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Romania and China – Friends with No Benefits

Romania and China – Friends with No Benefits

No. 4, Mar.-Apr. 2017 » UNCOVERstory

When it comes to the relations between Romania and China both parties refer to each other as being “old friends”, invoking a “traditional friendship” that ties the two nations separated by more than 8,000 km. Although Romania was one of the earliest countries to recognize the People’s Republic of China and the relations were close during the 1970s and the 1980s, with China being one of Romania’s strategic trading partners, the 1990s have been a period of mutual disengagement not only concerning Romania, but all the Central and Eastern European countries (hereafter referred as CEEC). Closer ties were reestablished starting with 1998 as China consolidated its position as an important player in the global economy, marking its new phase of development by entering the World Trade Organization in 2001, The CEEC were also in a process of reorientation, gaining security guarantees and new economic perspectives through their piecemeal European and Trans-Atlantic integration.

In 2012, China created the 16+1 format  that includes 11 EU members and 5 Balkan countries (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Montenegro, Poland, Romania, Serbia, Slovakia, Slovenia, Macedonia) the purpose being that of intensifying and enlarging collaborations in areas such as transport, finance, science, education and culture. Potential priority areas for economic cooperation which Chinese representatives touted were infrastructure, advanced technologies and green technologies.

The 16+1 format is an important part of China’s foreign strategy in the context of the Belt and Road Initiative, the Member States being located at the Western end of China’s flagship international project and at the periphery of China’s largest trading partner, the EU. It is no wonder that the region is of interest for China not only for its peaceful and stable markets, but also for the high-skilled relatively cheap labor, open trade and investment environment. Numerous projects are being implemented in the region with funds coming mainly from the Chinese side (at the last 16+1 summit in Riga, Chinese Premier Li Keqiang formally launched a €10 billion investment fund to finance infrastructure and production capacity projects). Despite the fact that the 16 members were asked to contribute voluntarily in order to supplement the funds and are also asked to shoulder the capital contribution to projects like the AIIB in order to participate, the question on everyone’s mind is how they may profit the most from foreign capital and how that capital will be spent with regards to the long-term viability of the projects. 

Kind words 

As for Romania, in November 2013 it was the first country among the CEEC which Li Keqiang visited and the meeting concluded with a Joint Declaration on deepened bilateral cooperation. As stated in the Declaration, the relations between the two countries "are an example of inter-state relations in the current period" and the Chinese Premier reaffirmed in his speech given to the Romanian Parliament: “I believe that China-Romania cooperation may become a banner for China-CEEC cooperation and that China-CEEC cooperation will surely add new impetus to China-Europe relations”. The “may become” from the above phrase has proven so far to be not just justified cautiousness, but also unfulfilled expectations, as the Romanian authorities have proven to be inconsistent regarding their relations with China. The rhetoric behind the official visits portray a certain attachment of the Socialist-Democrats (the party forming the current majority in Parliament and which is a main source for the current Government) towards China and a more cautious approach from the Romanian President, whose background is liberal and explicitly Western European oriented. These types of asynchronies and asymmetries impede a proper development of the bilateral relations.

Despite the seemingly ideal momentum in the 2012-2015 period, none of the projects that were supposed to form the second wave of Chinese investments came to fruition. The “first wave” until 2010 consisted of small private investors laying the groundwork and probing the local potential, including for business friendliness, while the “second wave” is expected to be represented by significant investments from the large Chinese companies, mainly state owned, in infrastructure and energy. 

Talking money 

Currently, China is the 19th largest investor in Romania with the total investments amounting to USD 440 million in 2016. According to an ECFR report quoting Chinese researchers and data from the National Statistics Bureau of China, the investment of China in the region grew from USD 400 million in 2009 to 1.7 billion in 2014. 95% of this investment is focused on just 6 countries of the 16 – Bulgaria, Czech Republic, Hungary, Romania, Slovenia and Poland. Just five countries out of the 16 (the previous ones minus Bulgaria) account for 80% of China-CEEC trade (whose increasing trade deficit, of 34% is noteworthy in its own right). However, if we look at the investment data in the table below, we can see that Romania’s position is not commensurate with its size and the relative importance we ascribe to it in official communications.

From the table, we see that Romania received just over 11% of total Chinese investment in the CEE region, similar to Bulgaria, but 30% lower than the figure for the Czech Republic, almost half that of Poland and three times less than Hungary, despite the size disparity. While it is normal for countries starting from smaller bases to register high rates of growth in percentages, the rate of growth for Romania’s share of Chinese investment is actually much lower than its three main competitors, Poland and Hungary registering almost a quadrupling and a quintupling, respectively, of Chinese investment in the 2009-2014 period, as opposed to Romania’s doubling. What we may gather from these figures is that Romania has been less competitive than many of its regional peers with regards to attracting Chinese investment and some of it can be laid at the feet of the government itself.

The main Chinese investors in Romania in the last years are: Huawei, China Tobacco International Europe Company, Yuncheng Plate Making, Eurosport DHS and ZTE Romania. As of this year important investments are expected – Ningbo HuaXiang Electronic Co. Ltd. has announced an investment of USD 30 million in a factory that will produce automotive parts for Mercedes, and will begin operations by 2019. Another investment was made public and it targets the building of a luxury center in Băile Govara that will be built by Zhong Hua CTM Holding.

This year, China Energy Company Limited (CEFC) finished the discussions with the KMG International group (former Rompetrol Group) to take over the Petromidia refinery and 500 fuel stations from the Kazakh state company KazMunayGas. As of 2017, the Chinese company will pay USD 680 million and will invest at least USD 3 billion during the next five years, becoming the second largest player in the Romanian fuel market, after Petrom.

Finally, some of the longer-term projects touted by both countries regarding Chinese investment in Romania have yet to come to fruition: the memorandum of cooperation for the Cernavodă Nuclear Power Plant, the joint venture for the Rovinari Coal-Fired Power plant, as well as other projects including the Tarnița Hydropower Plant.

According to the Chinese Ambassador in Romania:

“China-Romania cooperation potential is far beyond the above-mentioned results. Bilateral trade volume has not reached the level of our aspiration and enthusiasm. No China-Romania key economic project has started its construction. No Chinese company has yet won tenders for Romanian infrastructure projects such as motorways and railways. Next step, both sides need to show more confidence, to tap the potential and seek appropriate methods, in order to push forward the mutual beneficial cooperation between China and Romania”. 

Dire conclusions 

As the rest of the CEEC develop extensive infrastructure projects with Chinese partners, Romania has yet to realize the potential of a partnership that can be translated from the rhetoric of official visits to real highways, railways and ports. The cautiousness of the Romanian officials, the ever-changing legislation, the excessive bureaucracy, the legislative instability including yearly changes fiscal policies that are not “foreign investor-friendly”, and above all the arguable lack of drive to make the projects become reality - these are all reasons which may induce China to shift its interest towards more “action oriented” countries.

Maybe it is time to look into our neighbor’s yard not just to see that the grass is greener, but to see how we can make ours the same or even better, and doing this with the help of an old friend is bound to make the process easier.

 
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