China’s quiet splash in the post-Soviet space

China’s steadily growing economic expansion throughout the world is a cause of concern for many governments. Eastern Europe and Central Eurasia are no longer so dependent on Moscow and China is quietly rolling out credit lines and investments in the region.  Time to sit up and pay attention, says Michael Cecire

China’s quiet but unmistakable entry into Eastern Europe and Central Eurasia, a region which comprises a heady mix of former empires, aspiring hegemons and opportunistic smaller powers, could well introduce an unexpected variable. This is no extended trade mission, but a presence which has the potential to cultivate and project influence into this fragmented and heavily-contested space and could well lead to the derailment of the West's hopes for regional democratisation.

Since the end of the Cold War, the heartlands of the former Soviet Union have shifted from being the meeting point between the West and the Eastern bloc into a zone of contention. Despite Russia’s relative resurgence under Putin, Moscow no longer enjoys a monopoly of power over this vast area. Instead, the blurry post-communist regions where Eastern Europe and central Eurasia overlap have become a focal point of interest for a number of established and emerging powers: Russia, the E.U., Turkey the U.S., and, increasingly, Iran. China, which recently overtook Japan as the world’s second-largest economy after the United States, is increasingly showing itself to be a viable player in this far-flung region, well removed from its traditional spheres of influence in the Asia-Pacific and Central Asia. 

Diversification and geo-politics

China’s interest in the region stems from Beijing’s worldwide economic ambitions. With robust trade relations and investments spanning the globe - everything from copper mines in Africa to a newfound appreciation for North American pecans - Eastern Europe and Central Eurasia represent a final frontier for Chinese economic expansion. China now enjoys over $3.2 trillion in foreign currency reserves, and is looking to diversify its worldwide investment portfolio and shape a crucial link in the ‘New Silk Road’ trade artery from China to Europe. In the last decade, trade between China and Central and Eastern Europe has grown by a staggering 32 percent annually to $41.1 billion in 2010, a figure Beijing hopes to boost to $100 billion by 2015.

China is putting its money where its mouth is and has been going on an investment and lending spree. Belarus, largely isolated in Europe because of its authoritarian regime, has been well-served by Beijing’s largesse in the form of over $1.6 billion in recent loans. In Moldova, China outdid both the EU and Russia with a princely $1 billion low-interest loan. Ukraine has also benefited from a flurry of Chinese investments in infrastructure, agriculture, and energy projects. Even the Caucasus is drawing increased interest from China. Most impressive, perhaps, was Beijing’s establishment of a $10 billion credit line to support Chinese business investments in the region.

‘China currently has neither the resources nor the political will to move into Eastern Europe and Central Eurasia as an aspiring hegemon. But the strength of Beijing’s presence in the region is unlikely to remain purely economic indefinitely’

China’s entrance into Eastern Europe and Central Eurasia does not appear to be geopolitical power play. At least not yet. At the same time, Chinese investments, generally free of the implicit demands relating to human rights and governments that usually bind Western dollars, can be controversial for their often opaque nature. More to the point, worldwide Chinese investments have sometimes served as loss leaders for the more intangible currencies of geopolitical influence and leverage. 

 

In Eastern Europe and Central Eurasia, where regional power dynamics are highly multipolar, Beijing’s free-spending ways could set the stage for a genuine geopolitical role in the future. Other elements of China’s Eastern European interest could also be raising eyebrows. Defence technology cooperation with Russia may be on a downward trend, but Beijing has been able to keep itself informed of developments in Russian military hardware by cozying up to Eastern European states like Ukraine and Belarus. Meanwhile, China has shown an interest in flying its flag regionally, whether through surprise air force exercises or its navy’s increasingly regular cruises in the Mediterranean.

Of course, China currently has neither the resources nor the political will to move into Eastern Europe and Central Eurasia as an aspiring hegemon. However, the strength of Beijing’s presence in the region is unlikely to remain purely economic indefinitely. Indeed, given the region’s preponderance of strong states and groupings, China’s role there is bound to have international implications. As the Middle Kingdom’s stakes expand in the region, so too will its political role and a desire to act more directly in service of its interests. In the long view of things, economic investments now will be able to help shape the future of Chinese influence down the line, including in Eastern European capitals. 

Credits, investments and autocracy 

The growth of Beijing's role in the region will have another near-term effect besides economic development. With mounting investments in Eurasia, often with preferred terms or rates, China has the potential to be the creditor or investor of first resort. And with Beijing's robust resistance to US and EU stipulations such as performance metrics and democratic credentials, the West's already strained democratisation toolkit is likely to be further tested.

‘China's entry into the region has the potential to complicate matters by providing a fresh lifeline to autocratic regimes that have, until now, had to rely almost exclusively on Moscow or domestic sources of capital to avoid Western strings-attached funding.’

‘Developing nations appear to appreciate the contracts provided by Beijing, especially when China offers investments that, other than recognition of its “one China” policy, impose no conditions,’ reads a mid-2012 policy brief from the German Marshall Fund, a think tank. 

China's entry into the region has the potential to complicate matters still further by providing a fresh lifeline to autocratic regimes that have, until now, had to rely almost exclusively on Moscow or domestic sources of capital to avoid Western strings-attached funding. This could have major repercussions on the region: Western economic development programmes (at least ostensibly) aim to promote dispersed economic growth, whereas zero-strings funding will only help to entrench the status quo. 

Worse still, regional states could fall into the pattern being played out across parts of Central Asia right now - where strongman regimes play Washington, Moscow, and Beijing off one another for the choicest investment and aid packages - with little hope of any genuine democratisation or liberalisation in the future. In some ways this is already happening, as the growing funding stream from Beijing seems to have roughly coincided with the stagnation of democracy development in the region. 

China's growing role in post-communist Eurasia has many potential benefits, not least the possibility of stronger economic growth. But the frailty - or sometimes nonexistence - of democratic institutions in Eastern Europe and Eurasia make Chinese dollar diplomacy a worrying prospect. China's geopolitical leverage in the region may not appreciably develop for some time, but in terms of the West's democracy assistance agenda, it's well past time to start planning and retooling now for China's big splash.

About the author

Michael Hikari Cecire is a Black Sea-Eurasia regional analyst and an associate scholar at the Foreign Policy Research Institute, where he contributes to the Project on Democratic Transitions.