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“What Does the Belt and Road Initiative (BRI) Mean for Austria and the Region of Central East and Southeast Europe (CESEE)?” (Part 1)

SDG 9: Industry, innovation and infrastructure, SDG 11: Sustainable cities and communities,
 Aug 2018

Vienna, August 1, 2018 - In June 2018, the  wiiw – Wiener Institut für Internationale Wirtschaftsvergleiche (Vienna Institute for International Ecnomic Studies), an Austrian economic think-tank on Central and East Europe, CIS and the Balkans published a policy report analyzing the economic impact of China’s Belt and Road Initiative for the CESEE region in general and Austria in particular.

Some of the most important facts and insights of the report are summarized below. For the full report, go to:

 History and Background of BRI

The Belt and Road Initiative (BRI), designed as a new, modern version of the ancient ‘Silk Road’, is a large-scale project around infrastructure investments in the areas of transport, energy, information and communication technology within Asia and into Africa and Europe. China has singled out the region of Central East and Southeast Europe (CESEE) as its gateway to Western European markets. The first steps in this direction were the investment in the Port of Piraeus (Greece) by the China Ocean Shipping Company (COSCO) as well as the diplomatic initiative ‘16+1’ (made up of eleven EU Member States and five Western Balkan countries + China), where Austria holds an observer status. For Austria, due to its strong economic relations with CESEE, the BRI is particularly relevant.

The underlying study analyses Austria’s and China’s involvement in the CESEE region, with particular emphasis in the areas of infrastructure, investment, finance, and trade.

CESEE Region Needs Infrastructure Investments

Overall, certain parts of CESEE-16, particularly in the Western Balkan countries (including Bulgaria) and the Baltic region, are in need of massive infrastructure (mostly catch-up) investments - ranging from 8% (Lithuania) to 12% (Bosnia and Herzegovina) of the countries’ gross domestic product (GDP) annually over a number of years. In contrast, the more developed and geographically most western parts of the CESEE region (Czech Republic, Slovakia, Poland and Slovenia) have smaller investments needs, mostly in replacement and maintenance of infrastructure, amounting to between 3% and 4% of their GDP per year. The sectors with the greatest infrastructure investment needs are transport and energy, and these are also the sectors predominantly targeted by Chinese construction projects in the CESEE-16 region.

The importance of Chinese loans for construction projects in the CESEE region has been increasing over the last few years, and particularly since 2013. They currently amount to about USD 15.2 billion (EUR 12.2 billion). Beneficiaries are mostly the countries in the central-southern part of CESEE-16. For member countries of the EU, Chinese loans play a minor role in comparison to the much larger and more easily accessible EU grants and loans. In contrast, the Western Balkan states, with their increased needs for infrastructure improvement, have little access to EU grants and welcome the Chinese financing options.

Comparison of China’s and Austria’s Foreign Direct Investment (FDI) in CESEE

Austria accounted for more than 12% of the total capital inflows in EU-CEE in the years 2011-2013 but its share subsided in subsequent years and is now around 10 %. Still, Austria is the third-largest investor in EU-CESEE and second largest in the West Balkans in FDI stocks. In comparison, Chinese FDI is still small, but rising - having increased from 1% of the total FDI before 2015 to 2.6% in 2016. With regard to FDI stocks, the Chinese share is currently still rather low with merely 0.2%.

Trade Between Austria and China and with CESEE Countries

The importance of trade relations between China and Austria is steadily increasing. Currently, China ranks among Austria’s top five import sources and top ten export destinations. From a Chinese perspective, Austria is more attractive as an import (accounting for roughly 0.3% of total Chinese imports) than an export partner (around 0.1% of Chinese exports go to Austria). Recent developments indicate considerable growth potential in the tourism sector, benefiting Austria mainly. Chinese tourists have started to discover Austria, and Europe in general, as a travel destination.

While Austria has strong trade ties within the CEE region, and particularly with its neighbourhood countries, trade connections between CEE countries and China have only been developing rather recently and unevenly. While there has been a steady increase of Chinese imports from the EU-CEE-11, export figures dropped in the years following the economic crisis. This stands in contrast to China’s economic relations with the Western Balkan countries, where China plays a prominent role, also as an export destination.

BRI and Europe

However, China’s BRI activities in Europe, and particularly in the CESEE region, are not only greeted with enthusiasm, but also give rise to some unease and scepticism. Fears are that China’s financial clout might lead to its gaining a stronger political influence in Europe and particularly the CESEE region. Also, there are concerns that the target countries of Chinese investments might not benefit so much from BRI if investments are mostly implemented by Chinese firms and their staff rather than by local contractors, suppliers and workers.

Notwithstanding such misgivings, the positive economic effects of the BRI in Europe are expected to outweigh possible drawbacks. Chinese infrastructure projects will trigger an increase in trade by generating demand which enhances production and income in trade partner countries in the entire CESEE region, including Austria.

There exist several funds for financing the Belt and Road Initiative, which are of relevance for the CESEE-16 region. The Silk Road Fund, which primarily operates through equity investment, supporting infrastructure, resources and energy development, industrial capacity cooperation and financial cooperation, has a total capital of USD 40 billion. The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank with an authorised capital of USD 100 billion.


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Petra Allekotte