China and Poland: Economic Cooperation Under the 16+1 Formula

Why do China and Poland view each other as significant partners under the 16+1 formula? Based on a comparative analysis of the two countries’ respective goals and expectations, this article will put forth possible explanations, and point towards options the Chinese government could address to promote the Sino-Polish cooperation a step further.

Initiated by China in 2012, the 16+1 formula is a sub-regional cooperation mechanism between China and 16 Central and Eastern European (CEE) countries. It stimulates comprehensive cooperation, especially in the field of trade, investment, infrastructure construction and connectivity through the yearly high-level Leaders Meeting and permanent institutional arrangements. All participants emphasized that this mechanism was established under the background of expanding and deepening China-EU strategic relationship, aiming at injecting fresh momentum into the Sino-EU cooperation.¹ The importance of the 16+1 formula should be understood within the grand strategy of the One Belt One Road (OBOR) initiative. OBOR is an open and inclusive regional economic integration strategy promoting policy coordination, connectivity of facilities, unimpeded trade, financial integration and people-to-people bonds among countries along the route.² The 16+1 mechanism provides institutional guarantee for implementing these policy goals on the Eurasian continent. As the country held the first China-CEE Leaders Meeting in 2012, Poland actively responded to China’s initiative at the very start. It established the executive body of the China-CEEC Business Council and the Secretariat of the China-CEEC Investment Promotion Agencies Contact Mechanism in Warsaw³, which has become an information sharing center for multilateral trade and investment cooperation. Besides, Poland also launched a series of new institutions and mechanisms focusing on the expansion of bilateral relations with China.⁴

China’s Goals and Expectations on Poland

Due to Poland’s rising status within the Union since its accession in 2004, China realized that Poland owns not only regional economic power, but also the ambition to become a strong state within the region based on a comprehensive strategy. In the past ten years, Poland’s GDP increased by 48.7%, which makes it the leader of economic growth within the Union. Besides, Poland also benefited a lot from accessing to the European single market. From 2004 to 2014, Polish exports to other EU Member States almost tripled. In addition, Poland is the major net beneficiary of EU Structural Funds. More than 170,000 projects have been executed under the EU’s Cohesion Policy, which enabled the development of road infrastructure, environmental protection infrastructure as well as gas, electricity and energy infrastructure.⁵

At the same time, Poland’s global ambition is rising together with the positive economic growth momentum. In its Foreign Policy Priority (2012-2016), Poland explicitly stated that “[f]ocusing on the region, the European Union and its neighborhood does not mean that Poland is without global ambitions…it is important for Poland to build a positive image as an important EU Member, capable of affecting its external policy in the countries of this region.”⁶ Having understood Poland’s unique position among the CEE countries, China expected to set the Sino-Polish cooperation as a positive example which will drive more following countries.

Besides, Poland owns specific advantages that match with China’s goals under the 16+1 formula. First, thanks to its geographical advantage and preponderances on transportation and logistics industries, Poland could potentially be a production and distribution center to transfer products from countries along the Silk Road Economic Belt to different European destinations.⁷ Second, Poland’s “reindustrialization” strategy and traditional superiorities on certain industries, from high-tech and aviation to auto and machine manufacturing, could well synergize with China’s OBOR initiative. Third, Poland has favorable foreign investment environment brought by preferential policies as well as young, high-educated and relatively low-paid employees.

Hence, Poland is an appropriate starting point to gain knowledge about the European market, investment conditions and so on. Cooperation with Poland could become the flagship of China-CEE cooperation under the 16+1 mechanism and accumulate experience for further implementation of OBOR initiative.

Poland’s Goals and Expectations on China

Based on pragmatic needs, Poland views economic issues as the absolute priority in Sino-Polish relations. Facing the decrease in EU funds for Poland and the saturation of the European market (which accounts for about 80% of Polish trade), Poland started to pay more attention to the Asian market.⁸ Hence, the importance of bilateral cooperation with China, the largest economic partner of Poland in Asia, is increasing.

Poland’s goals are to expand exports towards China, attract Chinese investment and promote infrastructural construction. From 2004 to 2012, the amount of bilateral trade increased significantly. The value of China’s exports to Poland grew from 15 to 57.2 billion PLN, and China’s import from Poland rose from 2 to 5.7 billion PLN.⁹ Although the absolute quantity has increased greatly, Poland’s trade deficit has been enlarged. Therefore, Poland holds high expectation of increasing exports to China through closer economic ties. Regarding the prospect of China’s investment, Poland prefers foreign direct investment, the building of factories in Poland and the offering of more job opportunities for local people. Until 2011, China’s FDI in Poland reached 1332.4 million PLN, which is around 20 times when contrasted with 2004.¹⁰ However, compared with the earliest comer like US and Germany as well as followers like Japan and South Korea, the share of China’s FDI in Poland is still relatively small, only 1.2% of the total FDI in Poland. Infrastructural construction is another important concern. Poland plans to invest 500 billion PLN into infrastructure area. Even though Poland is a net beneficiary of EU fund, it still needs capital support from other channels.

Considering good political relationship as a preliminary condition for the development of economic ties, Poland viewed the 16+1 formula, under which leaders on both sides from central to local level are foreseen to have meetings more frequently, as an essential institutional guarantee for China-Poland political friendship.¹¹ This mechanism serves as a political reassurance from top leaders on both sides to sweep barriers for further economic cooperation.

Challenges Faced by Both China and Poland

The biggest challenge hindering China-CEE cooperation under the 16+1 framework is the suspicion and mistrust from Brussels. From the start, the EU has always observed the China-CEE cooperation from a negative perspective. In the European Foreign Policy Scorecard (2012), some member states were blamed to have a “sweet talk” with China bypassing Brussels. And it made China prefer to deal with member states rather than Brussels. Although the 16+1 Leader Meeting was not explicitly pointed out, Poland was labeled as a “Slacker” regarding the “Formats of the Europe-China Dialogue”.¹² What’s worse, the EU understood China’s intention of cooperating with the CEE countries as a pursuance of gaining more favorable policies from the EU through luring selected allies, undermining the Union’s unity and making the common position among member states towards China even harder. “The ‘strategic partnership’ slogan means that Poland is or should become an important ally of China in the EU. Beijing is trying to exert pressure on Poland to support its efforts to grant the PRC market economy status and lift the arms embargo…sensitive issues such as human rights should not be raised and discussed.”¹³

Another challenge is Poland’s worry of a competitive relationship with other CEE countries under the 16+1framework. It is related to not only the potential competition on regional leadership and influence, but also the scramble on bottom price for attracting Chinese investment. For instance, after President Xi’s visit to the Czech Republic in April 2016, Polish media queried whether the agreement between China and the Czech Republic would negatively impact Poland’s role and status on the 16+1 initiative.¹⁴

In addition, problems related to specific and concrete cooperative issues could not be ignored. First, due to China’s strict regulations on agricultural products import, it is hard for Poland’s food product to access the Chinese market, going against the endeavor of narrowing down trade deficit. Second, the failure of the A2 highway investment project showed that Chinese companies still have a long way to go forgetting familiar with related local regulations and EU standards. Third, it is not so clear how different funds offered by China and EU could be well-coordinated. Compared to the 10 billion dollar credit offered by the 16+1 mechanism, the EU Structural Fund is more favorable for CEE countries.

Conclusion and Rooms for Improvement

Based on the former analyses, the Chinese government could implement some remedies to promote Sino-Polish cooperation under the 16+1 formula into a further stage: most importantly, it should establish mutual trust with Brussels. China should reassure Brussels that the 16+1 mechanism is a driving force of more efficient and effective cooperation between the two sides as a whole by integrating it as a definite part of the Sino-EU strategic relationship. This year, EU sent a large group of high-level officials as observers to Riga Summit on invitation. It is a remarkable progress for eliminating prejudice on China-CEE cooperation. On the other side, China could propose to strengthen policy coordination and institutional construction of 16+1 formula together with all member states in order to avoid cutthroat competition among member states.

Moreover, China could further take advantage of Poland’s advantages on transportation to accelerate bilateral cooperation at local level. The existing relationship between Lodz and Chengdu has set up a good example. The regular railway cargo service between these two cities is not only a stimulus for Polish exports to China, but also a chance to establish closer trans-city relationships.

In addition, China should  carefully research on the amount, objects, preconditions, purposes and favorable policies of the EU Structural Fund and financing offered by the Juncker Plan and tell the differences with funds offered by 16+1. Furthermore, China should highlight the unique advantages of the 16+1 fund, making it more attractive for Poland and other CEE countries.