China In Eurasia

A new report has found a correlation between the influx of Chinese capital into a country and a negative impact on its environment and the quality of governance.

The study -- published by the Bulgarian-based Center for the Study of Democracy on September 9 -- says Beijing’s growing economic footprint in Central and Eastern Europe over the last decade has coincided with a drop in legal and governance standards and raises concerns about the environment and rising debt levels in the region.

The report is the first wide-ranging study of China’s expanding presence in Central and Eastern Europe, which has seen Beijing become the region’s largest trading partner.

China's influential footprint was made possible by the influx of an estimated $14 billion in grants, loans, mergers, and economic concessions since 2009 and an estimated $50 billion in infrastructure, energy, and telecommunications projects that are either currently under way or awaiting implementation.

The research also shows that the more financially tied to China a nation becomes and the higher the share of its gross domestic product is made up of Chinese investment, “the higher the likelihood” that China has exploited problems with the rule of law to expand “its economic and political influence.”

“It’s a vicious cycle where authoritarian countries like China take advantage of legal loopholes and corrupt practices to expand their influence on the ground,” Martin Vladimirov, one of the report’s authors who directs the Center for the Study of Democracy’s energy and climate program, told RFE/RL. “These networks allow for more capital to enter, which leads to a greater drop off. The data shows a very strong correlation between the flow of Chinese money and a declining quality of governance.”

This connection is measured through the institution’s Chinese Economic Power Index, which aims to show the full scope of China’s economic influence. Regional growth has been uneven, with the bulk of Beijing’s expanded clout focused on the Czech Republic, Hungary, and the Western Balkans -- primarily Bosnia-Herzegovina and Serbia.

According to the report’s findings, Bosnia-Herzegovina, Hungary, Montenegro, and Serbia have experienced the most noticeable drops in those categories in connection to increased Chinese investment, with Beijing-backed companies receiving tax exemptions, the ability to bypass local labor laws, and other forms of preferential treatment.

The study adds that especially in the Western Balkans, “local companies with close ties to the governments in the region have been lobbying directly for the implementation of [Chinese] projects,” with many of these local businesses holding a strong commercial interest to act “as a bridge between China and the national governments.”

“All these activities are technically legal,” said Vladimirov. “The overall effect is that government institutions no longer regulate the Chinese companies, and these institutions stop serving the public interest and instead help private ones in the form of politically connected conglomerates or local oligarchs.”

'A Very Effective Backdoor'

China's presence in Central and Eastern Europe looms large, particularly in the Balkans, where the country has invested billions in recent years and raised concerns in Western policy circles about the region becoming financially dependent on Beijing.

Serbia, where Belgrade has functioned as an economic and political hub for Beijing to expand across the Western Balkans, is a notable example of this, according to the report, with the country working as a showcase for various Chinese initiatives -- from telecommunications and surveillance technologies to public health amid the coronavirus pandemic -- that can be adopted by neighboring countries.

But many Chinese projects across the region have been pushed into the spotlight recently amid controversy over nontransparent contracts and accusations of corruption during the tender process.

Hungarian Prime Minister Viktor Orban has faced protests and political pressure from Budapest's mayor after it was revealed that his government planned to take out a $1.5 billion loan from a Chinese bank to build a local campus for Shanghai’s Fudan University.

A long-delayed $1 billion highway project in Montenegro also made international headlines and was at the center of debate about Chinese influence in Europe after the small Balkan nation revealed it would be unable to pay its debt to the Export-Import Bank of China. In addition to being behind schedule, the highway faced criticism over inflated costs and an overreliance on Chinese workers.

Ultimately, Podgorica received debt assistance from a collection of U.S. and European institutions to help stabilize its finances and meet its loan payments.

“Central and Eastern Europe have been a very effective backdoor for Chinese businesses to expand across Europe and the European Union,” said Vladimirov. “It’s part of a long-term strategy.”

Environmental Concerns

The report also finds that China’s economic rise has led to a growing share of coal-fired power used to generate electricity in Central and Eastern Europe, as well as cost-cutting and lowered environmental standards for projects across the region.

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In addition to debt concerns, Montenegro’s controversial highway has also been in the crosshairs of activists over environmental damage that construction has brought to the UNESCO-protected Tara River.

Similarly, environmental damage caused by a Chinese-owned copper mine near the Serbian city of Bor has led to complaints of and protests over pollution, forcing the company to temporarily halt its operations.

The report cautions that the increased carbon emissions and Chinese investment into coal could also impede the aspirations of Western Balkan countries wanting to join the EU. The bloc has unveiled ambitious plans to phase out coal use over the next decade, as well as targets to reduce carbon emissions for 2030 and 2050.

“China isn’t trying to stop countries from joining the EU,” said Vladimirov, “but the laws and policies that are being adopted to facilitate Chinese investment indirectly undermine the accession process for many countries.”

Less than a week after the Taliban took Kabul and toppled the government in Afghanistan, a suicide bomber attacked a Chinese transport in the Pakistani port city of Gwadar.

While the two events were separated by more than 1,600 kilometers, they point to what many analysts say is a new era of security threats emerging for China across the wider region that could be compounded by growing instability in Afghanistan.

The August 20 attack in Gwadar was claimed by the Balochistan Liberation Army (BLA) and marked the third attack against Chinese in Pakistan in two months.

Reports vary about the scope of the most recent bombing -- the BLA claimed it killed six Chinese workers and three security guards, while Chinese and Pakistani officials say one Chinese citizen was injured and two children killed -- but the attack highlights an escalation with Chinese personnel increasingly in the crosshairs of Pakistani militants.

Since the Taliban’s takeover of Afghanistan on August 15, China’s state media and officials have been triumphant in relishing the blow to Washington’s credibility after the chaotic evacuation in Kabul and the quick dissolution of the U.S.-backed government.

China has forged a pragmatic working relationship with the Taliban, with Beijing promising economic and development support to the militant group in exchange for attention to Chinese security concerns, especially monitoring and denying sanctuary to any Uyghur militant groups in Afghanistan.

“Beijing has few qualms about fostering a closer relationship with the Taliban and is ready to assert itself as the most influential outside player in an Afghanistan now all but abandoned by the United States,” Zhou Bo, a former senior colonel in China's People’s Liberation Army, wrote in a New York Times op-ed on August 20.

But despite the public confidence voiced by Beijing, many analysts see a growing worry over a wave of uncertainty taking hold in the region -- from increased terrorism to protests against Chinese projects -- that could potentially undermine China’s strategic interests in Pakistan, where the $60 China-Pakistan Economic Corridor (CPEC), a massive bundle of infrastructure and investment deals, has taken hold.

“China is now seeing all of this as intertwined and part of a more adverse shift in the Pakistan and Afghanistan context,” Andrew Small, a fellow with the German Marshall Fund and author of The China-Pakistan Axis, told RFE/RL.

New Pushback

Central to these worries are the stepped-up attacks against Chinese in Pakistan recently.

A bus carrying Chinese workers in northern Pakistan was bombed on July 14, killing 13 people, nine of whom were Chinese, and has since been attributed to Tehrik-e Taliban Pakistan (TTP) by Pakistani authorities. They said the attack was planned inside Afghanistan.

This was followed by another attack on Chinese workers in Karachi on July 28 and, in April, China’s ambassador to Pakistan narrowly avoided a terrorist attack at a hotel in Quetta where his delegation was staying.

China has been targeted by Pakistani militants before, with the BLA launching a high-profile attack against the Chinese Consulate in Karachi in 2018. But the recent spate of incidents marks a new trend, says Abdul Basit, an expert on South Asian insurgent groups at Nanyang Technological University in Singapore.

“China’s future is in South Asia, but there is tons of volatility at the moment,” Basit told RFE/RL. “The main motivation in going after Chinese targets is that it is an effective way to cause problems for Pakistan, but the increased attacks point to a more permissive environment for groups to operate in.”

While Beijing remains fixated on the Turkestan Islamic Party (TIP) -- a Uyghur group that Beijing blames for unrest in its western Xinjiang Province and refers to it by its predecessor's name, the East Turkestan Islamic Movement (ETIM) -- groups like Al-Qaeda and the Islamic State-Khorasan (IS-K) could also pose threats to China in the future.

“The attacks are a problem, but they’re small scale when we look at the big picture,” said Basit. “The main question is how China decides to react to all of this.”

Beijing has pressed the authorities in Pakistan for improved protection for Chinese following the series of attacks that it blamed on lax security.

China’s engagement with the Taliban has in large part been motivated by trying to prevent and contain similar threats in Afghanistan, although it remains to be seen whether the Taliban can and want to do so.

“It is a multifaceted threat posed to China from this region,” said Basit. “The security vacuum in Afghanistan following the U.S. withdrawal from Afghanistan is benefiting China, but that can only last for so long.”

Flagship Problems

Beyond increased militancy in Pakistan, the CPEC -- Beijing’s flagship project within its massive Belt and Road Initiative (BRI) -- is also facing complications and a backlash in Pakistan.

In late August, protests erupted in Gwadar against severe water and electricity shortages as protesters blocked roads in the city and burned tires. This was followed by demonstrations by local fisherman and other local workers who said their livelihoods were being threatened by Chinese trawlers illegally fishing in the nearby waters, RFE/RL's Radio Mashaal reported.

The port in Gwadar is a strategic element of the CPEC, with Islamabad leasing the port to a Chinese-backed multinational corporation for 40 years.

In July, Pakistan detained five Chinese trawlers on suspicion of illegal fishing not far from the Gwadar port. Chinese authorities denied that the detained Chinese trawlers were fishing illegally and claimed instead that they were sheltering from a storm.

In late July and early August, Chinese officials sent 26 containers of seafood and 12 containers of rice back to Pakistan, officially because they were contaminated with the coronavirus. But several Pakistani exporters told Radio Mashaal the action was a reciprocal move against Islamabad for the detention of the trawlers.

Balochistan, the region where Gwadar is located, is Pakistan’s most undeveloped area and is home to a long-running violent insurgency against Islamabad led by the BLA. Gwadar is not on the national power grid and issues with a nearby dam have fueled the water shortage.

But even though China is not to blame for Balochistan's water and energy problems, its large presence in Pakistan and the region has managed to trigger unrest and breed growing anti-Chinese sentiment.

While these developments highlight growing discontent toward China on the ground in some areas, Beijing’s attention continues to be fixated on Afghanistan and the risks posed by increased militancy in the region.

“Beijing needs to be careful not to be sucked into Afghanistan and the wider region, which are viewed as a strategic trap,” said Small. “For now, China’s aim is to minimize the risks, not solve the problems.”