China's Xi to sign trade, aviation deals on eastern Europe visit

BEIJING (Reuters) - Chinese President Xi Jinping is expected to sign a series of agreements in areas ranging from trade to civil aviation during a visit to Serbia and Poland starting this week, diplomats said on Wednesday, as China looks to bolster its presence in central and eastern Europe.

China's President Xi Jinping speaks during the joint opening ceremony of the 8th round of U.S.-China Strategic and Economic Dialogues and the 7th round of U.S.-China High-Level Consultation on People-to-People Exchange, in Beijing June 6, 2016. REUTERS/Damir Sagolj

Central and east European countries are competing for Chinese investment in everything from banking to beer, looking to lure firms in need of new markets while securing a foothold for their own products in the huge but difficult Chinese market.

Xi is expected to sign agreements in education, finance and technology, among other fields.

Chinese foreign direct investment to Europe hit a record high in 2015 of around 20 billion euros (15.85 billion pounds), a 44 percent annual rise. Germany, Britain and France accounted for almost half the total, according to a report by Germany’s Mercator Institute for China Studies and the U.S.-based Rhodium Group.

Only snippets of investment went to central and eastern Europe, but as Chinese firms look to diversify as the economy slows, volumes are growing, thanks to deals in infrastructure, energy, finance, real estate and travel.

Firms are finding a warm welcome in central and east Europe.

In Hungary, the Chinese have a currency clearing centre. Hungary and Serbia have signed a deal with China to build a high-speed railway from Belgrade to Budapest. Hungary has also issued bonds in the Chinese currency.

In April, China’s Hebei Iron & Steel Group signed a 46 million euro deal to buy a Serbian steel plant. Also in April, China Everbright Group, a state-backed financial firm, bought into Albania’s international airport.

In Germany by contrast, there are political concerns about losing key expertise to China as a growing number of Chinese companies seek to buy German industrial technology.

“This (visit) shows the great importance China’s leaders and government place on the development of China-Europe relations,” said Assistant Foreign Minister Liu Haixing in a briefing. “We believe this visit will push forward the development of China-European relations to a great extent.”

The Chinese have also created a “16+1” forum - their way of communicating with multiple central and east European states, with a total population of around 120 million.

But the relationship has not all been plain sailing.

Ahead of Xi’s visit to the Czech Republic in March, unknown activists defaced dozens of Chinese flags with black paint. Police also arrested 12 people who replaced Chinese flags with Tibetan ones along the main route from Prague’s airport.

Xi will also visit Uzbekistan, where he will attend a summit of the Chinese and Russia-led security bloc, the Shanghai Cooperation Organisation.

Reporting by Megha Rajagopalan and Ben Blanchard; Editing by Nick Macfie