The Emperor’s New Road: China and the Project of the Century

by Jonathan E. Hillman

  Of course, China could join the EAEU. But it is impossible to imagine either Moscow or Beijing supporting this level of integration. Moscow dominates the EAEU in economic and political terms, and admitting China would undercut that influence. Indeed, it would be more accurate to say that the EAEU would be joining China, which is more than seven times larger in economic and demographic terms than the EAEU members combined. China, for its part, would have little to gain from binding itself to the EAEU’s higher tariffs and rules.

  Plenty still divides Russia and China. Beneath the endless mutual praise and talk of partnership, they are fundamentally unequal, with China towering above Russia in economic and demographic terms. Even the language they use to describe their partnership is telling. Chinese officials speak of dui jie, or “docking,” the BRI and EAEU. Russian officials use the word sopryazhenie, which means “coupling,” suggesting a more equal partnership that is at odds with reality.58

  The greatest barrier to deeper integration is a similarity: Russia and China are unwilling to give up much control. Both visions aim to enhance a single state’s influence. The EAEU puts Moscow at the center, while the BRI puts Beijing at the center. Both visions also maintain a defensive posture domestically. The EAEU protects Russian industries, while for all the talk about BRI promoting connectivity, China uses capital controls that limit financial flows, internet restrictions that limit information flows, and security policies that limit the movement of people and goods. Both governments favor domestic stability and self-preservation above all else. Greater connectivity could bring more growth but also more disruption and less control.

  The Last Boat

  There was no illusion about who was in control, as my time with the Russian border guards stretched on. “We will go get the document,” the soldier announced. Apparently “we” included me, so I very reluctantly piled into a van with three soldiers and Nadia. “You don’t need that,” one of the soldiers said as I reached for the seat belt. “That is not against the law?” I asked. “Not when you’re with us,” he said. Dimitry followed in his car. The ride was only fifteen minutes, but it was in the opposite direction of the city. It was four p.m., and my chances of catching the ferry back to Heihe were dwindling by the minute.

  The border guards’ local command post was on a dirt road, off poorly maintained roads, behind a makeshift wood and wire gate. As we approached, the soldiers let Nadia and me out of the van and continued past the gate. We sat in Dimitry’s car with the doors open, flies buzzing in and out. I was not the only one checking my phone. Dimitry and Nadia had other places to be as well. Dogs barked from within the compound.

  Around 5:15 p.m., the soldiers emerged with more papers. Nadia explained that they were identical copies of the report from earlier, only the handwritten parts had been typed up. I initialed and signed a Soviet-sized stack of papers.

  NADIA: They say they can make a second copy, if you would like.

  ME: No, thank you.

  DIMITRY: To get more paper, they may need to cut down a tree.

  Suddenly, without ceremony, we were done. We closed the doors, and Dimitry sped away. As he accelerated, driving fast over the dirt road, I wondered whether he was eager to get home, putting on a show, or actually helping me catch the boat. Around 5:45 p.m., the city emerged. At 5:56, we arrived at the entry to the ferry. I jumped out and ran for the departures building. But at 5:58, the door was locked. I banged on it. A customs official emerged, opening the door just long enough to announce: “The next boat is tomorrow morning, 8:30 a.m.”

  If only the bridge had been complete. It could turn a two-hour ferry and customs process into a twenty-minute drive, boosting the flow of goods and people across the river. Like all new connections, these changes would force the beneficiaries of the current system to adapt. The suitcase traders might be replaced by truckers. If enough people opted to drive, the dingy restaurant and hotel where I spent the evening, both located near the ferry terminal as many others were, might struggle to stay in business. Most of all, if the bridge were complete, it would not be a restricted area. I might not have spent the day with the Russian border guard.

  But as I was reminded the next morning, scrutiny was never far away. Before catching the first boat to Heihe, I had to clear customs. After looking through my passport for several minutes, a Russian official picked up a phone. Moments later, a plainclothes security agent was questioning me in a back room. When I was finally cleared to depart, the dull thud of my passport being stamped sounded to me like a slot machine hitting the jackpot.

  An hour later, I arrived in Heihe, never happier to be on Chinese soil. I handed my U.S. passport to another understandably confused customs official, who called his supervisor. The supervisor took a quick look at my visa, smiled, and waved me through. Like the reception on each side of the bridge, the contrast was telling. Naturally, both sides were surprised to see an American amid the steady stream of Russians and Chinese. The Chinese were amused. The Russians were alarmed.

  Central and Eastern Europe

  Center for Strategic and International Studies, Reconnecting Asia Project

  CHAPTER FIVE

  The Bridgehead

  Central and Eastern Europe

  “ITHINK, MAYBE, YOU MIGHT prefer taking the bus to Budapest,” the receptionist at the Moskva hotel in Belgrade said politely. Most people do. It is faster, and the air-conditioning works. But I was there for the train, a route made famous by Agatha Christie’s 1934 novel Murder on the Orient Express and more recently by China’s controversial push to build a faster line. The $3 billion project, China’s first railway in the EU, has become a testing ground for whose rules will prevail in eastern and central Europe.1

  No one is yelling murder yet, but in 2017, the European Commission launched an investigation into the bidding process around the Belgrade-Budapest railway. At question is whether the Hungarian government awarded the contract to Chinese firms without an open competition, which is required by EU law. In response, Hungary held a new tender for the project. The winner is hardly reassuring: a Hungarian-Chinese consortium that includes a company owned by Lorinc Meszaros, a childhood friend of Hungary’s Prime Minister Viktor Orbán.

  Officials at the European Commission in Brussels and those in western Europe—especially Germany and France—worry that Chinese investments are eroding unity within the EU and weakening the states on its eastern fringe. “They try to import their way of life, and this means a combination of capitalism and political dictatorship,” EU Commissioner Johannes Hahn, who oversaw the accession process of new members and relations with those bordering the EU, said of China. “This will be one of the great challenges of Europe.”2

  Others have been even more blunt. “The initiative for a new Silk Road . . . is not a sentimental nod to Marco Polo, but rather stands for an attempt to establish a comprehensive system to shape the world according to China’s interests,” Germany’s Foreign Minister Sigmar Gabriel said at the Munich Security Conference in February 2018. “This has long since ceased to be merely a question of economics. China is developing a comprehensive systemic alternative to the Western model that, in contrast to our own, is not founded on freedom, democracy and individual human rights.”3

  Those concerns are spreading.4 EU leaders, after withholding their judgment, have begun openly criticizing Xi’s vision. France’s President Emmanuel Macron has said that the BRI cannot be “one-way.”5 Britain’s Prime Minister Theresa May, to the dismay of her hosts, abstained from signing a memorandum of understanding (MOU) during her visit to Beijing in January 2018.6 In April 2018, the German newspaper Handelsblatt reported that all but one of the national EU ambassadors to Beijing signed onto a report criticizing the BRI, noting that it “runs counter to the EU agenda for liberalizing trade and pushes the balance of power in favor of subsidized Chinese companies.”7 Hungary was the lone holdout. More surprising is that Greece, which has often stood with Hungary to soften EU criticism of China, joined the statement.
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  Feeling neglected by western Europe, central and eastern European countries have increasingly turned toward China for investment, particularly after the 2008 financial crisis. The Czech Republic’s President Miloš Zeman has offered his country as China’s “unsinkable aircraft-carrier.”8 In 2016, Greece’s Prime Minister Alexis Tsipras said his country could “serve as China’s gateway into Europe.”9 Hungary’s Orbán has put it even more bluntly: “If the EU cannot provide financial support, we will turn to China.”10

  China has been happy to oblige. Its direct investments in Europe have risen from less than $1 billion in 2008 to a record $42 billion in 2016. Chinese investments have since pulled back, due to China’s own limits on investment outflows as well as increased scrutiny from outside, but Europe remains a major focus. China’s wallet has been welcomed, particularly by non-EU members, because it can dispense cash faster and with fewer restrictions.11

  For China, central and eastern Europe are a bridge into the EU, the grand prize at the opposite end of the Eurasian supercontinent. Chinese contractors have struggled to gain a foothold in the EU market, where projects require rigorous risk assessments and most countries already have access to competitive financing. In 2009, the China Overseas Engineering Group (COVEC) became the first Chinese firm to win a contract for building a European road. COVEC’s bid for the project, a highway linking Warsaw and Berlin, was shockingly low—less than half of what the government had budgeted. After winning, COVEC claimed that materials were unexpectedly expensive and quickly ran into cash-flow problems. Poland canceled the contract, making China’s first foray an embarrassing failure.

  Officials in Beijing have not forgotten that episode, and the Belgrade-Budapest railway offers a chance for redemption. Both parts of the railway are valuable to Beijing. The Hungarian portion is China’s first railway project within the EU.12 It is a training ground for Chinese state-owned enterprises to meet EU requirements and prove they have what it takes to compete against Western companies on their home turf. It also strengthens ties with Hungary’s leadership, which has been willing to weaken common EU positions toward China.

  The Serbian side of the railway provides an opportunity for China to deepen economic and political ties with a country that could become part of the EU. Although Serbia is an EU candidate, it is not bound by the same procurement regulations that Hungary and other existing members must uphold. When and if Serbia and other central and eastern European countries accede to the EU, Chinese firms already based in those countries could ride more easily into the EU market. In recent years, Chinese infrastructure investments have been disproportionately concentrated on Balkan states aiming to join the EU.13 “It would not be immodest or wrong to call Serbia China’s main partner in Europe,” Serbia’s minister for construction said in 2017.14

  “The Iron Road”

  Despite the attention that China’s Belgrade-Budapest line has received, it is hardly Serbia’s first shady railway deal with a foreign power. That would be its first railway as an independent country, started after the 1878 Congress of Berlin, which included a special committee to oversee the construction of a regional railway. The project was a matter of international concern because since the 1850s, European powers had sought to establish a railway connection with the Ottoman Empire. When the Russo-Turkish War ended in 1878, Serbia sat between two empires, the Ottoman Empire and Austria-Hungary, and the shortest route between them ran through it.

  Having made the railway a priority, European powers jockeyed to influence its route. Austria-Hungary and Russia viewed the railway in zero-sum terms. Austria-Hungary’s diplomat in Belgrade explained the stakes to his superiors at the Ministry of Foreign Affairs: “Russia, if it was to get the railway in Serbia, would receive in the south of our Kingdom a permanent and reliable observer, a force, a new agitator on our southern border, in the end it might get allies in Serbia.” Officials in Russia, for their part, viewed the railway as an opportunity to stop the spread of Austrian-Hungarian influence in Serbia.15

  Within Serbia, the project was praised and vilified. Establishing a railway, some Serbian elites had long argued, was a key to modernization. “Serbia will collapse, unless an iron road is constructed over it!” Prince Mihailo Obrenovi´c, Serbian royalty, worried in 1865. Others saw another avenue for foreign influence. “In the Iron Road, which will pass through the heart of Serbia, I see that fierce dragon, which will. . . swallow thousands of families whose grandfathers and fathers made all sacrifices for the freedom of this country,” an opponent of the railway later warned.16

  The dragon, of course, was not China but Austria-Hungary. Serbia, lacking sufficient funds as it does today, looked for outside investors. Austria-Hungary, its imposing neighbor and historical aggressor, was offering the best financial terms for the railway. Critics of the railway argued that it was not a pressing need and that rather than enriching Serbians, the railway would subjugate them. As one Serbian economist warned, “All that our railway could export is raw materials, which are required by the Austrian-Hungarian factories. And once we have finished exporting raw materials, then we shall become laborers of foreign factory owners and capitalists.”17 The opposition also pointed to missing links in the bigger proposed network, which no one could guarantee would be built, making the railway’s outlook even more uncertain.

  Secrecy and bribery moved the railway along. Recognizing that Austrian companies would probably win any open tender for the project, Serbian officials held secret negotiations with Russia, which could not afford to finance the project but wanted to build it. Both sides agreed that, after securing financing from France or Britain, Serbia could hand over construction to a Russian firm. But the deal fell apart. Société de l’Union Générale, a French bank, eventually won the concession for the line, after bribing members of the royal family. It went bankrupt in 1882, less than a year after construction was started, and Serbia appointed another French bank in its place. After becoming operational in 1884, the railway generated losses for the state, which was forced to pay the guarantees it had promised its creditors.18

  Belgrade’s first railway station was completed shortly after the line, and its grand yellow facade evokes the era when the train was cutting-edge technology. The building also reflects the city’s traumatic history. Infrastructure is often the first target of military operations, and Belgrade’s position at the crossroads of empires has meant that its railways and bridges have often come under attack. German forces damaged the station in 1941, during the early days of World War II, and Allied forces followed suit in 1944, when the country was occupied. In 1999, NATO munitions hit the Chinese embassy in Belgrade, an accident that pushed China and Serbia closer together. The city has been destroyed and rebuilt some forty times.

  “The Biggest Transportation Disaster”

  After 134 years of operation, Belgrade’s main station was shut down in July 2018, just days before I arrived. Eventually, it will reopen as a museum.

  The new station, still under construction when I visited, is an outcast. It was built in an impoverished area with the assumption that the building blocks of city life—apartments, offices, restaurants, and shops—would be developed around it. But little has sprouted, and the station remains disconnected from the rest of the city. Travelers using it must take a bus or cab. “It is the biggest transportation disaster in Belgrade,” Vukan Vuchic, a Belgrade native and leading transportation expert at the University of Pennsylvania, told me.19

  Inside, the station was a bunker of cold gray concrete and blue construction tarps. The only decorations were graffiti on the train. Bubble letters, large and neon, covered a train several tracks away. The spray paint occasionally crept up past the lower paneling and onto the bottom of each train’s windows. The station was eerily quiet, especially for a weekday morning. Rather than history, what one feels when entering is a suspicion that you are about to make a cameo in Saw, the horror-film franchise.

  Where it matters most, though, the new station
seems to be getting it right. There is an information booth staffed and ready to point travelers toward the ticket office. Before boarding the train for the nine-hour journey, I asked one of the staffers whether there was food on board. “No, that’s the café,” he said, pointing to two vending machines on the side of the track. I paid for an instant coffee, and brown liquid dribbled out of the machine and into a thin plastic cup. Hand burning but unwilling to drop the only caffeine in sight, I climbed aboard.

  I was not expecting to bask in the luxury of the famous Orient Express, with its white tablecloths and wooden paneling. In 1882, the first Orient Express service that left Paris offered oysters, soup with Italian pasta, turbot with green sauce, fillet of beef, “chaud-froid” of game animals, lettuce, chocolate pudding, and a buffet of desserts.20 The Orient Express was never a single line but a series of lines that stretched from Paris to Istanbul. Like the proliferation of “New Silk Road” initiatives in recent years, the Orient Express was such a captivating brand that it was appropriated, reused, and ultimately overused. The last regular train that could claim to be a part of that network made its final run from Vienna to Strasbourg in 2009.21

  The mustachioed hero in Christie’s thriller, the detective Hercule Poirot, would find few people to question but plenty of clues on today’s train. Climbing into a first-class cabin on the first train of the day, I found crumbs from previous company sprinkled across the seats. Other than the staff, the only other living thing I saw were flies. Chewed gum had colonized the air vents beneath the windows. The carpet was brown and rough, showing some stains and surely hiding lots more. Molder on the Orient Express.