Silk Road Fiasco

China's Belgrade To Budapest High-speed Rail Line Is Probed By Brussels
By Wade Shepard

China may be hitting another snag in the fulfillment of its Belt and Road ambitions. 

The much-anticipated Belgrade to Budapest high-speed rail line, which was touted as China’s “express lane” to Europe, is being reviewed by Brussels for potential infringements of the EU’s requirement that public tenders are offered for such large-scale infrastructure projects.
At a 2013 meeting of the 16+1 in Bucharest, China, Serbia, and Hungry signed an MOU to build a $2.89 billion, 350 kilometer high-speed rail line that would go from Belgrade to Budapest, the first stage of a project that would ultimately connect the China-run Piraeus port in Greece with the heart of Europe. 

This rail line was to be a hallmark project of Beijing’s Belt and Road initiative — a shining example that China could carry out massive infrastructure projects in Europe the right way (i.e. the Brussels way).

In this photo taken on August 13, 2015, Indonesian models look at scale models of Chinese-made bullet trains on exhibition at a shopping mall in Jakarta. Chinese and Indonesian state-owned companies on October 16, 2015 signed a USD 5.5 billion deal to build the first high-speed railway in Southeast Asia's top economy, after Beijing beat Tokyo to win the construction project. 

In September 2016, it was looking as if this international HSR line was gaining momentum, and that construction would soon commence. 

But now there is a slight bump in the path that may grow into a roadblock.
According to the Financial Times, Brussels is looking into the possibility that the deal to build the Belgrade-Budapest rail line may have broke the EU rules on public tenders. 

None were offered for this project. 

This probe is mainly directed at Hungary, being a full-fledged EU member, rather than Serbia, whose “prospective member” status shields it from all of the EU’s regulations. 

Hungary’s deal with China had the development of the rail line going to China Railway International Corporation with financing coming from China’s Export-Import Bank.
Hungary and Serbia both have track records of engaging in large infrastructure projects without offering public tenders. 

The former was the recipient of Brussels’s ire in 2014 when it granted a $13 billion Russia-funded nuclear power plant project to a Russian company without making the bidding public, while Serbia has come under a large amount of internal criticism for just giving the Belgrade Waterfront Project to a company from Abu Dhabi without any type of public competition or even input.
While China has proved itself to be the undisputed greatest high-speed rail developer ever, having constructed over 19,000 kilometers of such lines in their own country in under 15 years, actually getting over the legal and political hurdles to take their HSR-building prowess international seems to have been a far more challenging pursuit. 

The Singapore to Kunming HSR line has been replete with delays and funding conflicts, Mexico City to Queretaro imploded, Los Angeles to Las Vegas didn’t happen, Moscow-Kazan is still speculation, and while after many delays Jakarta to Bandung appears to be getting ready to go, construction has not yet commenced.
While physical development across the broader New Silk Road — the pan-Eurasia mega-project that’s increasing infrastructural, economic, and political connectivity between countries from Europe to China — is currently booming, China’s participation via their Belt and Road initiative hasn’t always been very smoothly implemented.

EU sets collision course with China over ‘Silk Road’ rail project

Probe of Beijing-funded Belgrade-Budapest link hits Xi’s hallmark scheme 
By James Kynge in London, Arthur Beesley in Brussels and Andrew Byrne in Budapest

Serbian prime minister Aleksandar Vucic, left, and China's National Development and Reform Commission deputy head Wang Xiaotao launch the Belgrade-Budapest railway project in Novi Sad, Serbia, in 2015

Brussels is investigating a showcase Chinese rail project that aims to extend Beijing’s “One Belt, One Road” initiative into the heart of Europe, potentially putting the European Commission at loggerheads with China.
The commission’s probe is into a planned 350km high-speed railway between Serbia’s capital, Belgrade, and Budapest in Hungary.
The railway is billed as a hallmark scheme under “One Belt One Road”, a $900bn project championed by Xi Jinping, to build infrastructure and win diplomatic friends in Europe, Asia and Africa.
European officials told the Financial Times that the investigation was assessing the financial viability of the $2.89bn railway and looking into whether it had violated European Union laws stipulating that public tenders must be offered for large transport projects. 
“The commission services are assessing the compliance of the project with EU law. The dialogue with the national authorities is ongoing,” said a European Commission spokeswoman.
Any legal setback to China’s first railway project in Europe would be a diplomatic embarrassment for Beijing, which made the railway its cornerstone offering to win support from central and eastern European nations during a summit attended by the countries in 2013. 
At issue for the commission are separate agreements signed by the Hungarian and Serbian authorities. 
But the main focus is on Hungary, an EU member state that is subject to the full rigour of European procurement law. 
As a prospective member of the bloc, Serbia is subject to looser rules.
Failure to comply with EU tender laws may be punished by fines and proceedings to reverse infringements. 
“If push comes to shove and if it turns out that the Hungarians have awarded a public works contract of a particular dimension without tender they will of course have infringed EU legislation,” said a senior EU official.
No contract for the $1.8bn Hungarian section of the railway appears to have been made public. However, a treaty between Hungary and China, dated last year and seen by the FT last week, stipulates that companies designated by each government should “co-operate for the development” of the project.
It adds that two state-owned Chinese companies — the China Railway International Corporation and the Export-Import Bank of China — should act as contractor and financier for the project, which is due to be implemented by the Hungarian State Railways company. 
On Friday, the Hungarian government did not deny the commission’s probe but said it had signed the agreements with China, including an annex explaining how it had complied with EU procurement law, following consultations with Brussels.
Official Chinese media reports have said “a contract” for the high-speed railway between Belgrade and Budapest was signed during a meeting of the “16+1” — which unites China with central and eastern European countries — in Latvia in November.

Disruption to the rail project could sap the impetus behind the “One Belt, One Road” initiative, which Xi hopes will bind China, Europe, the Middle East and Africa more closely by building roads, railways, ports and other links to recreate the spirit of connectivity that prevailed along the ancient Silk Road.
“This railway is a big part of the ‘One Belt, One Road’ project,” said Tamas Matura, assistant professor at Corvinus University in Budapest.
“The Hungarian section is supposed to serve as a masterpiece to show that the Chinese can build according to EU standards,” he added.
The planned railway, which is supposed to cut journey times from Belgrade to Budapest down to about three hours from the current eight, is also important to China in a practical sense.
It comprises a crucial section of a so-called “Land Sea Express Route”, which China agreed in 2014 to build with Hungary, Serbia and Macedonia.
This route is aimed to link up with Piraeus, a Chinese-owned Greek port on the Mediterranean.
Without the Serbian-Hungarian rail link, China could struggle to realise its aim of being able to export products by rail to Piraeus and thereafter by sea to destinations in Europe, Africa and beyond, analysts said.
The Brussels probe into Hungary’s tender procedures is not unprecedented.
Viktor Orban, the prime minister, attracted EU scrutiny in 2014 for awarding contracts to build a €12.5bn Moscow-funded nuclear project to Russian state-owned energy company Rosatom, also without holding a public tender. 
The commission launched infringement proceedings against Budapest on suspicions that the project breached internal market rules.
But it closed the probe last December, accepting Hungary’s arguments that only the Russian operator could provide the specific technologies required.
The project is still subject to a separate state aid investigation.