Dr. Jens Bastian is an economic consultant based in Athens, Greece. His work focuses on China’s investments and bank lending for infrastructure projects in Europe, particularly in the region of Southeast Europe. He is the author of three books which address subsequent issues: „A Matter of Time”, „From Crisis to Recovery” and „Sustainable Growth in South East Europe”.
Dr. Jens Bastian agreed to provide an interview for Balkan Development Support, aimed to put a spotlight on the expansion carried out by the Bank of China during the past years in Europe. It is worth mentioning that the dialogue we had was intended to be brief, instead it turned out so challenging that it evolved naturally, towards issues previously not considered, during the interview itself. To our readers, enjoy the reading! For dr. Bastian, thank you once again!
Julian Mareș: In December 2019, the Bank of China (BoC) opened a branch in Bucharest, following the branches opened in Budapest (one in 2003 and another in 2012), Warsaw (in 2012), Budapest again as a regional hub (in 2014), Prague and Vienna (both in 2015, as branches of the Budapest hub, as well as the one in Bucharest). Bearing in mind this time frame, please help us understand what is the significance, if any, of Bucharest being „the last dot on the map”.
Dr. Jens Bastian: I must correct one element in your question. You focus on the Bank of China and highlight the opening of a branch in Budapest, Warsaw, again in Budapest, in Prague and in Vienna, and now in Bucharest. What is missing in this lineup is that the Bank of China also opened a branch, in January 2018 in Belgrade, Serbia. What I would therefore underline is the fact that the network of the BoC extends beyond the European Union. Serbia is an important location for Chinese investment, and for that reason Chinese companies also need banking services. Consequently, the BoC now also has a branch in Belgrade.
You are trying to analyze how the BoC is establishing its strategy across Europe, that includes countries of the European Union and countries that are negotiating their EU membership, like Serbia. You should also bear in mind that the BoC has a branch in Athens since November of last year. You can see their networking strategy, how BoC is establishing a very close network and it is not relevant for the BoC if the country is a member of the EU or not.
Julian Mareș: Than … what is the criteria?
Dr. Jens Bastian: The criteria is the business opportunities, the demand for financial services, and in my view what BoC is doing is that they are establishing branches today in order to look for business opportunities tomorrow. They can wait, but it is important to have a presence, to learn the market, to try to identify what are the strategic priorities in that market, and then to gradually move in that market with acquisitions, with financial services, with the recruitment of clients.
Julian Mareș: How would you explain the opening of a branch in Bucharest basically 7 years after the opening of a branch in Warsaw, and even later than the opening of a branch in Budapest? Once again, why is Bucharest the last dot on the map?
Dr. Jens Bastian: I wouldn’t say Bucharest is the last dot, it is the most recent dot on the map. It means the expansion continues and probably in the coming years it will attract other countries, in Bulgaria, in North Macedonia, possibly in Ukraine. It is a process that will continue, it is not something that comes to an end in Bucharest. It also shows that BoC had operated the market in Romania from outside Romania, now they are operating the market from the inside. That tells you something, namely that BoC considers the Romanian market important, enough to open a branch, hence something has changed in the approach and in the way BoC interprets and values the market and the opportunities in Romania.
Julian Mareș: It has been recently explained to me that the Chinese banks never open the door on a market, and they always follow the Chinese companies.
Dr. Jens Bastian: It makes sense to me, it is about how much critical corporate mass is in a country, a critical mass of business opportunities, of previous Chinese investment, also how many Chinese citizens live in that country, who need Chinese banking services. Given these preconditions a bank such as BoC can open a branch. But it is a situation where you react to a market, but you also try to influence that market. So it is simultaneously reactive and proactive.
Julian Mareș: Would you assess the case of Bucharest has both?
Dr. Jens Bastian: Yes, it has both, definitively. Also, bear in mind that if a Chinese bank opens a branch that means they have done their research, they have talked to potential clients and they have made an evaluation that the country is politically and economically stable, hence it is worth the risk of opening a branch. Rest assured, they have done their homework.
Julian Mareș: Next, I would like us to explore the possibility of an overlapping between the expansion of the Chinese banks and the 17+1 Initiative.
Dr. Jens Bastian: I do not think it is a case of overlapping, I think it is complementary. The expansion of the bank networks is happening in parallel to the expansion of the 17+1 format. The bigger the 17+1 becomes … last year it was 16+1, then Greece joined in April 2019, and it became 17+1, the more countries are members of the 17+1, the more the demand expands for banking services from Chinese companies.
Julian Mareș: Well, in that case, what is your understanding on this complementarity?
Dr. Jens Bastian: Complementary means that it is something that happens in parallel, something which is not necessarily competitive. The Chinese banks understand that the expansion of the 17+1 network also means if another country joins as a member, there will be additional demand, additional request for services, and these banks follow that kind of development. On the other hand, 17+1 means the Chinese banks can expect there will be more bilateral agreements between, for example, Romania and China, between Greece and China, and the more you have this kind of cooperation, the more you also need banking services.
Julian Mareș: To which extent is the case of political influence versus financial gain? What is the priority in this?
Dr. Jens Bastian: I do not see immediate political influence. The Chinese banks … first of all, they try to service infrastructure projects that require financing, infrastructure projects, for example, in Serbia, in Montenegro, in North Macedonia, in Romania, in Bulgaria. And often the Chinese companies who build bridges, who build highways, who invest in energy companies, in telecommunications or in ports … these Chinese companies need Chinese banking services. So, I do not think this is about the politics of Chinese banks, I think they react to a demand which Chinese companies have. For example, when Montenegro builds a highway or when a Chinese company invests in a port in Greece, these Chinese companies will need credit. They often ask Chinese banks, state owned banks, to provide them with that credit line. Hence, you have a demand from the Chinese side, from Chinese companies, for Chinese banks. So, this is not about the politics, it is about the arrangement of commercial transactions, between companies who need loans and Chinese banks who can provide credit facilities.
Julian Mareș: I see. I remember the Polish case, the failed project of that highway, and I remember that one of the causes of the failure was that the Chinese company failed to obtain a loan from the Chinese banks.
Dr. Jens Bastian: Yes! That tells you there are lessons they have learned, and they have reorganized their strategy. This Polish case is an older example from which you can say: “lesson learned, lessons applied”. The Chinese companies today are much more sophisticated, much more experienced in how they can organize financing for their investment projects, for their infrastructure projects, in countries like Poland, Romania, Bulgaria or Greece. Sometimes, the negative experience, like in Poland, actually creates new opportunities, if and when lessons are learned and subsequently applied.
Julian Mareș: The next question also hints at the 17+1 Initiative: I assume China’s priority covers the entire format, not one country or another … how do you think China will manage to keep the balance within 17+1, in order not to end up with, allow me to say, “first class and second hand partners”?
Dr. Jens Bastian: I think the biggest challenge in the 17+1 network is the management of expectations. China has created expectations regarding cooperation with members of the 17+1 platform, e.g. cooperation for investment, for loans, for infrastructure projects. Hence, these expectations are rising … that countries will benefit from cooperation with China. This means China is in a situation that it has to deliver, it has to manage these expectations. And, what I am starting to observe is that there are some members of 17+1 who are starting to look critically on how much did China promise and how much did China in fact deliver in the past years, and they say there is a growing discrepancy, a growing gap between promise and progress on the ground. That, for me, is the key challenge – the management of expectations.
The other issue that I see is that 17+1 continues to be important for China. The planned 17+1 summit, in March of this year, in Beijing, will be chaired by President Xi Jinping … that tells you something about the political importance of 17+1 for China. However, because of the Corona Virus emergency we have to see if the Summit will take place as planned.
Julian Mareș: How do you think China will deliver this management of expectations? Which are the carrots and which are the sticks?
Dr. Jens Bastian: Well … the carrots are clearly that, by joining 17+1, you have privileged access to Chinese representatives, you have participation in a summit every year where you can try to sign bilateral agreements with China. You also have the possibility, within 17+1, of receiving advanced information about Chinese initiatives. The stick is to what degree do the countries who participate in 17+1 understand the complexity of cooperating with China, in particular when this cooperation faces difficulties, when it faces the discrepancy between expectations, promises and what it is really happening in substance. Dear dr. Bastian, I truly thank you for your answers, and I am grateful for the valuable insights you have provided.