Research and Opinion

Croatia and the Belt and Road

 

 

Illustration by J.P. 

Dr. Jasna Plevnik, Vice President of the Geoeconomic forum

 Croatia is a beautiful country and we must be grateful for everything it has to offer, but it could be improved in a number of ways. The nation's thought on future could become less desperate if Croatia improves its internal and foreign policy capabilities.

The economic and social development of the country is the only way that has power totrigger positive expectations, and overcome the current unnecessary divisions and political tensions, which drag the country in the wrong directions.

If the Government managed to start some big project, such as a construction of Botovo-Zagreb-Rijeka High-Speed Rail, and connect Croatian port Rijeka stronger with Central Europe, it could have a positive impact on the development of the Croatian economy, industry of logistics, maritime and rail transport, and standard of living.

This article has no intention to criticize the former Croatia’s governments because the railway line Botovo – Rijeka has not already been built. It is just a trying to invite Croatia to open itself quickly to future, and new opportunities, which could not last forever, using itsfavourable geographical position, respectively thegeostrategic weight of port of Rijeka, whose role in Croatia’s development depends on investments in its better transport connections with Central Europe, the Black Sea and the wider area of the Mediterranean.

In 2013, the former Government decided to build a double-track railway lines from Hungarian border to the capital and Rijeka port with 75 percent co-financing from EU funds. At the time, we asked in the book "China in the Balkans", “How the Government thinks to ensure utilization of that new freight and passenger lines, respectively, where are containers, which would be transported by the railroad to Rijeka?” The European Commission did not accepted that investment worth of close to 4 billion euros, judging that new railway line could be unprofitable, and beyond the interests of the EU.

Croatia submitted the proposal of the building of double-track railway line Križevci - Koprivnica - borders with Hungary again, and in the summer of 2016, the Commission formally approved funding. The project will be co-financing with 241.3 million euros. The project the Zagreb coast port of Rijeka (construction of a new container terminal port of Rijeka and modernization of railway freight yard) will be funding with EUR 26.8 million irreversibly, too. These funds are not enough for finishing the whole railway section Botovo - Rijeka or the port Rijeka so Croatia will keep with seeking investors to modernise the railway line and equip the terminal.

 

Neighbouring Slovenia has also accounted on the funds of the Connecting Europe Facility(CEF), for construction of a new railway route from its port Koper to Divača, but yet did not get financial assistance with an explanation that  the line Koper - Divača is not a cross-border project.

The Cohesion Fund supports infrastructure projects under the Connecting Europe Facility, which is a financial instrument (2014 -2020 period) focused on investment in infrastructure priorities of the European Union in the field of transport, energy and digital technology. The program has a budget of 33.242 billion euros, of which 11.305 billion is available for investments in connectivity of transport infrastructure, supporting intermodality, and strengthening public transport of Member States eligible (Gross National Income per inhabitant less than 90 % of the EU average) for The Cohesion Fund.

Slovenian Government describes that investment in the new railway route as an advantage for developing the port Koper in the leading logistics center for Central Europe. Koper already has a position of important transit gateway for Serbia, Hungary, Czech Republic, Slovakia, Germany, Austria, and Poland. Slovenia wants to improve port Koper’s services introducing a greater number of trains to central Europe for what she needs new lines. The Mercedes- Benz transports through the port of Koper its cars, produced in Germany, Hungary, France and Slovenia, to China, Singapore and Brunei. In developing its global logistics network Mercedes sees Koper as a south logistics maritime route ideal for its export to Asia.

The China Development Bank, which in Slovenia already has an office for several years, and China's Gezhouba Company have shown interest in financing construction of a new container terminal in Koper and the new railway line Koper-Divača. Slovenia also has considered a possibility of making a business association with partners from Hungary putting this railway line in a bigger context of railway line Koper- Budapest.

Connectivity brings development

There is always more possibility for providing the money needed for investments. The other funds and interested investors exist in the world. The most expensive way is not to build a railway that is capable to provide Croatia, over the port Rijeka, to become an essential part of current, and future maritime and land transport corridors of Europe and the world.  In order to achieve that kind of connectivity Croatia needs to reinterpret its geotraffic position, transport and energy resources from the global economy perspective, and in the context of new global projects that have power to influence its position in transport corridors of Europe.

The local view is not sufficient to recognize and seize opportunities to align Croatia’s ports, railways and transport position with flows and trends in international economic relations, and transport infrastructure, and logistics.

From 2013 to 2015 Croatia was not particularly interested in connecting its strategic railway project with its bilateral diplomacy towards China neither with multilateral diplomacy frameworks known as “China plus 16”, and the Belt and Road Initiative.

On the other side, the former Government spent entire 2012 presenting to theChinese delegations the investment in the railway infrastructure on the route Botovo - Rijeka as one of the key projects of future cooperation.

The China Ocean Shipping Company (COSCO), the main Chinese and international shipping carrier in the direction to Europe, and one of the five largest non-financial Chinese investors overseas, met on several occasions with the Government shoving it interest to invest in the port of Rijeka, open a logistics center in the industrial zone of Rijeka. COSCO offered to build a new railway Rijeka - Zagreb - Botovo and reconstruct the current railway line Rijeka - Zagreb in exchange for construction and taking into concession of the new container terminal at the Zagreb coast. COSCO looked as a reliable investor, which could provide growth of container traffic, financing construction of a new terminal and the new railway, but did not get the green light for serious negotiations.

Croatia, although a pretty passive, has been included in China’s diplomacy focused on development of intensive economic relations with 16 countries in Central and Eastern Europefrom the beginning. China first presented main ideas of that diplomacy in Budapest in 2011. The framework "China plus 16" was launched in 2012 in Warsaw, and financial and other measures were adopted to boost friendly cooperation between China and the 16 countries of Central and Eastern Europe. The cooperation has become a part of a broader dialogue between European Union and China, and in harmony with relations that Brussels and Beijing are developing in the framework of Agenda 2020.

  

In 2014 Croatia’s former PM Zoran Milanović did not go to Belgrade on the third business economic summit of the Prime Minister of China with the prime ministers of countries of Central and Eastern Europe. He also did not take part in the fourth summit held in Suzhou at the end of 2015, which adopted the medium-term operational guidelines. Many were surprised with that decision, because "China plus 16" gathering of PMs have been always presented as an opportunity for discussion on concrete projects worth several billion dollars.

Anyway, Croatian-Chinese cooperation has found its way. The Port of Ploce in the end of September 2014 became the first concession business between Croatian and China, and the biggest Chinese investment in Croatia worth of 30 million euros, which will be invested in the Port’s infrastructure.

Croatia and the Belt and Road

At the end of 2013 China’s President Xi Jinping launched, in Kazakhstan, strategic foreign policy initiative The Silk Road Economic Belt and the 21st-century Maritime Silk Road, also known as The One Belt and One Road (abbreviated OBOR), and the Belt and Road (B&R). It goal is to build a new Silk Road linking land and maritime infrastructure, trade, finance, energy, industry, and people among China, Asia, Europe and Africa.

Croatia could now put “China plus 16” future activities and current projects between China and South East European countries in the context of this grandiose global economic diplomacy of China. It means that construction of the railway that could connect Rijeka with Central Europe has to be discussed in the context of the Initiative by which China plans to link the old and build new economic corridors on the principle „my victory is your victory." The idea of ​​providing a common economic growth by deepening economic interdependence between Asia and Europe will be supported by the Fund of the new Silk Road, which has at dispose of $ 40 billion. The “Belt and Road” projects have a support of AIIB, the first multilateral bank in which developing countries have the majority of shareholding, and private financial investment funds.

China plans its future, and thinks long-term and strategic, and for these reasons, its Initiative for a new phase of economic globalisation could seem unrealistic in particular to countries that think short term, have outdated statecraft and not ready to innovate its behaviour in international relations. China has rapid action and original solutions for itself, region and the world.China is now a major trading partner of 123 countries, the United States of 64.

The world has changed, and Croatia has to accept it. The objectives, mechanisms and impact of  Croatia's diplomacy towards China could also be examined from the Belt and Road prospective because its sea corridors are stretching from the port Piraeus to the  port Venice,  and on that way passing close to  Croatian coast and its ports. Croatia should also research a potential, which could have for its economy the Central land corridor of the New Silk Road which passing very close to Croatia. If Croatia “reads” carefullythe map of the new economic corridors, and takes into account their long term dimension than it will be possible to see that projectthe Belt and Roadcould have many direct and indirect benefits for it. The benefits of it lies not only in opportunities of developing deeper economic relations with China, but with the other countries of Asia.

It is well known that Croatia has no power to build economic cooperation with the whole China. A few countries can do it.  Cooperation with China in the context of the multilateral diplomacy “China plus 16”, and “Belt, and Road” can reduce handicaps that Croatia has as a small market with the economy worth 43 billion euros. Croatia has to choose a province in China where its products and services could be competitive, and one of criteria could be focusing on those regions with which it could be land and maritime-connected within the framework of the new Silk Road. The West China, for example, has an important place within the development of economic corridors to Europe and higher economic growth than the national average. The most difficult thing is to develop cooperation with the eastern provinces where it is difficult to compete with the US and Western Europe companies.

China and the countries along the Belt and Road have signed numerous MOUs. Hungary became first EU country that signed with China an agreement on the New Silk Road building.

The Chamber of Commerce of Great Britain, France and Germany spent last year focused on informing their business communities about possibilities of this project. This year the chambers are developing discussion in more concrete directions presenting which the new Silk Road’s projects could be beneficial for their entrepreneurs.

The European Commission supports The Belt and Road, and Great Britain PM does everything in order to position his country as "the best friend of China in the West" and the main gateway for China to the European Union market. French Finance Minister Michel Sapin stated that his Government together with the major French banks decided that France becomes the number one center for use and promotion of the Chinese currency.

Zagreb 2016 CNY

 Zagreb celebrates  Chinese New Year 2016

Where Croatia sees itself after the future?

What could happen to Croatia once the future arrives? In five or ten years, people will talk about the success and benefits of the Belt and Road, and Croatia could find itself in position to ask why did we miss it? We do not want it to happen Croatia nor to the countries in the neighbourhood.

Today, Croatia is still in a position to choose between staying on the economic periphery of Europe, and isolation from the main currents of the Sino-Asian trade in the Mediterranean, or involvement in new global maritime and land routes which will be built in the near future, and old ones, which will be connected in a new way with aim to bring interdependent development, and prosperity.

In the Mediterranean Sea competition is getting stronger and it may affect the operation of Croatia’s ports as well as new railway corridors, which will be established between port Piraeus and South East European countries. China Ocean Shipping Company and the state railways of Serbia, Greece and the Czech Republic opened a new traffic route from Piraeus to the Czech Republicin 2014. The development in this direction could have impact on the port of Rijeka diminishing its strategic value in China – Europe trade.

The number of containers grows only in ports that are capable to provide high quality services in all aspects: shipping, logistic, distribution, and servicing. The port of Rijeka still has a lot to improve, but already has a lot to offer: the shortest route of goods from Asia to the markets of Central and Western Europe. Reducing costs is important for not only China, the countries of Central and East Europe, but for Croatia because fast and short transport links could decrease the cost of supply of the national economy.

Croatia’s transport policy should make cost-benefit analyses and planes with detailed actions, and measures how to connect Croatia’s the most important traffic routes with the new mega project the Belt and Road aimed to move Asia, Europe and Africa into a new phase of economic interdependence.

Regardless of constructing many new rail corridors along the new Silk Road China’s trade with Europe will continue to focus on the Suez and the Mediterranean. For now more than 90 percent of goodsfrom China to Europe istransporting by sea. The port of Rijekacould  take a bigger  part of that traffic, and become one of important centers in the economic cooperation between Asia and  Central and Eastern Europe, and vice versa if  it was connected with Central and West Europe with faster railway lines and had investment in its terminals.

From China through Central Asia, new railway lines are building, and will be connected with Europe. China, in collaboration with Germany, France, Spain, Russia, Turkey, Czech Republic and Poland have already developed some freight and high-speed railway line to connect the Chinese region with Duisburg, Hamburg and Madrid, Istanbul, Moscow, Lodz. Germany is interested in further improvement of transport infrastructure of the South-East Europe and Turkey.

It is well known that the port of Piraeus has problems with rail connections that are crucial for connecting marine terminals with the hinterland so Chinese investors are planning rapid construction of new railway that would connect Piraeus via Skopje and Belgrade with Budapest and on to Germany. The development in this direction is very likely because the Greek port of Piraeus after Chinese first investments in 2009 increased its capacity to transit goods and became the central port of entry into the market of China Southern, Central and Eastern Europe, North Africa and some parts of the Middle East. The state owned company   COSCO in April 2016 bought 51 percent stake of the port Piraeus what could be interpreted that China has serious, and long-term plans for cooperation with Europe. China needs many gateways in Europe, which means that port Piraeus is not selected to eliminatein trade with Asia other big or small ports of Europe. The role of the port of Rotterdam is in the "One Belt, one Road Initiative" described as a key port for Sino-European trade, and highlighted as a strategic link between the land and sea corridors. Port of Antwerp, which already has an important role in maritime trade routes from China to Europe has developed a plan of its activities how to be stronger involved in "Belt and Road."

Croatia part of the maritime and land routes of the New Silk Road

If Croatian will continue to look passively at changes which are happening in Eurasia’ s infrastructure, trade and energy connecting,there is a lot of possibility to endanger its geo-traffic comparative advantages. Croatia’s main port Rijeka will be in danger if does not improve its railway connection with Central Europe in the near future. Croatia could revitalize its rail traffic system through the Belt and Road initiative and improve its geographic importance, and ability to compete with other ports in North Adriatic. Slovenia talks with Hungary on construction of a railway line from Koper to Budapest. Hungary and Serbia signed an agreement with China on a construction of HSR Belgrade – Budapest, which has potential to connect Greek ports Piraeus with Central and Western Europe markets. If one looks at the maps of future Slovenian and Serbian railways corridors’ directions to Budapest could also see that Croatia could be bypassed with new traffic trade corridors and logistics centers necessary to connect the economies of Asia and Europe. The competition for China’s investment is fierce, but there is a large area of the synergic actions and cooperation,   which could bring prosperity to Rijeka, Koper, Belgrade, and Budapest.

Croatia has real opportunities to become one of the European hubs engaging in the Belt and Road commercial, technological and financial flows between Asia and Europe. In the fall of 2015, the President of Croatia Kolinda Grabar Kitarovic visit Beijing and made a progress in Croatian-Chinese relations. The President proposed to Chinese President Xi Jinping and Premier Li Keqiang a linkage of Croatia’s Adriatic-Baltic-Black Sea initiative with Chinese initiative the Belt and Road, which is also focused on connecting ports of the three seas: the Adriatic, the Baltic and the Black.

Strengthening of Croatia’s integrative power

cro flag

We live in integration times. There are many new ways for Croatia to improve its importance in current international relations, and one them could be an investment in policies, which will improve its ability to engage itself in various economic and trading blocs in order to develop positive relationships and fulfil its economic aims.The most effective foreign policy tool at present is economic cooperation, and capabilities of cooperation with major economic powers and free trade blocs. For this, it is necessary to lead a foreign policy focused on strengthening the integrative power of the country. The South Korea, for example, enjoys the economic benefits of free trade with China, the United States and ASEAN countries. In 2015Vietnam signed a free trade agreement with the Eurasian Economic Union (EEU,) which is the first EEU free trade agreement with third parties and similar negotiations are conducting with Israel, India, Egypt and Iran.

Since 2008, Serbia has started to shape, and lead policies of strengthening of its integrative power in foreign economic relations. Today it has been involved inmembership negotiations with the EU, andhas begun negotiating a trade regime unification with the Eurasian Economic Union as well as processes of strengthening infrastructural and economic links with the Black Sea countries. Serbia's parallel diplomacy of developing strategic relationships with major powers of the world has allowed Serbia free export in the EU, and in Russia.

The US, China, EU and Russian foreign policy behaviour gives a great importance to projects that connect countries through trade, investment and other economic forms of cooperation.  The United States’ National Security Strategy 2015 designated countries capable to connect various great powers and trade blocs, and developing a positive situation in relations with its neighbours as an important partners.

For Croatia, which is geographically located in South East Europe where interests of global power intersect, and has an open economy dependent on situation in the world, it is essential to understand current and future trends in international relations. Thus, it has to enlarge its foreign policy view directing it outside Europe, and accepting a change of balance in the world economy and a new swing of economic interdependence between West and East initiated by China.

Croatia needs to reshape its foreign policy aims, measures and influence focusing stronger on building economic networks with its neighbourhood, Europe and Eurasia. This requires development of its integrative diplomacy power capable to work at national and transnational level enabling it to affirm itself in modern international relations as an important and content country.