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Emerging Europe finds a price in China’s cash

When CEFC China Energy, a Chinese conglomerate with big ambitions and apparently bottomless pockets, began pouring money into the Czech Republic in 2015, the country’s president was delighted.

Milos Zeman, an enthusiastic supporter of regimes with more cash than accountability, hailed CEFC’s $1.5 billion Czech spending spree – which included a brewery and a football club, as well as stakes in real estate, media and finance firms – as the dawn of a new era for central Europe. He even appointed the firm’s chairman, Ye Jianming, as an honorary adviser.

That decision has not aged well. In early March, Ye became the latest tycoon to go missing after apparently falling foul of the Chinese authorities. Three weeks later, his fate and that of his firm are still shrouded in mystery. Almost the only thing known for certain about either was that CEFC had withdrawn a bid to increase its stake in Czech financial group J&T from 9.9% to 50%.

No word was forthcoming, however, on the fate of CEFC’s largest acquisition in emerging Europe. Last September, the firm agreed to pay $9 billion to Glencore and the Qatar Investment Authority for their 14% stake in Russian energy giant Rosneft, acquired in late 2016.

The earlier deal was funded by Intesa Sanpaolo, which was looking to CEFC’s financial backers – reportedly VTB and China Development Bank – to take it out of its position after sanctions concerns reportedly scuppered attempts to syndicate the loan.

Left hanging

Also left hanging were Kazakh energy firm Kazmunaygas and the government of Georgia. The former was waiting to complete the sale to CEFC of a controlling stake in its Romanian holdings, which include two oil refineries as well as the Rompetrol distribution network.

Meanwhile, Georgian policymakers were looking to CEFC to support the development of the Black Sea port of Poti, where the Chinese firm had taken a stake in a new industrial zone, and to deliver on promises made last May at the Belt and Road Forum in Beijing to set up a commercial bank in the country.

As with everything else related to Ye, an enigmatic figure who may or may not have had ties to China’s military, the reasons for his fall from grace are unclear. Some have seen it as part of Beijing’s drive to rein in expansionist entrepreneurs. Others point to CEFC’s rising debt burden and apparent financing issues. A particularly popular theory links the firm’s troubles to the arrest in November by US authorities of the head of a think tank funded by CEFC on charges of bribing politicians in Africa.

Whatever the cause of CEFC’s travails, however, one thing is crystal clear – dealing with China can be a tricky business. Even projects that appear to have high-level policy backing (as in the case of the Rosneft purchase or CEFC’s Georgia ventures) can be put at risk with little warning and less explanation.

Across emerging Europe, leaders with less liberal tendencies such as Zeman and Hungary’s Viktor Orban are fond of saying that the era of western dominance is over and that the future belongs to the Chinese. They may well be right, but the story of CEFC is a timely reminder that Chinese cash, and Chinese promises, should be approached with caution.

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