Rising in the East

It was the summer of 1990 and I was on my way to Budapest, to take up a position as a junior diplomat in the Australian Embassy. The world had just tilted on its axis, sparked by the opening of the Hungarian border a year earlier and the ripples had travelled around the world. The Berlin Wall had fallen and old certainties had crumbled with it. The traditional parties in the West had begun a slow implosion now that they had no clear ideological differences; the traditional powers in the East were in fear that their days were numbered.

The Head of Languages at the Polytechnic of Central London (later to be renamed the University of Westminster), took me to dinner at a marvellously named Hungarian restaurant somewhere in Soho called “The Gay Hussar”. He and my private tutor, who tried in vain for three months to teach me Hungarian, introduced me to a cuisine of goose liver, paprika, chocolate and walnut pancakes and such that was to become so familiar.

I have forgotten his name, but the Head of Languages was a worldly man and he strongly approved of my government’s decision to provide my Hungarian language training in London, rather than Hungary, where he said the most deliciously beautiful spies would have devoured me in my innocence. He was probably right.

He said that he had one piece of advice for me: “write”. He said I was about to begin the most unique and exciting adventure and would witness, up close, important world events. I should write about it. I never took his advice.

Not that I did not do a lot of writing. From my little office in the baroque mansion inhabited by the Australian Embassy on Heroes Square in Budapest (it is now a travel agency), I wrote about Hungary’s rapid embrace of the market economy and its equally rapid embrace by Europe. Mostly I ended up writing about the unfurling disaster south of the border in Yugoslavia as it all went to hell. But those were confidential cables read, perhaps, by a handful of analysts back at headquarters.

Later, after my return to Canberra, I wrote more about preventing conflict, peacekeeping and related matters, as the UN Peacekeeping Desk Officer. I wrote a chapter on divided Cyprus, large slabs of material that ended up in a book with the name of Australia’s foreign minister on the front cover. I then had the fascinating experience of working in politics, in academia, at the helm of a civil society organisation and as a trade envoy in China. Over the years, I have drawn on my peripatetic experiences for opinion pieces on various matters of national identity, international relations, trade and investment and so on.

But I never wrote about Hungary and the changing world. I guess, like most Hungarians, I assumed nobody would really be interested. But I am more and more convinced Hungary is not just at the centre of Europe – and therefore an interesting case study of European trends including revolutions – but it is a litmus test for the world. What could I possibly mean by that?

Consider this, Hungary’s Prime Minister after the revolution of 1956, Imre Nagy, was so feared by the Soviet Union (and China, see below) that he had to be violently deposed. Nobody was frightened of young Viktor Orbán, who led populist, nationalist protests against Hungary’s goulash Communism. Today as Prime Minister, a generation after the democratic transformation of 1989, Viktor Orbán is so feared by the West that he has been demonised by its media (although he does seem to relish provoking his opposition and inciting fears about the uses planned for his ever-tightening grip on power). Now a remarkably similar character has been elected President of the United States. Maybe we should look to Orbán for some pointers as to what the US is likely to do under Trump.

That is not all. Hungary’s vehement advocacy for its national identity and right to determine matters within its borders was a precursor to Brexit (although Hungary firmly sees its interests as within rather than without the European Union). Hungary has also become a key hub for China’s ambitious Belt and Road strategy to build transport and logistics infrastructure for global trade and investment links, connecting Europe to the world’s new economic superpower.

It is also a society that, in reinventing its power structures since 1989, no longer has parties that resemble the traditional parties of European democracies. This is interesting, as the shaking out of parties everywhere else will fundamentally affect us all. Because when you change the government you change the country. So Hungary and Hungary’s impact on the world deserves a deeper look.

As I write this, I am sitting in China, overlooking the dramatic new skyline that grows daily in Beijing, and meeting ever more confident Chinese about their future in this new world of the 21st century. So I offer some observations here about China and Hungary. It is not just a relationship with potential, but one with history that still matters.

PREVENTING A RISING IN THE EAST

In 1956, Hungary had what Chinese academic Zhu Dandan describes as “profound impact on China’s domestic politics”.¹ Zhu’s research including recently released archival material has uncovered the terse discussions of China’s leadership at the time, as they re-evaluated the Stalinist model, noted that intellectuals had begun to doubt the capability of the party state at the same time as Mao Zedong considered how to bring intellectuals along with the party state. The Chinese rejection of reform but initial strategic softening was driven in part by a fear that what had happened in Hungary could happen in China; the population could turn against the regime. Ultimately, the party state would opt for a hard line after it became apparent that international factors were indeed influencing people within China.

Of course 1956 was also the year of the failed Polish uprising and Khrushchev’s “secret speech” that opened the way for internal criticism of the hard-line Communist regime of the Soviet Union. It was a year of questioning for the regimes of the Communist world concerning the governance model they had adopted. China was feeling its way as a potential leader in the Communist bloc (and indeed Mao welcomed the reformation of the Nagy Government at the end of October 1956, expecting an opportunity for more equal and independent nation states within the bloc, a short-lived optimism about events).²

The international events of that year also sparked serious internal debates in China, Zhu’s research has found. Following the Hungarian Revolution, Mao’s China, after a period of intense introspection and chopping and changing of approach including the “Hundred Flowers”, settled on an approach designed to prevent another Budapest in Beijing. He had studied the weak and therefore inflexible approach of Rákosi’s Hungary and judged that it was responsible for the popular reaction. The future Kádár regime was to learn the same lesson.

But one key difference was that Mao’s regime had arisen as a result of the nationalist phenomenon, aiming to restore a strong China after a century or more of humiliation by external powers. Hungary’s regime, on the contrary, epitomised humiliation for Hungary, following the earlier humiliation of the Treaty of Trianon.

The overwhelming lesson for Mao from the Hungarian experience of 1956, according to Zhu, was that he became convinced initially that “suppressing dissidents risked estranging the masses and provoking national disturbance”, while at the same time focusing on a soft control, or the “mass line”, in close contact with popular opinion to build his envisioned national unity. It was a hundred flowers and national rectification at the same time. Of course by that time, Mao had already removed the sources of opposition to his regime, with no less brutality than previous Chinese dynasties. Subsequently, when flowers of liberal ideas bloomed, Mao had no hesitation to clamp down, as liberal ideas could not co-exist with the party state. As we know, this paved the way for extreme turns in China in the years following, turning away from the world and suffering extraordinary crises, famines and chaos, from which today’s generations have learned harsh lessons.

The most important lesson, ultimately, learned by Mao was, Zhu argues “awareness of the risks of surrendering any measure of political and ideological control, however limited, over popular conceptions of the regime’s legitimacy”. The hundred flowers did not bloom. The Hungarian lesson was a critical influence on this drastic turn of events that was to affect hundreds of millions of people through the horrors of the Great Leap Forward and the Cultural Revolution.

China learned similar, more familiarly repeated, lessons from the subsequent collapse of the Soviet Union in the 1990s. But by that time, China’s great transformation in decision-making was well underway, epitomised by Deng Xiaoping’s opening of the economy to the world and the subsequent social change that we see in China today. Deng learned lessons from the transformation of Asian economies such as Japan, Korea, Singapore and Taiwan. Unlike other Communist party states, China charted a course of marketisation, welcomed foreign direct investment, developed export-oriented industry and adopted a massive programme of capital investment that would deliver the world’s most breathtaking growth. It has become a cliché to note that China brought hundreds of millions out of poverty in one generation but it is worth repeating because the scale of it constitutes one of the greatest revolutions in human history.

THE EAST IS NOW RISING

Today it is a whole new ballgame. The West is mired in pessimism but the East has a new swagger. It is an intrinsically Western idea that recent years have been economically troubled. In the East, this has been a generation of growth and development on a staggering scale and not just in China, but also across South and Southeast Asia.

In the first decades of the 21st century, the Asia Pacific region, with China at the centre, has become the growth engine of the world economy. Unlike Europe, nobody is fretting about globalisation. Asia has benefited from the trends underlying globalisation such as flows of foreign direct investment, access to knowledge and innovation, open markets for trade in goods and services and rapid technological progress. Asian growth has also been built upon the foundation of prevailing regional peace, security and stability offered by regional and multilateral cooperation. Some would say it has also benefited from stable and relatively meritocratic systems of government, but others might point to the importance of key leaders and the decisions they have made, while the risks inherent in one party rule remain if or when economic growth slows.

We are in the midst of the greatest movement of people out of subsistence to urban life. That means there is an explosion of infrastructure and a huge unmet demand across the developing world for new infrastructure, such as roads, ports, power plants and communications. China is going to be a big part of the solution. Its trade and investment links are rapidly growing from just a handful of countries a generation ago to every corner of the world. China has the capital to build the infrastructure and the market to drive growth in the global economy. Most importantly, it has the will. It may not yet have all the capabilities we would expect of a global leader but it is working on it.

China has now become the largest economy in the world, measured by purchasing power parity, and if it continues on its growth trajectory, will become the largest economy on all measures in the coming years. It is already the world’s largest trading economy. Its middle class is already at least equivalent to the population of Europe. If it can maintain its current growth projections, China is on track to graduate to high-income status, above an average $12,000 per capita, in about a decade. That is the blink of an eye.

In the next five years, China is forecast to import US$8 trillion of goods, attract US$600 billion of foreign investment and make US$750 billion of outbound investment. Chinese tourists will make 700 million overseas visits. China is connected to businesses creating jobs and growth in every corner of the world.

China alone accounts for more than a third of global growth. After decades of double digit growth, China is now seeking to gradually slow its growth to a more sustainable “new normal” of around six per cent per annum while it transitions from an investment and export-led development model to a more diversified economy driven by domestic demand and services. China will seek to play more of a leadership role in fostering trade, investment and development commensurate with its status as a leading economy. Just as China is becoming important to the world, it is more important to Hungary than ever.

Hungary has become the leading destination for Chinese investment in Central and Eastern Europe, valued at more than $3 billion in 2016. Almost daily there is news about new business between China and Hungary. China is building a $3 billion high speed Budapest–Belgrade rail link; the new China–CEE Fund is buying Hungary’s alternative telco, Invitel; Wanhua Chemical Group has salvaged BorsodChem, the ailing Hungarian chemicals factory in Kazincbarcika; and so on.

Underlying China’s interest in Hungary is its potential strategic location in the grand vision outlined by its President, Xi Jinping, as “One Belt and One Road” and more recently re-branded the Belt and Road Initiative. The Belt and Road is a plan to utilize China’s excess capital and development expertise to invest in regional infrastructure and connectivity, building new integrated supply chains along the ancient, and some new, land “belts” and sea “roads” to Europe, South and South East Asia. The Budapest-Belgrade rail link, for example, is likely to be one component of a future high-speed rail connection between the Port of Pireus in Greece to Germany and other key European economic hubs including ports in the North and Baltic Seas.

If we take the Chinese Government’s language at face value, the concept of Belt and Road cooperation with partner nations has been developed not only within narrow economic parameters, but encompassing a broad, socio-economic framework utilising the language of peace, cooperation, openness, inclusiveness, mutual learning and mutual benefit that is relevant to entire regions encompassed in its numerous belts and roads. It is also founded on the need for people to people relationships and understanding, in order to foster economic interaction and cooperation. Some observers might also suggest it has strategic significance and there is no doubt that China will build greater security for itself by binding its economies to partners across vast regions of the world, most of which will also benefit from the security that promises to follow development.

In speeches at Davos and elsewhere, President Xi has been spruiking China’s leadership in opposing protectionism and supporting globalisation that is “open, inclusive, balance and mutually beneficial”. It is powerful language. Of course the real test is in the implementation.

Hungary was the first European country to sign a memorandum of understanding with China on promoting the Belt and Road and has joined the Asian Infrastructure Investment Bank, a key multilateral funding vehicle for China’s Belt and Road plans. Prime Minister Orbán is known to be an admirer of the Chinese economic miracle (as are most leaders the world over). But the admiration goes further. Hungary is seeking to build a special relationship by looking East, to outbid others in the Central European region for valuable Chinese investment and to gain access to the growing Chinese market for Hungarian exports. Hungary is happy to offer support to China’s emerging global strategy. Foreign Minister Péter Szijjártó said on a visit to China in 2016 that Hungary was committed to “becoming China’s friendliest and most trusted partner in Europe, and will continue to firmly support China on issues of major concern”.³

In November 2017, Budapest will host a “16+1” Summi t, bringing together leaders from across Central and Eastern Europe with China to discuss regional cooperation in building the Belt and Road.

China has extended a $10 billion credit line to its Central and Eastern European partners through an Investment Cooperation Fund, which has invested $435 million into the region since 2014. The Fund’s second phase investments, to be announced later this year, are expected to be worth $1 billion.

Other members of the region are boosting their engagement with China and the Belt and Road Initiative, in particular. Serbia has the first Chinese-funded and designed bridge in Europe, over the Danube, with a pipeline of future road, rail, energy and urban infrastructure projects .⁴

There are also concerted efforts underway to build cultural understanding. The 2017 Chinese Film Festival in Budapest featured action movie star Jackie Chan, who expressed an interest in Hungary’s cultural offering. He is reported to have said that he “found Hungary is a nice place to produce films … because this country has such a long history and has enjoyed a richness of cultures”.⁵

It is early days. There will be much more to say about Hungary, the region and China as the Belt and Road ideas start to be converted into more real projects and as the implications of the growth of China start to be better understood in Europe. Of course the next chapter of China’s development is yet to be written. Today’s China contains many complexities, contradictions and the party state is every bit as nervous about losing control as in earlier generations, which sometimes creates an authoritarian feedback loop that may be less attractive to the new middle class in time. But every day China is changing and evolving and yesterday’s stereotypes are as out of date as last century’s. One thing is certain, China is the elephant in the room.

It will be interesting to see what develops between China and Hungary in this next chapter of both countries’ development. While China has learned from Hungary in the past, it seems possible Hungary will be learning something from China in times to come.

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