Eastern EU must now scrutinise Chinese investment more

Subject Shifts in Chinese investment in Central-Eastern Europe. Significance Initial enthusiasm for China’s Belt and Road Initiative (BRI) in Central-Eastern Europe (CEE), driven by the region’s often critical need for infrastructure investment, has ebbed. Impacts Beijing’s interests will decide which investment opportunities are pursued in CEE. From the CEE side, China will not always receive favourable investment terms and EU cohesion is not necessarily under threat. Scepticism about the soundness of Chinese companies will rise after a number of well-publicised debt defaults.

Significance Chinese companies have made several recent investments in Israeli infrastructure projects, and technology has also emerged as a focus of a growing bilateral relationship as China seeks to tap into Israeli innovation. For its part, the Israeli government hopes to capitalise on the technology partnership to strengthen its relationship with Beijing and diversify ties away from economic and political reliance on the West. Impacts Israel is part of China’s Belt and Road Initiative, and Chinese companies will pursue new infrastructure opportunities where possible. The bilateral technology relationship is critical because China’s trade with and non-technology investment in Israel are relatively small. The security relationship with Washington will endure, and may restrict Chinese involvement in Israel.


Significance The bill comes as the federal government is increasingly concerned about Chinese political and economic influence in Australia; Beijing has criticised Canberra in recent months and introduced economic strictures. Impacts Universities could lose research partnerships, especially with China, and some foreign academics. Infrastructure investment could suffer, including the Victoria government’s deal to partake in China’s Belt and Road Initiative. The federal government seems to have a secondary agenda for the reforms, to weaken the powers of the eight states and territories.


Subject Prospects for Central-Eastern Europe in 2017. Significance In the absence of robust business confidence, Central Europe and the Baltic states (CEB) will implement short-term monetary and fiscal policies to support growth; GDP growth will suffer from global market vicissitudes and rising political tensions in key trading partners inside and outside the EU. The crisis in the EU will continue to bear down on South-Eastern Europe (SEE), bringing an effective end to the policy of enlargement.


Subject Central-Eastern Europe's ethnic and national minorities. Significance Ethnic and national minority rights in Central-Eastern Europe (CEE) were once prominent in European discourse; today's silence hardly indicates policy success. They have been swept under the carpet by nationalist forces coming together to form a new, illiberal 'pole'. Exclusionary nationalism challenges largely symbolic minority protection regimes and encourages prejudice, fuelling social instability and threatening severe intra- and interstate conflicts. Impacts EU cohesion will be further undermined as neighbours brawl over national minorities. For lack of a coherent and legitimate EU approach, the integration of recent arrivals will pose a serious challenge. Russia's use of ethnic Russians and CEE's exclusionary identity politics will continue in a mutually reinforcing cycle.


Subject LNG in Greece, Croatia and Poland. Significance Liquefied natural gas (LNG) terminals and interconnectors are part of the north-south natural gas corridor advocated by EU member states in Central-Eastern Europe (CEE) as a means to reduce dependence on Russia. Impacts The LNG project in Greece could slow down Croatia's plans to build an LNG terminal off the island of Krk. Access to cheap US gas via LNG is transforming the natural gas market worldwide. Cheaper gas may facilitate the transition from coal and increase the share of renewables across the region.


Subject Looming demographic decline in Central-Eastern Europe. Significance The populations of Central-Eastern Europe (CEE) are declining because of emigration and low birth rates, the region’s population being set to fall until 2050 by an average of 0.5% a year. With the working-age population falling even faster, the demographic crisis raises questions about the region’s growth model, which has relied heavily on integrating its pool of lower-cost labour into European supply chains. Impacts Internal imbalances will worsen, with less economically successful regions disproportionately affected, some facing severe depopulation. Population ageing could exacerbate CEE’s turn towards populism, particularly as its pensioners are often among the less well-off. Rising CEE labour costs will push up producer prices in Western Europe, many of whose manufacturers rely on CEE production or suppliers.


Subject Alleged discrepancies between the quality of foods on sale in the western and eastern EU. Significance Governments in eastern EU member states are recycling long-heard rumours that multinational food brands sold there are of poorer quality than in western states. Tests by some national authorities appear to confirm these fears. Such practices would not be illegal, but they exacerbate broader worries about second-class citizenship in Central-Eastern Europe (CEE), compounded by uncertainty over the direction the EU will take in coming months. Impacts The east-west divide will deepen as a new front is opened ahead of a likely EU reform push later this year. CEE’s political significance will receive a momentary boost as countries show a united front on one of only a handful of issues. A reaction against multinationals from within the EU could make protectionism more respectable elsewhere in the world.


Subject Prospects for Central-Eastern Europe to end-2019. Significance After a strong cyclical upswing in 2017-18, the outlook for GDP growth in Central Europe and the Baltic states (CEB) will be shaped by several political milestones, notably Poland’s general election and Brexit, while softer economic conditions in the euro-area will test the resilience of the region’s export-dependent economies.


Subject Trump’s effect on US-European relations. Significance Staff turnover and fragmented decision-making at the highest level in the White House and State Department are leaving mounting problems in Central-Eastern Europe (CEE) to the Defense Department and NATO. Along the Eastern frontier, concerns over Russian aggression have led to competition for more US attention from the Baltic to the Black Sea. Impacts Acceptance of the ‘America First’ doctrine will indirectly authorise nationalist politics in Europe. Trump’s admiration for their methods will empower East European ‘strongmen’. Turkey will further distance itself from core principles of NATO collaboration.


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