of crystal glass in Nový Bor.

Source: www.businessinfo.cz (official portal for business and exports)

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