CHAPTER 7 : ECONOMIC VERSUS POLITICAL ENGAGEMENT WITH CHINA AND TAIWAN IN CENTRAL AND EASTERN EUROPE
Agnes Szunomar
(Centre for Economic and Regional Studies & Corvinus University of Budapest)
Abstract
The chapter focuses on economic relations and their possible effects on relations between China/Taiwan and three Central and Eastern European (CEE) countries: Poland, the Czech Republic and Hungary. Since there have been no switches in diplomatic relations in this region, we examine whether stronger economic links lead to better perceptions of China and Taiwan in the region, and whether diplomatic gestures by the CEE3 generate more economic engagement with either. Based on interviews with researchers, diplomats and businesspeople, we found little evidence that economic interactions affect diplomatic relations. However, Taiwanese investments will have a better chance of enhancing political ties in the future if they focus on high tech sectors rather than manufacturing and assembly. As regards political ties affecting economic engagement, we found a clear link between the level of Chinese investment stock in CEE countries and the depth of political relationships with Beijing. Recent developments that have seen friendly gestures from some CEE countries towards Taipei suggest they may too have an impact on economic links with Taiwan.
The transition of Central and Eastern European (CEE)1 countries from centrally planned to market economies in the late 20th century transformed the region's external economic relations. During this transition period, CEE went through radical economic restructuring, largely induced by foreign capital. Multinational enterprises (MNEs) realized significant investment projects and established their own production networks in the region. Investors, mainly from core European countries, were attracted by macroeconomic factors, including relatively low unit labor costs, market size, openness to trade and proximity. Institutional factors, such as the prospects for CEE countries’ economic integration with the European Union (EU) also increased FDI inflows.
Compared with investments from Western Europe and the US, non-Euro-Atlantic FDI remained modest in CEE, although the first wave of such investment did start directly after the transition and picked up again from the early 2000s. Both Chinese and Taiwanese companies have targeted the CEE region: some smaller companies first arrived in the 1990s, while medium sized and bigger companies made their first investments after the millennium, with the Czech Republic, Hungary and Poland (CEE3) among the most popular destinations.
Historically, geographically and politically bound to Europe and highly dependent on the European Union for trade and investment, the CEE region as a whole has not managed to reach a common position on China. Some countries have more reservations about the growing Chinese presence, while others are more welcoming in the hope of greater economic opportunities. CEE countries are also aware that even lower levels of cooperation with Taiwan may provoke a backlash from China, although some of them are willing to take the risk. This diversity of approaches is also reflected in their attitude towards Taiwan.
In line with the above, the aim of the chapter is to analyze economic relations - and their possible effects on the political terrain - between China and Taiwan and the CEE3 region. Besides presenting the evolution of diplomatic relations, trade, and investment volumes since 2000, we outline how important the CEE region is in Chinese/Taiwanese companies' expansion strategies and the main factors that make it attractive. The study will also examine the effects of China/Taiwan-CEE economic relations on their image in CEE3 countries. The chapter intends to analyze whether China and Taiwan are perceived better as a result of greater economic activities and whether diplomatic gestures from the CEE3 can generate more trade and investment.
Introduction
