How China’s ‘Gateway to Europe’ Began to Narrow

Eight years ago, the Czech president, on a visit to Beijing, offered his country as “China’s gateway to Europe.” But the entry ramp for an expected flood of Chinese investment has narrowed to a patch of muddy land on the edge of a tiny Czech village.

The land was purchased in 2018 by a Chinese real estate company with ambitious plans for a sprawling spa resort and housing development. Getting construction started, however, has been so slow that local farmers now use the Chinese-owned property to grow corn.

Instead of a showcase for a bonanza of Chinese money, the project, in the Czech region of South Moravia, has become a symbol of the pitfalls of a Chinese overseas business model that depends on energetic support from foreign government leaders and local officials.

Without that support — easier in European countries with authoritarian, Beijing-friendly leaders, like Hungary and Serbia, than in more vibrant democracies, like the Czech Republic — Chinese ventures often struggle, stalled by bureaucratic hurdles, pressure from environmental activists and hostile media coverage.

“We came here for business, not charity,” said Edward Xu, the head of the stalled spa project for RiseSun, the Chinese company behind the venture. He said the development had been delayed by red tape and a souring of Czech attitudes toward China as previously supportive officials lost their posts and the war in Ukraine turned public opinion against his country because of its support for Russia.

“Everything changed because of the war,” Mr. Xu said. “We just hope the war will be finished as soon as possible.”

In a recent interview in Prague, the Czech foreign minister, Jan Lipavsky, said that China’s stance on Ukraine had forced a rethink of political and economic relations. At the same time, he faulted Beijing for failing to deliver on investment pledges.

“Clearly, Chinese investors have not delivered what they promised,” he said.

Philippe Le Corre, a researcher at the Asia Society Policy Institute, said that democratic churn and generational change in countries that China previously looked to as friendly had disrupted once reliable support in Europe’s formerly communist eastern fringe.

“China, in my view, has lost Eastern Europe,” Mr. Le Corre said, adding that the Ukraine war had accelerated a decoupling of interests between Beijing and many Eastern and Central European countries.

“The longer the war in Ukraine goes on the more they are losing friends,” he noted.

When RiseSun developed its investment plans for South Moravia seven years ago, the region was governed by Michal Hasek, a fervent China booster. He was also a close political ally of Milos Zeman, the president who visited Beijing in 2015 and declared China’s leader, Xi Jinping, his “best friend.” When Mr. Xi visited Prague in 2016, Mr. Zeman offered his Central European nation as “an unsinkable aircraft carrier for Chinese investment expansion.”

Mr. Hasek is gone as governor and with him went a number of promised Chinese-funded ventures. Mr. Zeman is now on his way out, too, after Czech voters last month elected a new resolutely pro-Western president, Petr Pavel, a retired senior NATO general.

Mr. Pavel takes office in March but has already infuriated Beijing by talking with the president of Taiwan and telling The Financial Times that China “is not a friendly country” and “is not compatible with Western democracies in their strategic goals and principles.”

For Chinese companies, political uncertainty in foreign democracies has often meant headaches. In Montenegro, a Chinese-built highway costing nearly $1 billion ran into trouble after its main backer, President Milo Djukanovic, lost his grip on Parliament in elections in 2020, allowing his opponents to form a new government that was deeply skeptical of China.

As a result of shifting domestic political winds and disappointment over low levels of Chinese investment, the Czech Republic, Romania and the three Baltic States — Estonia, Latvia and Lithuania — have all largely ditched the idea that deep Chinese pockets offered an easy way to juice economic growth.

Martin Hala, a China expert at Charles University in Prague, said: “People in this region were very starry-eyed about China. Now it is very, very different.”

Disenchantment, building for years, gained momentum from outrage over China’s stance over the war in Ukraine. To fight the Russian invasion, Ukraine has received support, including the delivery of weapons, from the Czech Republic and many other countries in Central and Eastern Europe.

“Our relationship with China is under revision. A new geopolitical reality has arisen,” said Mr. Lipavsky, the Czech foreign minister. “This is my message to China: Be more responsible in international affairs” because “what Russia is doing is a crime of aggression.”

Years of patient diplomatic work by China are now unraveling.

In what critics saw as an effort to create a “Trojan horse” inside the European Union, China, promising billions in investment, in 2012 persuaded 16 countries in Central and Eastern Europe, 11 of them E.U. members, to join a new, Chinese-led diplomatic and economic bloc known as “16+1.” The grouping became “17+1” in 2019, with the entry of Greece.

But that club is now down to 14 European members after the exits last year of Estonia and Latvia, both furious over China’s stand on Ukraine, and the 2021 departure of Lithuania. The imminent departure of Mr. Zeman as president has opened the possibility that the Czech Republic might now bolt, too.

Mr. Lipavsky, the foreign minister, said that Mr. Zeman’s departure offered a “big opportunity” to reorder Czech foreign relations.

The decoupling of Chinese and local interests, according to Mr. Hala, the Prague-based China scholar, began with the realization that Chinese investment was “not just free money falling from the sky.”

In the Czech Republic, this became clear in 2018, when CEFC China Energy, which had spent more than $1 billion on deals in the country, began to implode after the arrest in China of its boss, Ye Jianming, a special economic adviser to Mr. Zeman.

Beijing’s fortunes suffered a further setback in 2021, when Petr Kellner, a Czech tycoon with extensive business interests in China, was killed in a helicopter accident. His company, PPF, has since announced that it wants to sell its flagship China business, a financial institution called Home Credit, and make Europe its “center of gravity.”

The stalled real estate and spa project in South Moravia, based in Pasohlavky, a village of around 700 people near the border with Austria, was part of the boom that went bust.

It first took shape after the signing of a 2016 “framework” agreement between South Moravia and the Chinese Development Bank, a state lender tasked with bankrolling infrastructure and other projects linked to China’s Belt and Road initiative.

Mr. Hasek, then the region’s governor, promised that the agreement would bring in Chinese companies ready to invest hundreds of millions of dollars. That, said South Moravia’s current governor, Jan Grolich, never happened: “He promised lots of Chinese money, but reality has been absolutely different.”

Today, Mr. Grolich noted, the only Chinese investment project in the region is the stalled RiseSun venture in Pasohlavky. “There is nothing else,” he said.

He added that he would be happy to see closer economic and other ties with China in normal times but, because of the war in Ukraine, “I don’t feel that China is on our side” and “this changes things.”

For the moment, the Pasohlavky project staggers on.

Five years after buying around 50 acres of land on the edge of the village for $21 million, RiseSun recently got planning permission after years of effort and is now waiting for a building permit, which could involve yet more long delays. It has also run into unexpected trouble negotiating a deal for water with owners of local thermal springs, vital to the spa resort’s future operation, and a gale of negative articles in the local news media.

Annual reports issued by RiseSun in China show that the company last year raised its estimates of how much the project would cost to complete to around $122 million, up from $85 million in 2020 — a steep rise when Chinese real estate companies are heavily indebted and having trouble financing ventures.

Mr. Xu denied that the privately owned RiseSun faced financial difficulties and said that the real question was whether Czech officials wanted its spa and real estate project to go ahead in the face of an increasingly hostile public mood.

“Everyone thinks China is bad, that this is about politics and Zeman, that we want to build a casino or a new Great Wall,” he said. “But nobody thinks about why there are no successful Chinese investments.”

Village officials in Pasohlavky, eager to lift the local economy, say that they want RiseSun to press on. “For us, hope is still alive,” said the deputy mayor, Roman Mikulasek. “We do not and cannot accept the possibility that it won’t happen.”

But he conceded that the only construction on the Chinese company’s land so far was a two-mile stretch of road — and that was paid for out of Czech government funds.

Claire Fu contributed reporting from Seoul.