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29/07/2016

Will Prague be rewarded for its new attitude to China?

Global Europe

Will Prague be rewarded for its new attitude to China?

Czech Republic's President Milos Zeman and i Jinping leave after a news conference at Prague Castle in Prague [Reuters]

The Czech Republic is no longer criticising China on human rights or over the status of Tibet, and it is expected to reap economic benefits over the current visit of Chinese President Xi Jinping, write Václav Kopecký and Alice Rezková.

Václav Kopecký and Alice Rezková are research fellows with AMO, the Association for International Affairs in Prague.

Chinese President Xi Jinping is currently undertaking his first visit to the Central and Eastern European region.

Interestingly, he is stopping only in one country, the Czech Republic, leaving other partners aside for his next stop in June. His presence marks the significant change in Czech foreign policy which has traditionally emphasised human rights, particularly the status of Tibet and Taiwan, in its dealings with China, towards the approach focused predominantly on economic diplomacy. How has this honeymoon happened and what will it bring?

In addition to some gradual changes done by Nečas’ government [Conservative Petr Nečas served as PM from 2010 to 2013], the main shift of the foreign policy came with Prime Minister Sobotka entering office in 2014 [the Centre-left Bohuslav Sobotka is the current PM]. The Minister of Foreign Affairs Lubomir Zaoralek decided to extend Czech human right policy to so-called second generation of human rights (i.e. environmental or social) and to lead intercultural dialogue with countries who had previously been widely-criticised by the Czech Republic.

This shift was accompanied by economic interests – China was one of the few major powers with very little presence in the country, and the government thus decided to attract more investment and increase exports. A crucial role was played by Jaroslav Tvrdík, Chairman of the Czech China Chamber of Mutual Cooperation, who also serves as adviser on China to Sobotka. Last but not least, President Milos Zeman seized the opportunity, and became extremely diligent in building ties with Chinese leadership – for example, by being the only head of EU state attending the September military parade in Beijing. Czech Republic thus quickly changed from a troublemaker to possibly China’s most popular country in Europe.

From the economic point of view, China is still a minor partner for the Czech Republic. Its total share of investment is still below 0.5% compared to 7% for South Korea or 14% for Japan. Czech total export to China reach 1.1%, which is still very small. The objective is that Xi’s visit should improve economic relations, bringing at least 45 billion CZK (€1.7 billion) of investment and increase Czech exports.

Planes, financial sector and high-tech

There are three main areas where the Czech Republic might be interesting for China. The first one is the aircraft industry, where cooperation has been established among many companies already several years ago. The second intended priority is financial services. Several Chinese banks including ICBC are considering Prague as their centre for Central and Eastern Europe, which has become more prominent due to activities such as 16+1 initiative or One Belt, One Road project. The Czech National Bank has already signed a memorandum on the exchange of information with the Chinese regulator on a higher level of cooperation than is common among EU countries.

The last area of cooperation includes a broad spectrum of Czech companies which are attractive for the Chinese market, such as several engineering companies, the hi-tech fields of nanotechnology or biotechnology, several agricultural or food-processing firms and medicine and health-care. The Czech Republic is, of course, increasingly popular among Chinese tourists, and the real estate market should expect higher demand from Chinese buyers.

The Chinese would be interested also in financing and building the infrastructure such as high-speed railway, or contributing to extension of Czech nuclear power plants, but so far these plans are far from being materialised. President Zeman is keen on a huge water channel connecting Elbe, Danube and Oder. However, this does not have the support of the government and or even Czech neighbours.

“Behave like the Czech Republic…”

The visit has also its strong political dimension. As China seeks new allies among its One Belt, One Road Initiative, Czech Republic can serve, for better or worse, as an example of cooperation for others. Chinese newspapers write very favourably about the country, and highlight its positive stance towards China. China might, theoretically, now use this example in dealing with other CEE countries – ‘if you want to have our attention and money, behave like the Czech Republic.’

This is partially worrying due to remarks by President Zeman, who said in an interview for Chinese State Television that under the current government, the Czech Republic can finally be an independent foreign policy actor again, as it is not falling back under pressure from European Union and the United States, and can finally lead to the restart of Czech-Chinese relations.

Xi’s visit to the Czech Republic certainly brought a lot of attention to bilateral relations and will shape cooperation in the future.

What remains to be seen is how this collaboration will look, whether the Czech Republic will become a strong economic partner using its strengths and behave like an equal, or rely too much on Chinese political goodwill…which will certainly have some strings attached.