Welcome to the 31st issue of the #CEEasia Briefing.
In this issue we dissect the following topics:
- PPF’s exit from China
- Taiwan’s ‘diplomacy of democracy’ in CEE
- South Korea’s defense ties in Europe
- North Korea recognizes Donetsk and Luhansk
- EU-ASEAN cooperation
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1. PPF’s exit from China?
What’s going on? The Czech financial group PPF is revamping its business strategy following last year’s death of its founder Petr Kellner. The group announced it wants to focus more on investments in Western Europe, hence intending to gradually trim its presence in Asian markets, including in China, where the business environment is no longer favorable due to the regulations of the Chinese government. According to the current CEO, Jiří Šmejc, the company has been searching for a partner to purchase a majority stake in and eventually acquire complete ownership of the Chinese operations of its consumer lending business Home Credit.
Going deeper… Apart from China, which used to be a key market for Home Credit, PPF is overhauling its business activities in other previously fast-growing markets in Southeast Asia and India, as it is currently negotiating with local partners to obtain finances for joint ventures. Home Credit also withdrew from Russia following the war in Ukraine. Given the decline in profits over the last few years, the company aims to move its core activities back to the home region. Instead of focusing on Asia, it is now preparing for expansion outside the Balkans and investments in Western Europe, where it plans to focus on telecommunications, real estate, and other pillars of PPF’s business.
This means… The planned retrieval of PPF from China happens more than ten years after Home Credit became the first foreign loan provider in the country. Changing conditions, in particular China’s tightening regulatory policies, laws and regulations of the financial sector, and unpredictability of the situation seem to mark not only the company’s withdrawal from the Chinese market but perhaps also the abandonment of pro-Chinese campaigns the company used to finance in the Czech Republic in an effort to sway the Czech public attitude in favor of China.
CEIAS: Oligarchs and Party Folks: Chinese Corrosive Capital in Slovakia and Czechia
Bloomberg: Billionaire Kellner Family Shifts Focus Back to Europe From Asia
Reuters: Czech firm PPF aims to exit China, wants partners for Europe acquisitions
E15: PPF vycouvá z Číny, zaměří se na Evropu
2. Taiwan’s ‘diplomacy of democracy’ in CEE
What’s going on? Several Taiwanese lawmakers from the Taiwan-Poland, Taiwan-Hungary, and Taiwan-Slovakia Interparliamentary Amity Associations visited the respective CEE countries. The lawmakers’ longest stopover was in Slovakia, where they stayed from 5th to 8th July at the invitation of the Deputy Speaker of the National Council Milan Laurenčík, who led a Slovak delegation to Taiwan just last month. In addition, the outgoing Representative of the Slovak Economic and Cultural Office in Taipei, Martin Podstavek, was awarded the Grand Medal of Diplomacy for his successful efforts in strengthening relations between the two countries.
Going deeper… Continuing Taiwan’s humanitarian role in the war in Ukraine, the lawmakers also visited a Slovak educational center for Ukrainian child refugees that was established thanks to significant Taiwanese donations. They also donated USD 150,000 and USD 500,000 to Budapest and the Polish city of Wroclaw respectively, to further assist Ukrainian refugees. Taiwan has thus been able to leverage its humanitarian aid and further its ties to the local NGOs and governments, as seen in the lawmakers’ meeting with the incumbent Mayor of Budapest Karácsony.
More importantly… With the Russian invasion of Ukraine uniting the democratic world, the major developments in CEE-Taiwan relations have arguably occurred in the Czech Republic, Lithuania, and Slovakia. Lithuania hosted not one but two sets of Taiwanese officials this month. The first set, which included the Deputy Minister of Foreign Affairs Harry Ho-jen Tseng and Taiwan’s Representative to the US Hsiao Bi-khim, arrived to celebrate the centenary of US-Lithuanian relations. The second set, led by the Legislative Yuan President You Si-kun, visited both Prague and Vilnius, with the visit to Prague being particularly noteworthy as it marked a reciprocation of the now famous 2020 visit to Taipei by the Senate President Vystrčil. After reciprocal parliamentary delegations, Slovakia was also visited by the Deputy Minister of Foreign Affairs Ho-jen Tseng in July.
This means… It appears that Taiwan’s ‘diplomacy of democracy’, which was prominent under President Chen Shui-bian in the early-to-mid 2000s, may see another return, especially as the country is broadly perceived as part of the democratic camp by its major allies and partners. This opens the door for higher-level engagements with other parliaments, as confirmed by the recent visit to Taiwan by the Vice-President of the European Parliament Nicola Beer, who subsequently became the highest-ranking member of the institution to do so. Moreover, with their recent experiences of authoritarian pasts and democratic transitions already being a common talking point between the CEE and Taiwanese elites, CEE is likely to play an even bigger role in Taiwan’s outreach to Europe.
CEIAS: EU-Taiwan Tracker
Focus Taiwan: Taiwan lawmakers set off to visit U.S., European nations
Bloomberg: China Slams Czechs Over Taiwan Visit as Ties Continue to Unravel
The Diplomat: European Parliament VP Urges Renewed China-Taiwan Dialogue
3. South Korea strengthens defence ties in CEE
What’s going on? South Korea continues its efforts to strengthen ties with countries in the CEE region. In recent weeks, President Yoon Suk-yeol traveled to the NATO summit in Spain for the first time in history as the war in Ukraine is presenting an opportunity for South Korea to penetrate the defense markets of the NATO countries. Opportunities to conclude deals to modernize local armies are emerging mainly in the former Warsaw Pact states that have to modernize their armies not only because of the increasing risk of armed conflict but also because of sanctions, as it is no longer possible to maintain Soviet-era equipment dependent on the supply of spare parts from Russia.
Going deeper… Poland has long been interested in purchasing military equipment from South Korea, as seen in a large purchase of tanks and howitzers to replace obsolete Soviet equipment. Similar speculations were also made in relation to Slovakia. However, it is possible that defense cooperation between the two will not focus on other areas. This is mainly because the Korean company Hanwha Defence was not admitted to the Slovak public tender for armored tracked vehicles worth EUR 1.7 billion. The Slovak Ministry of Defence justified this by saying that they are only interested in ordering from European or American manufacturers.
Nevertheless… South Korea excels in exporting its defense industry products globally. It is doing well not only in Southeast Asia but also in India, the Middle East, and Europe as well. Its first major success was the K9 self-propelled howitzer with a caliber of 155 mm, which has, since 2014, been produced under license in Poland as Krab. Following this, howitzers were sold to Finland, Norway, Estonia, and Turkey. One of the priorities of the current Korean administration is to place the products of Korea’s defense industry in new markets around the world. At the moment, when European countries and their defense industries suffer from insufficient capacities to meet the demand, this possibility seems particularly real.
Indeed… South Korea’s efforts resulted in an agreement with Poland in which Warsaw committed to purchasing 980 K2 tanks, 48 FA-50 light supersonic fighter jets, and 648 self-propelled K9 howitzers. The first tanks should be produced in Poland and delivered this year, complementing the modernization process of the Polish tank army. Poland has thus confirmed its reputation as the gateway of the Korean defense industry to Europe, not only in the field of armored vehicles and artillery technology but also in the field of supersonic aviation.
CNN: Poland to buy hundreds of South Korean tanks, howitzers after sending arms to Ukraine
Financial Times: Ukraine war offers South Korea’s Hanwha opportunity to break into NATO defence market
Army Technology: Poland to procure 180 K2 Black Panther tanks from South Korea
Reuters: Poland to buy jets, tanks and howitzers from South Korea, says minister
4. North Korea recognises Donetsk and Luhansk
What’s going on? North Korea officially recognized the independence of the Donetsk and Luhansk “people’s republics,” two self-proclaimed pro-Russian “republics” in east Ukraine. It became only the third country in the world to do so, with the other two being Russia and Syria.
Going deeper… The two breakaway entities declared their independence from Ukraine in 2014, shortly before Russia’s annexation of Crimea, with Moscow backing their existence ever since. However, Russia officially recognized the independence of Donetsk and Luhansk only on the eve of February 24, justifying its subsequent invasion of Ukraine as a way to protect the people of the two separatist regions. Since the beginning of the war in Ukraine, North Korea has also been one of only five countries to support Putin by opposing a UN Resolution condemning Russia’s invasion, blaming the United States for the war.
In a reaction… Ukraine condemned North Korea’s move “as an attempt […] to undermine the sovereignty and territorial integrity of Ukraine” and cut ties with Pyongyang. On the other hand, the leader of the Donetsk republic Denis Pushilin said he hoped for “fruitful cooperation” and increased trade with North Korea.
This means… In exchange for its political support, North Korea is most likely interested in three things: a) reducing its political and economic reliance on China, b) receiving economic aid from Russia, including military equipment, and c) securing Moscow’s support for Pyongyang’s intercontinental ballistic missile and nuclear program. Although ties between North Korea and Russia have been historically solid, there has been an improvement since 2014.
In fact… With China’s rising power, North Korea might sense that over-reliance on China is no longer a secure foreign policy approach and that it needs to balance its strategic partnerships in the face of the new power competition. China represents around 90% of North Korea’s trade exchange, while at the same time, its economic growth has been slow over the past few years, particularly hit by the pandemic. With international sanctions imposed on both Russia and North Korea, there is a chance for Pyongyang to secure supplies for a “good price”, especially with the looming food crisis since last year.
5. Will EU-ASEAN cooperation maintain its momentum?
What’s going on? With the Czech Republic presiding over the Council of the European Union, and Indonesia holding the ASEAN chairmanship in 2023, heads of Prague’s and Jakarta’s diplomacy opened the High-Level Dialogue on the Indo-Pacific in Prague attended by representatives from more than fifty countries. The event, which was a follow up of last year’s Paris dialogue, reflected persistent interest of the EU to strengthen its engagement with the Indo-Pacific.
Going deeper… The EU and ASEAN have officially become “strategic partners” in 2020 and the EU adopted its Strategy for Cooperation in the Indo-Pacific in September last year. What’s more, 2021 concluded with the joint EU-ASEAN Comprehensive Air Transport Agreement, and the two blocks currently await negotiations over agreements in areas such as digital governance, connectivity, climate change, green energy and infrastructure. Despite the currently suspended talks on a free trade agreement, various ASEAN countries have signalled a desire to resume them in the near future. Challenges in mutual relations persist, however, as can be seen in the two blocs’ diverging stances on the Myanmar crisis, import ban on palm oil, and human rights.
This means… Despite the fact that ASEAN and the EU have celebrated their 45th anniversary of cooperation this year, one could argue Southeast Asian countries tend to perceive the EU as a financier of ASEAN projects that in exchange aims to impose its normative rules within ASEAN borders. The EU’s task will, therefore, be to convince ASEAN members that their relations can shift from donor-recipient ties and that the EU can be a more rounded partner, mainly when it comes to security issues and strategic leveraging in the region. Indeed Sutheast Asia is at the heart of EU’s Indo-Pacific strategy as engagement here is essential in counterbalancing growing assertiveness of China in the region, decreasing presence of the US and at the same time fulfilling ambitions to increase Europe’s influence in global affairs.