Abstract: In April 2012, Chinese Premier Wen Jiabao visited the Central and Eastern European countries (CEECs), announcing 12 measures on promoting the pragmatic cooperation between China and the Central and Eastern Europe (CEE). The focus of the 12 measures is the economic and trade cooperation, especially the bilateral investment. With the official launch of the China-CEE Cooperation Secretariat in September, the bilateral relations have entered an important developing stage. China and the CEECs have ushered in an important opportunity phase on investment cooperation. This article will concentrate on the investment opportunities brought to China by the CEECs, the main characteristics of the Chinese investment in CEE, and the problems and challenges faced by China against this background. Besides, it will also offer some relative policy suggestions on the investment in the region for China.

Key Words: Pragmatic Cooperation between China and the CEE; Investment Relations; Window Period; Policy Suggestions.

On September 6, 2012, the Inaugural Conference of China-CEE Cooperation Secretariat was successfully held in Beijing, and bilateral relations have entered an important developing phase. With the fast growing of the economic and trade cooperation and the increasingly close relationship between China and CEE, the rapid development of the Chinese investment in CEE in recent years has become an important support for the promotion of the further development of the bilateral relations.

I. The appearance of “window period” for China’s investment in CEE

The improvement of one country’s investment enviroment can largely boost the increase of its foreign direct investment (FDI). However, important investment opportunities often appear when a certain country or region is undergoing significant transformation or reform, or a country with resource endowment is reshuffling due to social instability (such as the post-war redesigning of the energy structure of Libya by the occident) and etc. In fact, after the drastic change of the Soviet Union and Eastern Europe, CEE offered a comparatively big investment opportunity to China – the transformation period in the 1990s, when all countries in CEE were carrying out the privatization reform and the market opening policy, offering preferential policies and encouraging private economy to various extents. Later, with the acceleration of returning to the west, the opportunity disappeared gradually. Unfortunately, restricted by the investment capacity, China failed to issue relevant investment strategies then, but only encouraged migrants to actively participate in the market development of the CEECs, mainly in the short-term investment. From 2005 to 2011, although the investment stock of China in some CEECs had been rising (see table 1), the base number is comparatively low,and the investment potentiality of CEE has not been fully exploited by China.

Table 1: The investment stock of China in major CEECs from 2005 to 2011 

Unit: Million US dollars

Country/Year    2005   2006   2007   2008   2009   2010   2011

Hungary        2.81    53.65  78.17  88.75  97.41  465.70  475.35

Poland        12.39    87.18  98.93  109.93 120.30 140.31  201.26

Czech          1.38    14.67  19.64   32.43  49.34  52.33  66.83

Bulgaria       2.99    4.74    4.74   4.74    2.31   18.60  72.56

Romania        39.43   65.63  72.88  85.66   93.34  124.95  125.83

With China's opening-up policy in full swing and the launching of the “Going Out” strategy in the Tenth Five-Year Plan period (2000-2005), China began to seek investment opportunities in the global market. But the CEECs always regarded the EU countries as their main targets of investor. Due to China’s unfamiliarity with the rules of the big EU market and the ambiguous location of the CEECs, it has been difficult for China to find suitable investment opportunities in this region. However, in the Eleventh Five-Year Plan period (2005-2010), the investment regions of China are obviously transferred from Hong Kong and Macao, North America, and Western Europe to Asia Pacific, Africa, Latin America, and CEE. Chinese investors began to realize the investment potentiality of the CEE region. 

In 2010, the Greece sovereign-debt crisis triggered a continuous turmoil in the Euro Zone, and then exerted significant influence on the economic development of CEE. In terms of investment opportunities, CEE offered a “window period” to China. The details are as follows:

Firstly, the debt crisis has directly contributed to the change of the investment environment of the CEECs. In 2010, the debt crisis in the Euro Zone directly harmed the CEE, leading to a slowdown in economic growth of the countries in the region. The World Investment Report 2012 of United Nations pointed out on the 2011 survey that under the background of the sustained uncertain prospects of economic development in Europe, the continued instability in global financial markets and the slowdown of economic growth in most emerging economies, many countries adopted FDI as a way to promote economic growth, making the investment environment of some countries in 2011 very conducive to foreign investors.

According to statistics, compared with the same period in 2010, the proportion of the countries adopting restrictive policies to FDI decreased from about 32% down to 22% in 2011, and the policies for investment liberalization and promotion are increasingly aimed at some specific industries, such as electric power, gas and water supply, transportation and communications.The CEECs using investment promotion as a means of stimulating economic growth has been particularly evident. Affected by this, the wish for this region’s foreign direct investment is significantly enhanced. The survey of multinational corporations 2012 of the United Nations Conference on Trade and Development showed that the new EU-12 (10 CEECs plus Cyprus and Malta) have become one of the investment hot spots immediately following the 15 countries of Southeast Asia, the European Union, North America and Latin America, and followed by the South-Eastern Europe and the CIS countries in the region (including the 6 CEECs that have not joined in the EU). The new EU-12 countries are ahead of West Asia, North Africa, sub-Saharan Africa and some developing countries.

Secondly, due to the impact of the debt crisis, the Euro Zone countries such as Greece and Italy was hard to sustain its investment behaviors in the CEECs, resulting in a large number of poorly managed assets, which provided opportunities for foreign investment to step in. Meanwhile, the spillover of the Euro Zone crisis has seriously affected the economic growth and social stability of the CEECs, which used to “go west” but now they are “looking around”, seeking closer cooperation opportunities to promote economic growth with eastern countries (such as Russia and China). The CEECs manage to improve transport infrastructure, promote the construction of electric power and other clean energy, vigorously develop the information technology and communication industries, and make them as the main industries with preferential policies to attract investment. In light of the good investment foundation in these industries, the early-development advantage, and the abundant foreign exchange reserves of China, some CEECs chased to attract the investment from China. Various investment forums and investment promotion activities were held in China and CEE. The investment interactions between CEE and China have reached an unprecedented level.

It should be emphasized that the major factor affecting the changes of the investment environment in CEE is the European debt crisis, and the judgment of the outlook of the European debt crisis will directly affect Chinese investment location in CEE. In fact, the European debt crisis does not pose a fundamental challenge to the capitalist system; it is just a structural crisis within the Euro Zone. Despite the ongoing crisis, the grimness of the situation is expected to be eased in the near few years due to the internal structure adjustment and mutual adaption within Euro Zone. If the situation is improved, the interaction with and even control over CEE by the Euro Zone countries would restore again, correspondingly, the CEE’s dependence on Euro Zone would increase again, and their investment opportunities for external countries would gradually disappear. Therefore we can say that this round of investment opportunities in CEE is just a “window period” in the backdrop of the European debt crisis.

To seize the “window period” is very important for China and the Sino-EU economic and trade relations. Currently, investing in CEE is an important opportunity for China to upgrade export products and extend investment value chain. Losing the chance, China will miss not only the opportunity to occupy the market, but also the opportunity to realize the transformation of industrial development model and the upgrading of value chain with the help of European market. The European debt crisis has led to the shrinking of real economy of the EU countries, the decline in import demand, and directly affected the EU’s imports from China. Since mid-2010, the growth rate of Chinese exports to the EU continued to decline, what’s worse, negative growth occurred in 2012 - 1.8% in the first quarter and 0.8% in the second quarter. In the first quarter of 2012, the non-energy product import growth of EU is 0.8%, while export growth of China to the EU non-energy product is minus 2.28%, the decline in non-energy export in the EU market share is the main reason for the negative growth in export to the EU in the first quarter. The miscellaneous products (the labor-intensive products mainly including furniture, garments and accessories, and footwear), as well as machinery and equipment are the major two categories of Chinese exports to the EU. The growth of these two types of goods in the EU market share began to have a declining trend from 2004 to 2005, and the absolute value of the market share of miscellaneous products began to decline in 2011. Despite the absolute value of market share of machinery and equipment products are still growing slowly, the growth rate has been close to zero. 

All these show that the decline of China’s export growth to the EU has accumulated for a period of time, and is the result of the decline of China’s competitive advantage of export products. The competitiveness of labor-intensive export products in the EU market has been in a recession, even the competitive advantage in capital-intensive machinery and equipment exports is almost depleted. To change this downward trend, China cannot expect or wait for the recovery of the EU economy to compensate the loss, on the contrary, China should focus on enhancing the competitiveness of China’s export products in the EU market and promoting the products to move to upstream of the value chain. Speeding up the upgrading of export industry so as to increase the investment in Europe has become the new respect to compensate the negative growth of China’s largest export market, as well as to drive the economic growth. With its good investment foundation of labor, capital, industry and its convenience to get the EU technology and market, the CEE is quite a good investment place which can produce lots of added values.

II. The main characteristics of investment from China to CEE

Firstly, China focuses on the integrity of investment distribution, and strengthens the overall transferring of the chain of production, processing and marketing.

Currently, more and more Chinese investors can be seen in the construction fields from transportation (ports, airports, and roads) to the local assembly and distribution network (the construction of industrial park), and even to the logistical facilities (the construction of sea transportation, container companies and telecommunications network) in the CEECs. The Chinese investments in CEE have already possessed the characteristic of integrity. It has been developed from the trade towns and trade centers only focusing on the concentration of labors and on the static sales, to the diversification of investment industries and the development of value chain. With the increase of green field investments, mergers and acquisitions, and Joint Ventures in CEE, Chinese enterprises have already attempted to make the specific production models (such as infrastructure construction, machinery manufacturing, information and service industries as well as the development of chemical and agricultural, etc.) locate in CEE. They also regard CEE as the center for production upgrading and sales (distribution) to realize the localization and even “Europeanization” of the production, circulation, sales and branding of Chinese product, and then use CEE as a springboard to enter the market of EU, Russia and Turkey. This is one of the main characteristics of Chinese investment in CEE, not only for the time being but also for the foreseeable future.

Secondly, Characteristic investment industries have gradually been formed.

Currently, China’s characteristic investment industries in CEE have been gradually formed. Basically centering on the comparative advantage of the technology, human capital, as well as the long-term accumulated early-development advantages, the Chinese investment is implemented in combination with the actual investment needs of the CEECs. The investment industries mainly include the infrastructure construction, the construction and development of information and communication technology, the clean energy investments (mainly about technical investment) and the machining and manufacturing, and etc.

China Road and Bridge Co., Ltd. signed the Zemun-Borca Danube River Bridge project contract with the Serbian government in Belgrade in April 2010. This is a landmark project for bilateral cooperation. Although failing to invest in the Polish A2 expressway, China’s investment in infrastructure construction in CEE has a sound momentum of development and has covered many countries and regions in CEE. The investments of Huawei and ZTE, two Chinese information and communications technology companies, almost spread all over the CEECs. With wide scope of businesses, the companies have exerted a relatively large impact. China has also made certain achievements in the investment in clean energy in the CEECs, and accelerated the capital and technology investments in hydropower station, nuclear power plants, heat power station and etc. In terms of mechanical processing and manufacturing, China invested in the production lines of appliances, automobiles and heavy machinery in many places of CEECs (Hungary, Poland, Bulgaria, Serbia, and etc.). For example, in the end of January 2012, Shaanxi Liugong acquired the Polish construction machinery enterprise HSW, which is one of the largest construction machinery manufacturers in CEE and enjoying a very high position in the heavy engineering equipment field, with its product exporting to more than 80 countries. After acquiring HSW, Liugong can get all of its intellectual property rights and trademarks, and establish manufacturing base as well as research and development base in Poland. Based on Poland, Liugong can radiate its influence to the whole European market. As the integrated outcome of the above competitive industries, China has also strengthened the construction of the industrial parks in CEE so as to encourage and attract investors from China, and expand the influence of Chinese investment in CEE.

Thirdly, China focuses on the development and cooperation with the major countries of CEE and expands investment from key regions to the whole.

China does not pursue to develop the relations with CEE in one step and to invest in the whole region, but to pay more attention to the countries which have prominent advantages of investment and holds more balanced composite indicators, especially to the CEECs having the advantages of geography, industrial base, resources endowments and labor force quality. What China values most is the function of “springboard” and “bridgehead” of some CEECs. For example, Hungary, Poland, become the important choices for China. Currently, Hungary attracted most of the Chinese-funded institutions and Chinese businessmen in CEE. Chinese investment in Hungary covered the trade, finance, aviation, chemical, logistics, real estate, consulting services, communications and electronics manufacturing industries and etc.In 2010 and 2011, Wanhua Industrial Group Co., Ltd., the controlling shareholder of Yantai Wanhua Polyurethane Co., Ltd., invested a total amount of 1.263 billion Euros for two consecutive years and acquired 96 percents stock of Hungary Po Precede chemical company. It becomes the largest Chinese investment in CEE. China’s direct investment in Poland had always been small for many years until 2007 when Chinese investors began to notice its economy’s strongly development. Chinese investment in Poland has experienced the rapid growth from 2007 to 2011, with machinery manufacturing, communications technology, mineral, real estate, infrastructure construction and other field being involved. The statistics of 2010 and 2011 from the Chinese government show that the investments of China in CEE primarily go to Hungary, Poland, Romania, Bulgaria and the Czech Republic. Hungary attracts the highest investment stocks, which are respectively for $465.7 million in 2010 and $475.35 million in 2011. The next is Poland (respectively are $140.31 million and $201.26 million), then Romania (respectively are $124.95 million and $125.83 million), Bulgaria (respectively are $18.60million and $72.56 million), and the Czech Republic (respectively are $52.33million and $66.83 million).To certain extent, the investment on these countries will drive the investment in the entire region of CEE.

Lastly, the soft environment of investment in CEE is partly improved. The Chinese government vigorously promotes the cultural exchanges between China and CEE, holds various investment forums for the exchange, dispatches “investment promotion delegations” to the CEECs to promote investment and strengthen the exchange of information and sharing of experience. Especially, the Chinese government invites the officials in charge from the CEECs to China for exchanges and trainings, so as to have them understand China’s economic situation and foreign investment policies in CEE.

Besides, China has also set up a cultural exchange mechanism between China and CEE and founded the research fund to promote the mutual understanding between them.

III. The main challenges of Chinese investment in CEE.

Firstly, China’s main investment way in CEE is to move the whole industrial chain to the region and build it into the product upgrading center as well as the sales center, so as to realize the localization of the Chinese production, mobility and sales, and further to enter the EU, Russia and Turkey market. However, there are certain investment risks in the way. The EU member states have realized the investment tendency of China. Some members of the European Parliament clearly express that China will be welcomed if its investment can provide employment opportunity and bring profit, otherwise will be strongly objected if it only wants to use the CEECs as its export bases or sales centers. The competition caused by the industrial convergence between China and some CEECs cannot be ignored either. For example, both Poland and Hungary features the processing industries to meet the demand of the European market and they are regarded as the miniatures of China in the EU market. 

The Chinese investors have been concerning about the investment value and the market capacity of the CEECs for a long time. Most of the high quality assets of the CEECs have been absorbed due to the privatization by the western countries in the transformation period in the 1990s. So currently, most of the high quality assets are still being controlled by those “sooners”. What the Chinese enterprises gained from the CEECs are mainly some poorly managed businesses.Meanwhile, most of the CEECs’ market capacities are comparatively limited, which make it difficult for the Chinese investors to receive relatively high profit. Besides, the integration of the market rule of the CEECs with EU also makes it more difficult for the Chinese enterprises to step in the region. Worse still, in some CEECs, especially in the South Eastern European countries, the grey economies and corruptions are rampant, and sometimes, the laws and regulations cannot be put in place, all of which bring risks for the Chinese investors.

Secondly, the stakeholders, mainly including some influential commercial interests groups in the EU, Russia and CEE, are concerned about China’s entering CEE markets and try to curb it. During the European debt crisis, the step in CEE by China has triggered the high concern from EU’s institutions, Germany and other EU members, who speculate that China is trying to divide EU and establish another “CEE group”. In 2012, the joint communiqué to be publicized during the meeting between China and CEE is submitted to EU institutions for review in advance. EU strongly opposes the proposal of keeping in a long way and institutionalization between China and CEE. German Chancellor Angela Merkel used to express her concern about the closed discussions between China and CEE unilaterally.Along with the deepening cooperation, the EU institutions and relative member states might set up obstructions. Russia, another great power keeping close relations with CEE, also suspects of China, for it worries that the Chinese forces will gradually enter its “backyard” and take over  its trade opportunities and political clout. Apart from this, the commercial interest groups of the CEECs are also important forces that hinder China to enter the CEE market. Due to competitive relations in purchasing and bidding with China, these groups will be certainly threatened if the Chinese enterprises enter their dominated territories, therefore, they also often ask their government to impose various restrictions in admittance, terms of tender, visa, residency and etc with the excuse of protecting the enterprises of their own country. 

Thirdly, the negative campaigning of media and think tanks pose pressure on Chinese investment. When entering CEE, China was criticized by some local media of abusing fair trade rules and using the price dumping to compete unfairly. Some think tanks suggest that, the CEECs need to unite together to conduct economic diplomacy and bargain with China, so as to avoid China gaining more profit by virtue of the contradictions among the CEECs. Only by uniting together can CEE properly cope with the economic ‘invasion’ from China. Some think tanks believe that the Chinese investment policies are driven by its political interests. China needs the support of the CEECs to exert its clout on the great powers in EU. The formation of CEE alliance may push the EU to make decisions beneficial to China. Some other think tanks even think that, the reason for China to adopt different diplomatic criteria towards CEECs is that the economic potentiality and political attitude closely connected with the specific invested countries. For example, Poland and Czech, due to their state leaders often meet with Dalai Lama and criticize the Chinese human rights, usually get less Chinese investment that is disproportionate with their economic scale. While Hungary, Romania and Bulgaria, thanks to their full support attitude towards China, get high return of investment. The negative campaign of media, the ignorance of China by the mass of the CEECs, and the non-recognition of the Chinese system by these transformed countries lead to the unfavorable public opinion circumstance of some CEECs.

Finally, China does not know and is not familiar with the CEECs after transition.

After the drastic changes of the Soviet Union and Eastern Europe, the priority of the CEECs is to consolidate the democracy, integrate with the west and join in EU. China is mainly engaged in developing its economy and maintaining social stability. China and CEECs used to be close with each other; however, they get estranged due to the different strategic development orientations after the cold war. There are different kinds of language, culture, ethnic group, religion and history development in CEE; the CEECs are geographically far from China and have changed a lot, all of which make them more difficult for China to understand.

IV. The main case and warnings of Chinese investment in CEE

In September 2009, A2 Expressway of Poland opened invitation for bids. Directly connecting Warsaw, Poland with Berlin, Germany, the expressway was an important project for European Cup 2012. China Overseas Engineering Group Co., Ltd (COVEC), as a subsidiary of China Railway Group Ltd (CREC), responded to the tender quickly. Finally, the bidding consortium headed by COVEC won the contract with 1.3bn Zlotys ($472million, ￥3.049bn) to build section A and C. The expressway became Chinese company’s first large-scale infrastructure project in EU countries. COVEC had been trying to enter the European infrastructure market; undoubtedly, the A2 Expressway provided a good opportunity for COVEC to demonstrate itself. However, this project eventually ended with the Polish government terminating the contract with Chinese company in June 2011, and the Chinese infrastructure’s “First Bid” in CEE ended up in failure. For COVEC’s investment in Poland, the domestic media concluded that COVEC got clobbered due to its blind entry. In fact, we should analyze the COVEC’s investment in a dialectical, objective and comprehensive way. Only by this, can the case provide relatively rich and comprehensive references for the Chinese companies’ investment in CEE in the future.

Firstly, some unpredictable risks should be considered in the investment by COVEC in Poland: (1) It happened to encounter the financial crisis in 2009 when the price of raw materials was relatively low. After winning the bid, the schedule was put off due to cold weather (force majeure). Meanwhile, the Polish economy recovered quickly and Poland began to extensively build infrastructures for European Cup 2012. Prices of various raw materials for infrastructure rose so sharply that the rental prices of some raw materials and excavating equipments rose more than five times just in one year. The soaring cost of infrastructure project let the Chinese investor burden losses at the very start. (2) China gained explicit support from Polish authorities to invest in the project. On one hand, the Polish Peasants’ Party, one of the ruling parties, was eager to create achievements and strongly believed in the “Chinese Speed” of the Chinese enterprises. On the other, European and American contractors had been charging too high. In order to drive down prices, the Polish government tended to have Chinese companies involved, and the Polish Peasants’ Party representatives had been to China to lobby. The Chinese side took for granted that they can win the contract first and then to ask the Polish government for help when trouble occurs. So China proposed an extremely low offer, however, the offer didn’t arouse suspicion from the government officials of Poland. In fact, things didn’t go on as the expectation when the Chinese contractor encountered difficulties. In June 2011, Donald Tusk, Polish Prime Minister, firmly refused China’s request for adjusting the bid and terminated the contract with China. (3) The Poland Highway Authority operated irregularly in the bidding process and deliberately concealed some difficulties of the construction. In addition, the bidding procedure was not fair and transparent either. Given all the above-mentioned factors, there were particular reasons for the failure of investing in Poland by COVEC.

Secondly, there were COVEC’s own direct reasons for the failed investment:

(1) Blindly stepping into the market and unfamiliar with the situation. In the early stage of investment, the Chinese side leaned too heavily on the opinions of several Polish experts. Neither did the Chinese side fully examine the particular local situations for infrastructure, nor did it know the special provisions of the EU, such as specialized channels for protecting wildlife shall be constructed in the highway, local labors shall be hired in project contracting. Worse still, the Chinese side was not familiar with local suppliers of raw materials. All of these resulted in serious over-budget.

(2) Poor internal management. With many contradictories existing among the consortium and the working relationship not straighten out, the work efficiency of the Chinese side was seriously affected. 

(3) Slack technical checks. Neither did the Chinese party realize that the project function specification provided by Poland in tend was unclear nor did it comprehend the complex geology of the construction section. The Chinese technical staff made the decision in a hurry without sufficient preparation before bidding.

Thirdly, when evaluating the investment of COVEC against the larger background of the “Going Out” strategy of China we can find more in-depth problems that Chinese companies will be faced when investing overseas, such as the unsound supplementary measures for investment. Happening concurrently, both European Cup 2012, the most concerned event in the whole Europe, and the “unfinished project” in Poland of COVEC were witnessed by all walks of life ranging from the Prime Ministers , the royal families to civilians in European countries, resulting in the negative impact being magnified beyond expectations, which the Chinese side had no preparation at all. It reflected that the Chinese companies are seriously in lack of the crisis-prevention awareness and public relations capability as well as the sound supplementary measures in investment.

V. Recommendations on China’s investment policy in CEE.

1. China must clarify the strategic intentions of investing in CEE, namely, further promoting the cooperation between China and the EU via the cooperation with CEE.

China has the intention of upgrading industrial chain and the demand of production localization on the investment in CEE, which is basically a kind of economic behavior. It needs to clarify to the EU via relevant policy interpretation that Chinese investors always pursue the principles of mutual benefit and win-win, and will comply with EU laws and regulations. China’s investment plays an important role in the promotion of economic development in CEE and also is a useful driving force for more balanced development of Eastern Europe and Western Europe within the EU. And this will be a great opportunity and attempt to deepen comprehensive strategic partnership between China and EU.

In view of the closely dependencies between CEE and the EU, the role and the function of the European Union need to be included in the process of promoting bilateral cooperation between China and CEE. And this will be an effective way to make the EU hold more comprehensive understanding and less groundless suspicions to China. In the case of not diluting the cooperation of China and CEE, China ought to partially create the conditions for EU institutions and member states to participate in this process, transforming the cooperation of China and CEE into a moderately open and inclusive multilateral cooperation platform.

2. Properly addressing the issues of risk aversion and crisis management of the investment in CEE.

The support of local government and non-governmental organizations is indispensable to investing in the economic construction of the CEECs. So sound supplementary work will be necessary, and China ought to take advantage of the investment opportunities to extensively contact with local institutions for deeper understanding and cooperation. For the purpose of risk aversion and improving crisis management capabilities, China needs to create conditions for the establishment of the advisory committee of experts (or analysis team of investment risk) and local foundation formed by the local elites and relevant agencies. The main purpose of the advisory committee of experts is to gather information, investigate in depth for investment risks, and avoid walking into unfamiliar territory blindly. The principal objective of establishing local foundation will be for crisis prevention and crisis management. At first, enterprises ought to make some of the local elites become members of interests community within the investment activity. Once Chinese enterprises suffer losses or obstructions in investment from the host country, the foundation can come forward to public relations, to defuse the crisis.

3. The government ought to strengthen the guidance and support of investment behavior.

The government needs to guide enterprises to flexibly choose right model of investment according to the specific characteristics of project. In addition to green field investment, enterprises can explore and adopt the models like joint venture, mergers and acquisitions, participating in the privatization, and so on. Enterprises may also seek the possibility of cooperation with multinational companies on the projects with large amounts and high public attention.

The government ought to take the initiative in resolving the specific technical barriers set by some CEECs. Firstly, it is difficult for the Chinese side to get labor visas, work permits, and to take up residence, which affects the expansion of investment in CEE. Next is the social security problem. There are not social security agreements between China and CEECs and in local enterprises Chinese workers need to pay pensions and unemployment insurance. However, when they return to China the insurance premiums paid cannot be returned and that will be an additional burden to the Chinese enterprises. Thirdly, in order to attract investment, CEECs will generally provide some preferential policies; nevertheless it is difficult to execute due to the constraints of the system in the actual implementation process. The Chinese government ought to come forward and urge the governments of the CEECs to strengthen policy implementation on these issues.

4.The 12 initiatives proposed by the Chinese government need to be implemented as a core policy for deepening bilateral friendly cooperation. Meanwhile China ought to actively sum up experience and amend some existing problems of the 12 measures. Combined with the practice in other regions, China needs to positively explore new model on developing relations with the countries of CEE. Especially after the China-Africa cooperation, China-CEE cooperation can be another good example of country to region cooperation. To this end, the Research Fund on Relations of China and the CEECs proposed by the Chinese government ought to concentrate upon this dimension for some useful exploration, extensively absorbing the opinions of political, academic and business elites to confer on a new model of cooperation between China and CEE and make it prevail.

Published in China International Studies, November/December 2012.