Chinese investment in Czech Republic comes under the spotlight

Recent furore in the Czech Republic over the visit by the Dalai Lama and state awards have very much put the focus of attention on China and the strategic partnership that Prague signed up with Beijing at the start of the year. Questions are now being asked also about the surge of Chinese investments that were promised and whether the political price for those promised investments is excessively high.

Xi Jinping, photo: Angélica Rivera de Peña, CC BY-SA 2.0Xi Jinping, photo: Angélica Rivera de Peña, CC BY-SA 2.0 Pomp and ceremony was the order of the day at Prague Castle at the end of March this year when President Xi Jinping visited the Czech capital for three days and inked a series of economic accords.

The visit as guest of Czech president Miloš Zeman is probably the highpoint of the Czech head of state’s term in office so far. And president Zeman was proud to announce that the value of the agreements signed with China for the Czech Republic was well over double what he had previously indicated, climbing to 95 billion crowns (around 3.2 billion euros) this year. And that should rise by 2020 to around 294 billion crowns.

But in the wake of the controversial scramble of the president, prime minister, and leader of two house of parliament to distance themselves from possible Chinese anger over the Tibetan spiritual leader, the Dalai Lama’s, recent visit to Prague, many are asking where are the promised investments that allegedly needed protecting.

Presidential spokesman Jiří Ovčacek told Radio Prague last week that fuller details of Chinese investments in the Czech Republic will be forthcoming during the China Investment Forum being staged in Prague from November 14 to 16. The president’s office at one stage hinted that fall out from the Dalai Lama’s visit put this forum in danger as well, though its staging now seems assured. By the way, this will not really be a bilateral get together but more like a big regional invest fest with the Czechs and Chinese rubbing shoulders with representatives for 15 other Central European, Baltic, and Balkans counties in the China plus 16 format that Beijing usually prefers.

Fuller details of Chinese investments in the Czech Republic will be forthcoming during the China Investment Forum.

Some leading Czech politicians are also waiting for signs of the Chinese investment boom that was apparently paved earlier this year. Finance minister and ANO leader Andrej Babiš was put on the spot last week in an interview by Czech Television is which he was asked bluntly whether China is really a strategic investment partner for the Czech Republic. This is how he replied.

“It’s a good question. We in the government – as I have looked back on now – did not discuss this strategic partnership. It was treated in the government as an item for information. There were a series of agreements signed and I am still waiting expectantly for what results specifically for the Czech economy. The investments so far, by investment groups such as CEFC, have been purchases of property or in the portfolio of private owners or shareholders. I don’t yet see any direct Chinese investment that would have a direct beneficial effect on the Czech budget. I spoke about this with the Czech president, certainly, we would like to see them construct some factory and employ our people.”

Andrej Babiš added that he did not understand why four top Czech leaders had signed up to a joint statement distancing themselves from the meeting by some politicians with the Dalai Lama.

Lubomír Zaorálek, photo: archive of Czech Foreign MinistryLubomír Zaorálek, photo: archive of Czech Foreign Ministry Czech foreign minister Lubomír Zaorálek tried to put some specific figures on incoming Chinese investment, though at one stage added that he knew the details of a pending multi-billion crown investment but was not able to say more because it is still secret:

“CzechInvest is negotiating about around a dozen projects worth around 22 billion crowns and that all the ongoing negotiations that are going on come to around 60 billion crowns. I don’t want and am unable to speculate about the possible repercussions.”

CzechInvest is the Czech state agency tasked with encouraging incoming investment.

While it’s not a completely accurate indicator of the presence of foreign capital, the consultancy Bisnode recently announced that the total value of basic capital of Chinese owners in Czech companies actually fell by around 616 million crowns between March and October this year. Basic capital can be reduced by owners as a means of freeing up cash without meaning anything more, but the drop in basic capital to just over 5.2 billion crowns is hardly a sign of a Chinese investment surge. Bisnode’s ranking of the most important foreign investors in the Czech Republic sees China falling to 22nd place from its previous position at 21, according to the latest table. The Netherlands, Germany, Luxembourg, and Austria lead the table.

‘I don’t yet see any direct Chinese investment that would have a direct beneficial effect on the Czech budget.’

One of the big flagship investments mentioned back in March was the acquisition of a 50 percent stake in the Czech banking and finance group, J&T, by the ever acquisitive Chinese company, CEFC. There were some Czech media reports that the Czech National Bank is looking into that deal in a bid to get to the bottom of CEFC’s ownership, but the bank denies any checks are going on. New bank licenses would likely be needed if the Chinese share stake resulted in majority ownership or control.

Another deal involving CEFC, the purchase of a majority stake in Invia travel, the biggest Czech online holiday seller, appears to have been downsized since the original announcement a few months ago. The current owners, the investment group Rockaway, now say that they will hold onto at least half of the company and retain management control. Chinese companies have been linked with other deals, even though in some cases the Czech owners resolutely deny that any sale or deal has ever been broached.

One of the biggest eye raising stories concerning Chinese investment over the last week was delivered by the business daily Hospodářské Noviny. It said that Beijing was pressing for promises from the Czech government that Chinese companies would be guaranteed work on the proposed new Dukovany nuclear reactor without a public tender having to take place. It added that China was hoping to get that promise included in its wish list for the upcoming China Investment Forum in Prague and said the story was confirmed by government sources.

Dukovany nuclear power plant, photo: Jiří Sedláček, CC BY-SA 4.0 InternationalDukovany nuclear power plant, photo: Jiří Sedláček, CC BY-SA 4.0 International The Czech Ministry of Industry and Trade confirmed that a list of projects is being drawn up with the Chinese, however, it said that it is trying to keep the commitments as broad as possible in the nuclear field without referring to specific projects such as Dukovany. The plan for the new reactor at Dukovany is to sound out nuclear companies, including those from China, about what form of nuclear cooperation and reactor they could offer and proceed from there.

Regardless of whether Beijing in this instance was putting the pressure on Prague over Dukovany, it’s not at all unknown for countries to sign up to new nuclear reactor projects without tenders. That is exactly what’s happening, for example, in Hungary with Rusatom. And a top manager at state controlled power company ČEZ indicated that a bilateral inter-government deal, such as the Hungarian one, is a lot easier for it than a complicated and constructing tender.

And, according to William Fairbairn, the Washington-based senior managing editor at Nucleonics Week, the international news nuclear industry weekly, China is already a world power in terms of its new nuclear build and is rapidly moving to the stage where it can offer to export its nuclear know-how as well:

“Without question, China is building more nuclear reactors than any country by far. Of the 25 or so reactors under construction in China, they represent around half of the reactors being build globally, so domestically the Chinese nuclear expansion is the biggest in the world.”

Mr. Fairbairn adds that China has been operating nuclear reactors since the 1990s, and while many of those were domestically designed, Chinese companies have been keen to tie joint ventures with Western companies to get the latest generation power plant know-how that the Czech Republic will be looking for:

‘They are claiming in fact that they are going to be able to export their indigenous next generation reactor design that meets international safety standards.’

“It’s true that in recent years, they have wanted to get the next generation of nuclear technology, safer designs such as the Areva EPR and the Westinghouse APR 1000. And they have entered joint ventures to bring those technologies to China. But they have a very strong technology development programme in which they are indigenising some of those technologies. And they are claiming in fact that they are going to be able to export their indigenous next generation reactor design that meets international safety standards. They have not done so yet, it has not been built in China or anywhere else, but it is certainly being developed and it’s pretty far along. So there is no reason not to think that they could build one domestically and export a third generation nuclear design in the coming years.”

And with these nuclear reactor new build projects worth hundreds of billions of crowns, a bit of pressure to get a large slice of the work or tie it to other investment or infrastructure projects is not at all unusual at a global level.