Commentary

Hungary Accepts Third World Deals From Russia and China Because We Are So Cunning Now

Chinese Premier Xi Jinping is in Budapest and Orbán already announced that we will totally take out a Chinese loan and start upgrading the Budapest-Belgrade railroad link that only China needs. But not so much. The estimated return on investment: 2400 years.

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The 16+1 members Image: ECFR

Hungary signed a disadvantageous deal with China – one that all other countries in the Eastern European region simply refused to. Their reason:

The deal was a standard, third world infrastructure agreement Chinese officials are used to peddling in Africa.

According to the deal

  • China makes us pay for the railroad link between Budapest and Belgrade,
  • a piece of infrastructure Hungary doesn’t need and
  • Chinese companies get to build it -despite ample local know-how.
  • Optimistic estimates put the return on investment to 2400 years.
  • If it requires no maintenance and freight traffic at least quadruples – neither of which is very likely.
  • The approximately 2 billion dollar loan comes at a 3-3.5% interest but
  • no one can see why the entire project is necessary – and to whom.
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Photo: Márton Mónus, hvg.hu

As an unnamed Hungarian businessman described the Chinese interest in the “phantom deal”:

“They 〈the Chinese delegation〉 can travel to Europe from time to time, they are warmly received and celebrated, and they can go on a shopping spree.”

Poland’s OSW published a study about China’s 16+1 program (announced in 2012) that lays out a range of bilateral agreements between China and Eastern European countries – from the Balkans, through the Visegrad countries and into the Baltic region.

“The Chinese offer to finance infrastructure presented to the sixteen countries of Central and Eastern Europe in 2012 was tailored to the needs of developing countries without wide access to capital. In practice, the line of credit for the ‘16+1’, which is worth $10 billion, is not significantly different from the instruments Beijing has offered to the rest of the world, including South-East Asia, Africa and Latin America. As in these other regions, the financial resources are provided by Chinese state policy banks…

These loans are associated with assigning the implementation of the whole or a substantial part of the projects to Chinese contractors, and the inclusion of Chinese suppliers when purchasing most of the components. The final cost of the loans depends on many factors, but for CEE it should be estimated at 2.5-3% annually. The loans are drawn up for a relatively long period (between 20 and 25 years), and they usually also provide for a few years’ grace period in their repayment.”

Ever since Chinese COSCO bought the port of Pireus in Greece in 2008, China has been working on the project by offering bilateral deals that may have been suitable to African countries – where infrastructure is badly needed but capital and know-how is scarce – but not to EU-member states. Hence the reluctance to sign the contracts from each and ever other country in the region.

Except for the leaders of Hungary who have so outsmarted everyone that they take it, no questions asked.

“The only deviation from this trend is the project to modernise the Budapest–Belgrade railway connection on the Hungarian side. The funding and implementation agreement for this project was signed in 2013, and on its basis a Chinese/Hungarian consortium was created to implement the project, with a value of US$1.67 billion (a total of US$2.89 billion including the Serbian section). The details of the project remain opaque; the feasibility study has been classified for 10 years.

The European Commission has started an investigation with regard to the project, due to suspected breaches of EU law, including in the tendering procedures.

The motives of the Hungarian side are unclear. …it cannot be ruled out that in this case, the political calculation on the part of the government of Viktor Orbán could have been given priority over purely economic calculation – with the aim of strengthening his country’s bilateral relationship with China.”

OSW, 2017

Analysts stubbornly to tend to regard politicians’ decisions as being meant to benefit “the country” (whoever that might be), but we should also consider personal gains. Or maybe not even that.

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The Belgrade-Budapest night train Photo: rail.cc

Hungary also takes in a Russian nuclear power plant under similar conditions. They lend the money, they build, they operate, they sell us the energy. But in that case, Orbán doesn’t seem to have a choice, or being able to extort any benefit neither to himself nor to his oligarch so far.

Don’t tell me that Hungary’s new, we-know-better-than-anybody foreign policy is not a roaring success

Orbán and his oligarchs must get dirty rich in the process – because no one else does. Least of all the taxpayers. These projects are so gigantic (compared to the country’s size) and so useless, we will look back at our outsized and useless stadiums as the golden age when we only wasted billions.

Orbán increasingly enjoys to cloak himself in the illusion of grandeur, talking about middle power status and historic shifts. It is easier when you cut off contacts with the naysayers – people who warn you of risks and bother you with feasibility studies and other such pesky nonsense. So when yet another harebrained idea is proposed there is no one to voice concern or ask questions.

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Experts in particular tend to present him with a list of problems that might occur. And that can be an obstacle itself. Sadly, however, those problems are no less real.

In 2010 when he came back to power Orbán was quick to rename the foreign ministry to ministry of foreign affairs and trade – signifying what he no doubt believed to be an innovation: that foreign policy should serve economic interests. By denouncing values in favour of interests – as he keeps putting it – Hungary had supposedly adopted a no-nonsense, business-oriented approach. And you would believe him it’s great if he told you why it makes sense. Or any other man of his.

Sadly, however, he gave that ministry to a 30-year-old football player whose daddy was a friend. And he told him to go out and get the deals, don’t bother with values like… not extraditing an Azeri ax murderer to Azerbaijan in the hope that they will buy some Hungarian debt in return. (They didn’t, but thanked us for their national hero very much. They released him and gave him a medal because the man he murdered in his sleep was Armenian.)

So the young, new apparatchiks of the newly minter ministry of foreign trade were dispatched to get the deals. They had no idea about diplomacy, but if they did, they would have dismissed it as value-based weakness. And sincerely thought that the only reason the oldie diplomats used values because they were too dumb to use interests. That simple!

They came up with the policy of “Eastern Opening” that was based on the heuristic idea that countries that are neglected as trade partners (like third world countries, dictatorships and autocracies) are neglected without a reason and only we, Hungarians can see that. They closed embassies they didn’t understand (like Estonia) and opened new ones in obscure African and Asian locations. The results were disappointing and farcical. Just take China and their 16+1 plan – connecting Eastern European countries to get Chinese products to Europe.

Chinese officials have been touring and colonizing Africa with their deals for a long time now. In the third world where know-how is scarce and so is capital and infrastructure, lending to a country to hire Chinese companies to build infrastructure makes sense. Not so much in Europe – particularly in the European Union. Another enthusiast of one-sided Chinese investment is said to be Serbia – according to the article – which is not a member of the EU and its leaders also no doubt enjoy no strings attached loans.

“The Chinese offers frequently beat the often fragile financing from Russia (a credit line for Serbia), or from the European Bank for Reconstruction and Development (EBRD) and the World Bank, which is often linked to conditions regarding internal reforms and financial discipline, as well as the limited pre-accession funds from the EU.”

OSW, 2017

The value-based part of the world tends to ask for symbolic things such as legal consequences coming to war criminals, at least the generals, in exchange for membership. Also, a lot of paperwork for the money.

Eastern European countries might be dumb and economically weak in isolation, but thanks to their membership in the single market and the relative competence of their local companies they can access capital and build their own infrastructure, thank you very much. They are not that underdeveloped anymore as to accept deals that lend them money to pay the lender country’s company to build something that will be operated by the lender country’s companies and the locals will have to pay for using the new infrastructure – on top of repaying the loans.

But that is the kind of deal Orbán accepted from Russia – to build a nuclear power station by Rosatom (the one claiming that that radioactive cloud over Europe right now is totally not their fault, it’s a mystery), on money lent by a Russian bank, on Russian terms – and even the nuclear fuel and the generated electricity will have to be purchased from Russian companies, who will also run the power station for decades to come.

To be fair, Orbán didn’t seem to have a choice saying yes to Putin. It is a struggle to even make his cronies get even fatter on the juicy project, so far only Russian and German companies benefit.

As of China, Orbán believes – alongside literally every other political leader on the planet – that only he noticed the potential. (But not the risks, those are for losers.) And of course, he thinks he can milk the giant to his own benefit. But as the OSW study put it:

“There is a predominance of critical interpretations which portray China’s actions as a strategy of divide et impera, aimed at breaking up the unity of the European Union.”

Or as Orbán put it:

“We have created a true win-win situation. The world economy is going through considerable change.”

This might be a historic shift of power towards the East – but if would be the first time that Hungary ends up on the right side of a historic shift by its own choice.

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Featured photo: Budapest Keleti railway station by Ian Brewer

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One thought on “Hungary Accepts Third World Deals From Russia and China Because We Are So Cunning Now

  1. Pingback: Chinese v EU Infrastructure Investment in CEE | Meanwhile in Budapest

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