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The China Hedge

2018.05.10.

By David Morris

 

I currently live between Beijing and Budapest, between two countries that are deeply misunderstood in the wider world.  Both have had very different historical experiences and have significantly different cultures from those that dominated the twentieth century.  So outsiders grab for stereotypes to understand China and Hungary, as we all do, of course, with things we don’t understand.

We live in turbulent times and a little more understanding is desperately needed.  I want to take a closer look at the relationship between China and Hungary, which has potential to be very significant in the future.  How is Hungary responding to the biggest change of the twenty first century, the rise of China?

Why is Hungary, under the leadership of Viktor Orbán, embracing a special relationship with China?  Surely all those hard-nosed realist foreign policy commentators can’t be wrong? Isn’t China constructing a new global hegemony with its New Silk Road, buying up strategic assets and spreading tentacles of soft power into universities and the media?  Shouldn’t Hungary be terrified?

Disruption and shifting power balances are nothing new to Hungary, though.  Indeed, if China is too far away to be any kind of direct threat, it just might offer Hungary a strategic opportunity.

China is rising.  After four decades of pragmatically opening up sectors of its economy to competition and unleashing the animal spirits of business, China is returning to its arguably natural place as one of the Great Powers in the world.  After all, its population is one fifth of humanity.  Its capacity to be the engine of the world economy has been graphically illustrated in the last decade.  While the major economies on either side of the Atlantic plunged into recession and struggled to recover, China accounted for around one third of global growth, while continuing to raise hundreds of millions from poverty.

Hungary and China Elevate Bilateral Ties as Leaders Meet in Beijing

Now much more confident of itself, China under the unassailable leadership of Xi Jinping is asserting its leadership role in the global economy.  China’s grand vision is to build new Silk Roads, just like the ancient Silk Roads, linking it to centres of commerce and culture.  The “Belt and Road Initiative” offers to fund and build infrastructure and connectivity to grow trade, investment and people-to-people exchange between China and Europe, Asia and beyond.

Hungary has a strategic location in these plans, as a logistics hub for China’s economic engagement with the Central and Eastern Europe (CEE) region, attracting around one third of China’s investment in the region.  China is building a $3 billion, 370km high speed Budapest-Belgrade rail link, likely to be just one component of future north-south transport links between the Port of Pireus in Greece to the major economies of Northern Europe.

Hungary was the first European country to sign a memorandum of understanding with China on promoting the Belt and Road and has joined the Asian Infrastructure Investment Bank (AIIB), a key multilateral funding vehicle for China’s Belt and Road plans.

In November 2017, Budapest hosted the sixth “16+1” Summit between China and CEE leaders, at which announcements were made about Chinese bank funding for BorsodChem, a Hungarian chemicals company owned by Wanhua Group, BYD’s electric bus plant at Komárom and a $500m credit line between China Exim Bank and its Hungarian equivalent.

At a regional level, a China-CEE bank consortium was announced to which the China Development Bank will grant loans worth $2.4 billion and a second round of the China-CEE Investment Cooperation Fund, established in 2016, which is to raise $1 billion for new projects.

So, Hungary’s perspective on the rise of China might be understandably more upbeat than major Western powers that see China as a new threat.  The US has boycotted the AIIB and many of its allies remain skeptical about the Belt and Road as a new geo-strategic play.

On the contrary, Orbán told the 16+1 Summit “We see the Chinese President’s ‘One Belt One Road’ initiative as the new form of globalization which does not divide the world into teachers and students but is based on common respect and common advantages”.

For Orbán, China is a valuable hedge against the perceived tendency of other European powers to impose their will on Hungary.  It is all about perspective.  For the realists in the West, the Chinese state is to be feared because it is assumed that the laws of international relations make China a strategic competitor; for liberals China is suspect because it has not adopted Western values.  Meanwhile, Hungary is happy to be China’s best friend in the region.

In the long game, if Chinese investment can help to build Hungary’s economic infrastructure and its connectivity to European as well as Asian markets, being China’s best friend may pay off.  Expect more tensions with other Western nations, however, that may be playing a different long game.   There is no doubt the rise of China to become the world’s largest economy in the next decade or so will change everything.  The challenge for countries on the New Silk Road will be to ensure that the benefits are not all one way, but truly based, as suggested by Orbán, on common respect and common advantages.

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David Morris is currently on a diplomatic posting in China, having formerly served as a diplomat in Hungary.  He delivered this speech to the Fifth Friends of Hungary Conference in Budapest on May 5, 2018.


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