During the period covered in this chapter of the History of Corruption, there was also a significant change in the foreign policy orientation of the Czech Republic. In particular, thanks to Miloš Zeman in the Castle and his entourage, a turn of the country’s helm towards the East was promoted.
Now, let’s not for a moment dwell on the Castle’s disgusting pandering to authoritarian regimes that supported their crimes and downplayed anti-democratic actions or suppression of human rights. Let us look at the economic aspects of this policy.
It was economic diplomacy that should have prompted the sale of Czech democratic values. Miloš Zeman and his ensemble promised that the result of all the inferior efforts to please Russia and especially China would be massive economic gains for the Czech Republic resulting from cooperation with these countries. The castle organised spectacular business trips for selected businessmen to the destinations, and in turn helped to promote and advertise investments coming from authoritarian states domestically. The highlight was the visit of the Chinese president, who was guarded in Prague by hundreds, if not thousands, of agents of the communist country.
According to Zeman, the value of the economic agreements between Czech and Chinese companies concluded during the visit should reach CZK 95 billion in 2019 and CZK 294 billion by 2020.
Further developments, however, brought sobriety. The massive PR that Zeman gave to the Chinese regime was not repaid. The investments did not come month after month and year after year, despite the proclaimed agreements. The development of imports and exports also did not proceed as expected. Both indicators have declined quite significantly, which has not at all correlated with the clearly pro-Chinese economic diplomacy driven by the Castle. Although some of the public turned a blind eye to the country’s disgusting pandering to Communist China, developments in economic cooperation were beginning to raise questions about whether it was worth it.
It soon turned out that it was not, and it was obvious to everyone except the die-hard fans of Zeman, the Castle and the anti-democracy. This was not only a failure of Miloš Zeman’s political efforts, but also of the country’s economic diplomacy. The latter, under the influence of the Castle, was also oriented towards the East at the governmental level. Billions of crowns went to the incentives and diplomatic activities of business missions. However, they benefited only a small group of entrepreneurs, such as Peter Kellner’s PPF group, which strengthened its position in the non-banking sector in the Chinese periphery. Kellner was the driving force behind the initiatives from the Castle and personally accompanied the official Czech delegation.
On the Silk Road, but only with a ticket
Zeman’s steps towards the East were copied by the policy of the government, which was under the strong influence of the Castle. It lobbied extremely intensively for the development of Sino-Czech economic cooperation, especially under the banner of One Belt, One Road, i.e. the new Silk Road. This was a project that was an umbrella for Chinese efforts to buy investment influence, particularly in Eastern Europe.
The new Silk Road also had a physical design part – the goods were to cross China on rails and end up in Spain. The Visegrad countries fought for the suppliers’ involvement in the project, but also for the route, which was to cost around €40 billion, to pass through them. The Ministry of Industry therefore released funds for potential infrastructure projects and focused on removing investment and trade barriers to Czech-Chinese trade partnerships.
As a result of these efforts, Bank of China and Industrial and Commercial Bank of China have opened a branch in Prague, and other Chinese financial institutions have announced their intention to expand their activities in the Czech Republic. The Czech Republic has become a destination for three Chinese airlines with direct flights connecting Prague with Beijing, Shanghai and Chengdu. The problem, however, was that it did not work the same way the other way around.
Several industrialists have sought to make the Chinese dream come true. Especially those who were close to the Castle and at the same time drowning in problems. From the affection of Miloš Zeman and his well-established word in Beijing, they promised financial injections into their debt-ridden projects.
These included Ostrava billionaire Jan Světlík and the Strnad family, who needed a boost in their engineering projects, or Jaromír Soukup, who was desperate to save his failing media empire. However, the only winner of the whole Chinese shenanigans was Petr Kellner, his PPF group and his partner Jiří Šmejc. It is no coincidence that at the time he was massively publicising pro-Chinese narratives and encouraging Czech politicians to cooperate with the Chinese regime.
As we have already mentioned, Miloš Zeman was directly pushed to focus on China, and it can be said that Kellner practically led Zeman by the hand at the meeting with the Chinese. In fact, the point was that Kellner wanted to negotiate with the Chinese government. He used Zeman only as a representative pendant and a ticket to the top-level talks. The president was not even taken to China by a state special, but by Kellner’s private jet with the billionaire on board.
And the bet on a submissive head of state paid off. Kellner’s and Smejc’s main activity in China was providing high interest non-bank loans to low-income Chinese. It is not at all usual for China’s protectionist government to let foreigners into such business. Behind the allowed chain of Czech billionaires was their guarantee to guarantee strong Chinese influence at the highest levels of Czech politics.
The cooperation was immediate. While Home Credit recorded a loss of CZK 2 billion in 2014 and CZK 1.1 billion the year after, it jumped onto a profit trajectory in 2016 with a net plus of CZK 5.7 billion. It should be added that Home Credit also operated in Russia. The pro-Russian and pro-Chinese policies of the Castle and the government showed how strong the influence of Kellner and Šmejc was on the entire Czech establishment.
Longer-term and broader projects, such as the cooperation between the Union of Commerce and Tourism and the Chinese online retailer of fast-moving consumer goods Chongqing Oconnect Cross-Border E-Commerce, have not been implemented. In general, the Chinese side did not respect Czech chambers of commerce and associations; it was all about a small group of prominent people promising China strategic importance – for example, technological entry into Czech public administration or areas influencing public opinion. The promises of the Chinese side to facilitate access to its market for Czech entrepreneurs in general have not been fulfilled either.
A separate chapter of the Chinese fiasco is the activity of CEFC China Energy Company Limited. It was supposed to be the carrier of key investments in the Czech Republic. However, only a fraction of them came true. For example, Zeman’s personally presented investment of the Energy Company, Beijing Municipal Road and Bridge Group in TSS Cargo has fizzled out (the intensity of Zeman’s media appearances on this topic is very strange). It was supposed to be an investment worth over six billion crowns. However, despite dozens of media outlets reporting on Chinese activity in 2016, nothing happened with the project in the following years, and media coverage of the project also died down virtually overnight.
However, this is only one piece of the shameful cake that the Castle has baked. Despite the promises and several years of media coverage of Miloš Zeman’s project, the vast majority of his proclaimed business cooperation has failed.
For many years Central Europe was completely out of the focus of China’s communist centrally controlled economy. It focused on regions where it could gain geopolitical influence, mineral resources without regulation, or both. The Czech side promised influence, which it delivered. However, it got almost nothing in return. However, Chinese expansion has also been similar in Poland and Slovakia. Although it was not a presentation of a key project in these countries, as it was in the Czech Republic, Chinese money ended up in influence organisations rather than in significant investments.
Investments directed to the Czech Republic through the CEFC investment brand materialized with the purchase of the Slavia Prague football club and several real estate properties, including the Mandarin Oriental hotel in Prague and the large Florentinum office complex, but many flagship projects sank. These included the exercise of a put/call option in Jaromir Soukup’s media group or the failure of Czech regulators to approve several acquisitions.
Investment partner and missing advisor
The story of CEFC in the Czech Republic is the best illustration of the nature of Chinese investment strategies in the country. Although the Chinese side claimed that it was a private company, the registers only showed that five percent of the company was held by the chairman of CEFC China Energy Company Limited, Jie Jianming. The remaining structure was linked to Chinese intelligence actors.
The president of CEFC China Energy Company Limited was Chen Qiutu (transliterated as Chen Qiou-tchu ). The shareholding structure of this company refers to a pair of companies: the Shanghai Jinzhuan Equity Investment Fund and Sinounited Investment Stock Corporation Limited. Five per cent of them belong to the aforementioned Jie Jianming. However, it was not clear who held the remaining 95 per cent.
The parent company of CEFC China Energy Company Limited (with a 99.05% stake) was Shanghai Energy Fund Investment, a limited liability company with registered capital of RMB200 million. This company is also headed by Chen Qiutu (Chen Qiu-tzu), also the president of CEFC. The other shareholder (with a minority stake of 0.95%) was Sinounited Investment Stock Corporation Limited with registered capital of 500 million Chinese yuan. According to the company’s official website, the CEFC was only founded in 2002 by the then 25-year-old Ye Jianming (Jie Jianming), who lists his occupation as ‘industrialist and philanthropist’. Bloomberg, however, dates the company’s founding to 1980.
The company was registered in the Shanghai Free Trade Zone. The connection of Chinese businessmen to Czech President Milos Zeman was unusual. The chairman of the board of directors of the Chinese group CEFC, Jie Jianming, was a member of President Miloš Zeman’s advisory team. Moreover, the Castle lied about its activities in China. Before the president’s visit to China, the portal Biztweet asked whether Zeman was also planning a business mission. A spokesman for the castle replied, “There are no plans for a business mission. It is a celebration of the 70th anniversary of the end of World War II.” However, this was not true and Zeman was in China with representatives of his chosen companies.
Zeman’s adviser Jie Jianming has had a bad day. He practically disappeared overnight. Neither the Chinese leadership nor the representatives of the Castle said anything about what happened to him. He was reportedly being investigated for defrauding money. There has been no mention of him since that period.
The CEFC group itself failed to meet the repayment schedules of several investments and started accumulating debts. It ended up with one of the main lenders that helped finance the acquisitions and itself attempted to do business with CEFC – J&T – taking over the Chinese assets in Europe.
The global West has generally, albeit belatedly, decided to push the Chinese out of key investments. They were led to do so by the experience that Chinese interests were directed towards influence operations and efforts to copy the intellectual property of important but also less important processes, products and services.
Xi Jinping’s visit to Prague, used as propaganda, did not bring GDP growth or employment to the Czech Republic. It only helped a small oligarchic group and opened up the possibility of Chinese influence operations in the Czech Republic targeting not only the public but also politicians. Since that period, for example, the Castle has been using the communication systems of the Chinese company Huawei. In many countries in the global West, the use of similar Chinese technologies in public administration is prohibited. Chinese technology is known to be misused by the local government to obtain information about users. If the Chinese government is interested, it can use the devices for espionage or switch off the technology completely, thus paralysing users.
