Perspectives for development of China-EU relations in the infrastructure investment sector: a case study of COVEC’s investment in Poland

Journal of Political Risk, Vol. 5, No. 8, August 2017

By Paulina Kanarek

In 2009 China Overseas Engineering Group (COVEC) was the first Chinese company to win a public works contract in a member state of the European Union. Two years later COVEC decided to withdraw from Poland and its failure to construct a section of the A2 motorway between Warsaw and Łódź brought up questions regarding access to the EU’s public procurement market by third countries.

This research explores the implications of COVEC’s investment for bilateral relations between China and Poland. Through analysis of this particular case study of the unsuccessful entrance to the EU infrastructure market, this work attempts to uncover whether the fault lies in the communication gap between European and Chinese actors and zero-sum mentality or it is a case of policy failure.

This study will reveal the particular model of operations that the Chinese companies try to pursue in Europe, basing on their previous experiences in the African construction market. By showing that the model which relies on offering the lowest bid and then renegotiating the contract cannot work due to the European Union’s legal framework and Polish domestic laws, this evidence-based research will argue that COVEC’s investment was a classic example of project management failure.

Furthermore, this research aims at casting light on the broader context of the political economy of China’s relations with the European Union. Following the national interest while adhering to its obligations as a member state of the EU, Poland serves as a good example to show the complexity of relations between the PRC and highly fragmented EU.

Through qualitative research, including elite interviews, this work intends to fill in the gap in academic research on China’s relations with the Central and Eastern European states, assessing whether there is space for progress in China-EU relations in the infrastructure investment sector.
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This working paper is an Oxford University M.Sc. Thesis (2017), which has received the Journal of Political Risk Distinction Award for 2017 in the category of critical empirical data. Paulina Kanarek is a sinologist specialising in international relations and political economy. She completed a degree in Chinese and Economics at SOAS, University of London, and holds an MSc in Contemporary Chinese Studies from the University of Oxford.

Table of contents

  1. Introduction………………………………………………………………………….3
  2. Context and research relevance……………………………………………………..7
    1 Background information about COVEC……………………………….……….7
    2.2 COVEC’s investment in context of Sino-Polish and China-EU relations………8
    2.3 Significance…………………………………………………………..………….9
  3. Literature review and research design……….…………………………………………11
    1 Literature review…………………………………………………………………….11
    3.2 Theoretical framework…………………………………………………………14
    3.3 Methodology………………………………………………….………………..16
  4. Understanding communication gap as a reason for the failure……………………..18
    1 Cultural differences………………………………………………………….…18
    4.2 Verbal agreements………………………………………………………………21
    4.3 Cooperation with local subcontractors………………………………………….23

4.4 Summary…………………………………………………………………….…24

  1. Legal aspects of the failure…………………………………………………………26
    1 COVEC’s offer in the light of Polish and EU laws……………………………26
    5.2 Criteria for tender award in Poland……………………………………………28
    5.3 Various interpretations of law…………………………………………………29

5.4 Summary………………………………………………………………………30

  1. Policy failure in COVEC’s project……………………………………………..…32
    1 Polish government’s perspective ……………………………………………..32
    6.2 COVEC’s perspective …………………………………………………………33
    6.3 Poland’s goals in the long run…………………………………………………35
    6.4 China’s goals in the long run………………………………………………….36
    6.5 Summary………………………………………………………………………37
  2. Conclusions……………………………………………………………………….38
  3. References of cited literature………………………………………………………411. Introduction

The purpose of this dissertation is to examine the reasons of the failure of COVEC’s investment in motorway construction in Poland and to show the implications of this project for the Sino-Polish relations. This research will argue that COVEC’s investment in Poland is an example of project management failure, which was influenced by two major factors. Firstly, it can be attributed to the communication gap between Polish and Chinese actors, who demonstrated mutual lack of understanding of legal, business and cultural norms. Secondly, COVEC’s investment will be evaluated as an example of policy failure in Sino-Polish cooperation, which was a result of different targets and expected outcome of collaboration. Using the case study of the unsuccessful entrance to the Polish public procurement market by the Chinese company, this thesis will shed light on the complexity of relations between the People’s Republic of China (PRC) and the European Union (EU).

In April 2007 Poland was chosen to host the European Football Championship (EURO 2012) jointly with Ukraine. UEFA Executive Committee’s decision to grant Poland the right to organize EURO 2012 put pressure on Warsaw to speed up the implementation of the motorway construction plan, in order to improve the connectivity between Polish cities during the football championship. As the Polish government encountered issues finding the concessionaires to construct the A2 motorway, it decided to divide the motorway into five shorter parts and announced separate bids for each of them. In 2009, part A (29,2 km in length) and part C (20 km in length) between Warsaw and Łódź were assigned to the Chinese consortium China Overseas Engineering Group Co. Ltd (COVEC) (Kaliński 2013: 145), which became the first Chinese company to win a public works contract in a member state of the European Union.

Nevertheless, at the beginning of June 2011 COVEC informed the General Directorate for National Roads and Motorways that due to financial problems it decided to withdraw, unless the Polish government agreed to renegotiate the contract and support the Chinese company with additional funding. The authorities in Warsaw, adhering to both Polish and European Union law rejected COVEC’s proposal to renegotiate the contract and cancelled the deal with the company that by this time had completed less than 20 percent of the planned work (Godement 2012: 3). The failed entrance of COVEC into the Polish public procurement market was a huge scandal that brought up a lot of questions regarding Chinese infrastructure investments in the EU.

Studies show different reasons why the project was not successful. Scholars who argue that the main fault lies on COVEC’s side, list Chinese unfamiliarity with the legal regulations and norms of operations in Poland and the EU (Jacoby 2014; Jones 2012), poor internal management (Liu 2016), as well as unforeseen circumstances such as a sudden increase in the cost structure of building materials (Godement 2012; Jacoby 2014; Jones 2012) as the main causes that led to the failure. On the other hand, there are researchers who believe that the fault lies at least partially on the Polish side (Kuzmiuk 2011) and argue that the Polish representatives did not understand the Chinese mentality and their way of doing business (Interviewee 3), did not receive the Chinese investors properly and did not give enough support to COVEC (Pyffel 2011).

This research will argue the case study of COVEC’s investment in Poland is a classic example of project management failure, which was caused by the communication gap between COVEC and the Polish authorities, as well as the policy failure that was the result of different targets of both parties. Additionally, the Polish and EU public procurement laws will be discussed as they also partially contributed to COVEC’s problems in Poland. This will shed light on the difficulty of following the national interest and at the same time adhering to the EU regulations. Analysing the factors that led to COVEC’s abandonment of the construction works in Poland, this research will uncover the strategy that the Chinese companies, especially the state-owned enterprises (SOEs), are pursuing in the EU countries.

It will be demonstrated that COVEC followed the strategy of offering the lowest bid and then renegotiating the financial terms of the contract. This can be explained by the different interpretations of legal principles in China and alternate visions of the rule of law. The model of operations that COVEC adopted proved to be working in African countries (Horwitz, Hemmant and Rademeyer 2008), where the company successfully completed numerous infrastructure investment projects. This manner of working cannot succeed in the EU and therefore raises questions regarding granting access to the EU market to the PRC.
Analysing the reasons of COVEC’s investment failure in Poland, this dissertation aims at filling in the gap in research on China’s investment in Central and Eastern European states. It is especially relevant to assess the implications of Chinese consortium’s failed entrance to the EU public procurement sector as more infrastructural projects are to be carried out under the Chinese One Belt One Road Initiative (OBOR).

In conclusion, this research finds that the case study of COVEC is not one-dimensional and should be analysed both in context of bilateral relations between Poland and China, as well as in light of the PRC’s collaboration with the EU. It will demonstrate that the failure cannot be simply explained through the analysis of a few factors that potentially contributed to COVEC’s problems in Poland. This dissertation reveals that the different targets pursued by the Polish authorities and COVEC’s management since the beginning of the project led to the policy failure. Additionally, it finds that the communication gap between both sides and diverging approaches towards the law need to be taken into account in order to demonstrate why COVEC was not successful in the Polish market.

This work is divided into seven main chapters. Following this introduction, Chapter Two will provide background information about COVEC, as well as justify the relevance of this case study to the analysis of the EU-China relations in the infrastructure investment sector. Chapter Three will focus on methodology – case study analysis and interviews used to conduct the research on COVEC; it will also present the theoretical framework and current academic debate about factors that influenced the investment’s failure through the literature review. The following three chapters will focus on analysis of the main reasons that led to the failure of COVEC’s project. Communication gap, policy failure and complex legal regulations will be discussed. The last part concludes all the findings.

 

  1. Context and research relevance

2.1 Background information about COVEC

COVEC is a fully-funded subsidiary of China Railway Group Limited (CREC) which ranked 57th among Fortune Global 500 Enterprises in 2016 (Fortune 2016). According to COVEC’s website, since its establishment in 1991, the company gained a vast experience in international markets, having successfully completed several construction projects in Africa, South Pacific, and Southeast Asia (COVEC 2016). As a state-owned enterprise, COVEC benefits from political and financial support from Beijing.

At the beginning of the 21st century, the Chinese government adopted the ‘Go Global’ strategy, which aimed at encouraging Chinese companies to expand their operations abroad and therefore partially solving the problem of production overcapacity of the Chinese economy. Having gained experience in less strict African markets, COVEC decided to enter the European market and in 2009 became the first Chinese company to win a public works contract in a member state of the European Union (Czarnecka 2010). Because it was allegedly subsidized by the PRC’s government (Sopińska 2011) it had the capability of proposing a price which was over 20 percent lower than the offers made by other European bidders (Supreme Audit Office 2013).

In June 2011, after less than a year since the construction works started, COVEC realized that it was not able to complete the project without additional financial resources. The attempt to reduce the expenses by importing machines from China failed as they did not possess certifications required within the EU and the transportation costs and visa arrangements necessary to hire more Chinese ‘coolie labourers’ turned out to be too expensive (Interviewee 5). COVEC attempted to renegotiate the contract; however the Polish government refused to make any amendments to the agreement claiming that it would be against the Polish and European Union’s legal regulations. As a result, COVEC withdrew from the project with less than 20 percent of the work done and facing the compensation claim of 200 million euros from the Polish General Directorate for National Roads and Motorways (Xi 2011).

 

2.2 COVEC’s investment in context of Sino-Polish and China-EU relations

Prior to the analysis of the factors that led to the failure of the construction of the A2 motorway between Warsaw and Łódź, it is necessary to identify the targets that both the Chinese investors and the Polish contracting authorities aimed at while signing the contract. In order to demonstrate why the communication gap and the policy failure impeded the successful implementation of COVEC’s project, this thesis will explain what originally motivated both sides to cooperate.

In terms of the targets that the Chinese consortium was hoping to achieve, this research argues that COVEC’s key priority was to enter the European public procurement market. In the short run, the company wanted to expand its foreign operations and set up its presence in the European Union. It can be argued that COVEC’s managers chose Poland, as they believed that it would be easier to gain access to the Polish market than the Western European markets (Interviewee 5, Turcsanyi et al. 2014: 135). In the long run, it can be observed that COVEC followed the PRC’s strategy of ‘Going Global’ and demonstrated Chinese willingness to enter the European market using the Chinese government’s support. This dissertation finds that China, knowing that the European Union is seeking for investments from non-member countries, tries to enhance its relations with the EU using the money and production capacity that the PRC’s economy has (Turcsanyi et al. 2014: 134).

The Polish government’s motivation to sign the contract with the Chinese company can also be justified by several factors. Firstly, in the short run, the Polish government had a simple plan of getting the construction works done at the lowest price possible. COVEC underbid the construction costs estimated by the Polish experts (Committee on Eastern European Economic Relations 2010; Supreme Audit Office 2013) and declared it would be able to construct the motorway before EURO 2012, which was important for the authorities in Warsaw who struggled in finding the contractors for a long time. Secondly, in the long run, assigning the contract to COVEC was related to Polish policy of acquiring the Chinese investment and diversifying the country’s foreign policy that was mainly focused on the EU – a large source of infrastructural project funding (Interviewee 4). It can also be argued that attracting the investment from a non-European country was part of the strategy of improving the media image of Poland and was supposed to show Poland’s openness before the European Football Championship (Interviewee 4).

2.3 Significance

This dissertation finds that, although many academic publications on the Sino-European relations have been issued in the past ten years, there is a huge gap in the academic research on Chinese engagement in the markets of Central and Eastern European countries that joined the European Union in 2004. There are no publications that comprehensively cover all aspects of COVEC’s project failure in Poland and the majority of academic work done in relation to COVEC’s investment lacks in-depth analytical approach, only listing the factors that contributed to the project’s collapse. Although the existing literature examines the case study of COVEC’s investment predominantly in the aspect of Sino-Polish bilateral relations, this thesis argues that it is very relevant to use this investment project as an example that can reveal the challenges that the European Union currently faces in its collaboration with China.

This research argues that COVEC’s case study can be used to discuss the issue of ‘variable-geometry’ of the European Union, showing that there are irreconcilable differences among the Member States (EUR-Lex 2016) and that dealing with the traditional sovereign state like China is a complex issue for the EU. Through the analysis of COVEC’s investment in the context of Sino-European relations, this dissertation uncovers two dimensions of Poland’s collaboration with the Chinese. Firstly, Poland acted as an independent country that aimed at pursuing its national interest. Secondly, at the same time Poland played the role of the representative of the EU that had to adhere to the legal regulations imposed by Brussels. Looking at the case of COVEC from these two angles, the divergence of national level interests from the priorities of the EU can be observed, shedding light on such issues as the lack of coherent EU policy on China and high level of fragmentation between the member states. It is especially relevant to analyse the case study of COVEC as an example of a project that involves both EU-China and Sino-Polish frameworks, as under the One Belt One Road Initiative many infrastructural investment projects are planned to be carried out by the Chinese companies in Central and Eastern European Member States.

 

  1. Literature review and research design

 

3.1 Literature review

There is no single academic work that embraces all aspects of COVEC’s failure. The existing literature on this topic consists of few academic articles which deal with the Chinese investment in Europe in general, and only mention COVEC’s case as one of the examples (Jacoby 2014; Jones 2012; Liu 2016; Szunomar 2014). There also are some press articles issued by the Western media including Financial Times, Spiegel International and Reuters (Baczynska 2011; Eddy 2014; Millner 2012), as well as several short publications coming from China mainland (Bao 2011; Ni, Gu and Yao 2011; Zhang 2011). Nevertheless, the majority of them are one-dimensional, capturing either national level analysis only or a very broad study of Chinese strategies towards investments in Europe.

The literature that investigates the case study of COVEC’s project to construct the parts of A2 motorway presents very inconsistent findings regarding the reasons for the investment’s failure. The diverse outcomes of the studies are related to researchers’ background. This dissertation finds that the Chinese scholars and academics affiliated at European institutions present different perspectives on why the investment was unsuccessful. This research takes into account both Chinese-language sources published for the audience in the PRC as well as Polish and English language articles whose targeted audiences are European citizens.

COVEC’s failed entry to the EU public procurement market has been covered by the Chinese media, mainly in the form of press articles. Interestingly, the analysis presented by the Chinese journalists and academic researchers shows a lot of discrepancies, with some sources defending COVEC (Zhang 2011) and others blaming the company for the failure (Ni, Gu and Yao 2011; Liu 2016). People’s Daily, the official newspaper of the Chinese Communist Party, presents COVEC as a victim of many unfavourable external factors including difficult weather and terrain conditions, hostility of the local subcontractors and lack of support from the Polish government (Zhang 2011). On the other hand, the publications issued in China by the institutions that are not representing the viewpoints of the government like the People’s Daily (Sarek 2011) present more critical views on COVEC. The magazine New Century Weekly as well as China-CEEC Think Tanks Network point out COVEC’s blind entry to the EU market as the main problem (Ni, Gu and Yao 2011; Liu 2016). This is clearly visible through the Chinese scholars’ criticism regarding the issue of COVEC’s lack of familiarity with Polish laws which was demonstrated in many aspects, starting from the basic issues such as absence of properly translated contracts and non-adherence to FIDIC standard forms while signing the documents (Ni, Gu and Yao 2011).

Polish and European scholars also emphasize COVEC’s unfamiliarity with the Polish labour law and the EU procedures, as well as its lack of preparations before entering the EU public procurement market (Godement 2012; Gradziuk and Szczudlik-Tatar 2012; Jacoby 2014; Jones 2012). The failure of COVEC’s investment was covered in the Polish media in the form of short articles, much of which was critical towards the Chinese companies (Sarek 2011). Polish publications tend to accuse COVEC of dumping (Burdzy 2012; Wudarczyk 2014) and non-adherence to the domestic law, putting the blame of construction problems with the A2 motorway predominantly on the Chinese company. This research will join the debate by showing that offering an extraordinarily low price led to the problems with completing the construction works, however this cannot be called dumping, but rather a strategy of gaining access to a new market.

Moreover, some scholars argue that COVEC’s project had a negative impact on Polish attitude towards Chinese investment (Gu, Wang and Ni 2011; Heiduk and McCaleb 2014: 68), which was reflected in the media discourse after COVEC’s project experienced financial difficulties. Furthermore, even before COVEC’s project the media discourse regarding China in Poland was already unfavourable (Mierzejewski 2009) and focused on issues such as human rights violations and the situation in Tibet. This thesis will build on these findings by showing that not only did COVEC have a negative impact on Polish attitudes towards cooperation with the PRC, but also it discouraged Chinese companies to further invest in Poland.

This research argues that miscommunication and misunderstanding of cultural differences and laws along with the policy failure were main factors that contributed to the investment failure. Building on the analysis of COVEC’s investment presented in Chinese and Western academic journals, newspaper articles, position papers and think tank’s policy papers, this thesis adds to the existing literature, by showing that considering only the factors which potentially influenced COVEC’s failure is not enough to understand why the investment was unsuccessful. This dissertation will demonstrate that both Poland and China had different expectations regarding the investment since the beginning, therefore COVEC’s project should be examined in the context of the policy failure, and cannot be fully explained only by analysing the factors that contributed to the failure. Taking into account both communication gap and policy failure will allow looking at the case study of COVEC from this new, previously unexplored angle, while contributing to the literature by incorporating the comprehensive analysis of this case study, which includes the insights from both Polish and Chinese perspectives.

3.2 Theoretical framework

This work will use international political economy (IPE) as the main framework for the analysis of COVEC’s investment in the light of Sino-Polish relations. International political economy focuses on the interplay of politics and economics in the world affairs, and explains the impact of institutions (rules, norms, organizations and laws) on the world economy (Baylis, Smith and Owens 2011: 248). Among the traditional approaches to IPE, this work finds the mercantilist tradition, which to some extent shares the presumptions of realists in international relations (Baylis, Smith and Owens 2011: 253), as the most relevant for this analysis.

Many scholars argue that China’s behaviour in the international arena should be seen through the realist lens (Mearsheimer 2006; Callahan 2013). Insights from the realist tradition of international relations can be applied to IPE to explain the behaviour of countries as states that compete with each other in the international system in order to maximize wealth and independence.  Realist perspective in the IPE assumes that the economic power should be used to enhance a state’s capabilities, and therefore economic power should be subordinate to politics (Jackson 2017). Seeing the world economy as an arena of competition among states (Baylis, Smith and Owens 2011: 253) helps explain China’s behaviour in Europe under the New Silk Road. Gaining access to the EU market may not only allow China to solve its problem of production overcapacity, but also gives Beijing geopolitical leverage. By expanding its overseas investment like in the case of COVEC’s project in Poland, China tightens its relations with the EU and gains access to new markets, thus increasing its share of power and obtaining economic gains.

While studying China’s approach towards international affairs, it can be noticed that Beijing’s developmental vision and rationale encompass many features of economic nationalism (Beeson 2012: 242). It is sometimes interpreted as a zero sum and inherently antagonistic model (Holslag 2011). This dissertation will use the concept of zero sum mentality in Beijing’s economic vision to confront it with the case of policy failure in Sino-Polish relations observed in the case study of COVEC. It will be shown that although the theoretical framework of IPE’s mercantilist tradition is useful to explain China’s willingness to gain access to the EU public procurement market at all costs and can reveal a very pragmatic, government supported strategy, China’s approach cannot be simply explained by Beijing’s zero-sum thinking. Albeit its behaviour can be, to some extent, described using the theoretical approach offered by realism, it needs to be put in a context of different targets pursued by Poland and China in the case of COVEC, which led to the policy failure.

Finally, the theoretical framework of IPE will not only be used to analyse China’s behaviour in Europe but it can also serve as a valuable tool that explains the way both the EU and China formulate their foreign policies. The European Union strongly advocates rules-based engagement in international relations (European Commission 2016; Marchetti 2016; Montesano and Okano-Heijmans 2016), whereas China has a more pragmatic attitude towards its foreign relations (Kavalski 2009) and treats law more instrumentally. As a result of this, a communication gap between China and the EU can be observed. It impacts bilateral relations and contributes to misunderstandings between both sides leading to problems in cooperation as it was observed in the case study of COVEC.
3.3 Methodology

The main hypothesis of this research is that the case study of COVEC is a classic example of a project management failure, which can be explained by two main arguments – communication gap and policy failure, which will be developed in the next chapters of this work. To answer the main research question of why COVEC did not manage to successfully enter the Polish public procurement infrastructure market, a mixed-methods approach will be used, focusing on case study analysis and interviews. This approach is particularly well-suited for social science research, as it enables to capture the broader structural context and the agent’s motives, decisions, and interpretation of particular issue (Thaler 2015).

Case study analysis is especially useful as it focuses on intensive study of a single unit with an aim to generalize across a larger set of units (Gerring 2004: 341).  Although one case study of Chinese investment in Poland is not enough to generalize about Beijing’s strategies towards investments in the EU, it can provide some valuable insights into the way Chinese SOEs operate and can contribute to future research as one of the examples of unsuccessful projects in Sino-European relations.

Case study analysis allows an in-depth, multifaceted investigation of a single social phenomenon (Feagin, Orum and Sjoberg 1991: 2). Thanks to its very narrow scope, it permits the researcher to conduct a detailed analysis and approach the case from different angles using various sources. Examining the case study of COVEC in depth may also reveal the areas in which there is a need for further research regarding both bilateral cooperation between Poland and China, as well as broader multilateral collaboration between the EU and the PRC.

Interviews, which were conducted during fieldwork in Warsaw and Cracow in April 2017, aimed at confronting the views on the roots of COVEC’s failure presented in the literature with the opinions held by scholars from several Polish universities, including the University of Warsaw, Jagiellonian University, Warsaw School of Economics and SWPS University of Social Sciences and Humanities. For the purpose of this research academics from a range of disciplines were selected, including international relations, economics, cross-cultural psychology and oriental studies. Different areas of expertise of the interviewees enrich this dissertation with a variety of perspectives on the Sino-Polish and Sino-European cooperation.

The interviewees were selected basing on their familiarity with the case study of COVEC and Chinese investments in Europe, which they demonstrated through their academic publications. The professional and academic background of the interviewees varied significantly, thus supporting this research with a range of different reflections regarding COVEC’s project. As some of the interviewees had a direct contact with people who were involved in construction works of the motorway, they provided this study with information and viewpoints which have not been previously published.

In terms of the ethical considerations, the interview participants were guaranteed anonymity and their names were not disclosed in this dissertation. While conducting the interviews, the Ethical Guidelines published by the Social Research Association (SRA) were applied to ensure safety and protection of interests of the research participants (SRA 2003).

  1. Understanding communication gap as a reason for the failure

The following part of this thesis will focus on the in-depth analysis of the communication gap between COVEC and Polish representatives, which was one of the major factors that contributed to the failure of COVEC’s investment in Poland. Miscommunication will be discussed in the context of cultural differences, various attitudes towards verbal and written agreements, as well as Chinese management’s cooperation with the Polish subcontractors.

Misunderstandings between China and the Member States of the European Union can be attributed to different interpretations of the same concepts (Pan 2010: 227). They can be observed through contrasting approaches towards negotiations or distinctive business etiquette. These diverse attitudes can lead to conflicts in bilateral relations, as it was illustrated by the case study of COVEC. This dissertation will show that the problem lies both on the Polish side and the Chinese one, and the failure to construct the A2 motorway should be associated with the lack of knowledge of cultural norms by both parties.

 

4.1 Cultural differences

Firstly, the way in which the Chinese managers from COVEC were welcomed in Poland will be discussed. It needs to be understood that hierarchy plays a very important role in Chinese society (Graham and Lam 2003: 84) and its significance is also noticeable during the business encounters. This thesis argues that Chinese delegates from COVEC experienced a disappointing reception in Poland even before the signing of the contract. As the representatives of the SOE, COVEC’s managers expected Polish elected politicians to be engaged in the dialogue and the process of contract-signing (Interviewee 3). However, after arrival in Poland they were not invited to any formal banquets and the Polish representatives responsible for providing the documents were civil servants, not high-level public office holders (Interviewee 3).

Although this is a standard procedure in Poland to sign the contract in the presence of civil servants, it did not meet up COVEC’s expectations and made them feel to some extent ignored. As it is noticed by Central and Eastern Europe Development Institute (CEED), a think-tank that analyses economic development of Central Europe, the investment made by COVEC was a part of a political deal (CEED 2012: 30). It can be argued that the Chinese government aimed at gaining access to the European public procurement market and expected that the investment made by COVEC could serve as the beginning of fruitful bilateral cooperation in the infrastructure sector. Therefore, the presence of important Polish politicians was highly desired by the Chinese side. Furthermore, the importance of extravagant reception anticipated by the Chinese managers as an act of reciprocity after Beijing set up several incentives to promote Poland in China a few months before, should also be pointed out (Interviewee 3).

Secondly, it can be argued that Chinese managers’ unawareness of Polish culture and customs significantly contributed to the negative impression that COVEC made at the beginning of the cooperation. The missteps committed by the Chinese included an attempt to talk about business issues during the funeral of the Polish President and others killed in Smolensk (Jacoby 2014: 206) and scheduling the arrival of the biggest Chinese delegation ever to Poland on Good Friday (CEED 2012: 29).  Good Friday is not only the time when most of the businesses in Poland start the Easter vacation, it is also an important day in Catholic dominated countries. Although many countries in Western and Anglo-Saxon Europe do not celebrate it, in Poland this day is not considered to be appropriate for doing business, which was not fully understood by the Chinese delegation. This was not a unique example of the situation in which the Chinese did not adhere to the European public holidays calendar. The same situation happened in France, when the Chinese representatives scheduled business meetings during weekends which were not attended by any European middle-level executives (Wang and Hu 2012: 90). The Chinese businessmen were unaware that the European officials do not normally work on Saturdays and Sundays, as it is not the case in China (Wang and Hu 2012: 90).

Finally, the behaviour of COVEC’s representatives can be justified not only by their unfamiliarity with European culture, but also to some extent can be explained as a form of Chinese ethnocentrism (Interviewee 3). Ethnocentrism can be defined as a view of things in which one’s own group is the centre of everything, and all others are expected to comply with the norms imposed by this group (Neuliep 2002: 201). The Chinese, often considered to be ethnocentric (Parker et al. 2011), are not willing to recognize and absorb the norms and customs of other cultures. Chinese ethnocentrism was especially visible in the case study of COVEC, when the Chinese managers showed no initiative to learn Polish language or employ Chinese-speaking experts on European culture (Interviewee 3). This dissertation argues that COVEC’s managers who came to Poland assumed that others would accommodate to Chinese values and norms, as it was in the case of some of the previous investments in Africa (Dent 2011; Sautman and Yan 2016), however this model of behaviour certainly cannot work in the European Union.
4.2 Verbal agreements

Formal banquets and unofficial discussions are important aspects of the Chinese business culture as they provide an opportunity to talk over the issues which are then formally approved during the high level, official meetings (Interviewee 3). While many Chinese consider verbal agreements as valuable as the written contracts (Roehrig 1994), in the European Union all agreements need to be codified in writing in order to be valid. Chinese businessmen tend not to rush into formal contract discussions (Kindel 1990) and build mutual trust with the foreign partners through attending meetings and dining together, which was a cultural norm that the Polish officials and contractors were not aware of (Interviewee 2, Interviewee 3).

Having visited Poland prior to starting the construction works, COVEC’s managers assumed that former verbal agreements would be respected and that in case of any problems the Polish government would agree to renegotiate the terms of the contract (Interviewee 2). This shows that the Chinese managers did not understand that verbal agreements are not binding in the EU. For example, one of COVEC’s managers claimed that he had a conversation over dinner with the Polish Deputy Minister of Infrastructure in a nice atmosphere, therefore he assumed that the relations between both parties were good and there would not be any problems (CEED 2012: 30). Therefore, this work argues that the communication problems with COVEC were caused by the fact that the Chinese use conversations to establish verbal agreements, whereas in Poland and other EU member countries no agreement is valid in the light of law unless it is written down.

Distinctive approaches towards verbal and written agreements can also be observed through the way in which the contract was prepared. According to the New Century Weekly, the original contract was written in Polish and consisted of a few A4 pages only, however it had several attachments that included several dozen pages each. There were English and Chinese translations of the contract, but these versions of the agreement were not professional translations of the whole contract but only short summaries of the content of the original document (Ni, Gu and Yao 2011). This demonstrates that the Chinese business practices to large extent depend on oral agreements (Eddy 2014). It can also be argued that the written contract was not diligently translated as COVEC’s managers assumed that it was not the only binding document and in case it was necessary it would be possible to renegotiate it verbally.

The communication gap between Warsaw and Beijing additionally deepened when the Polish government warned COVEC that non-adherence to the written contract could result in taking a case to court. In general, most of the Chinese businessmen prefer mediation and discussion with the parties involved rather than going to the court or engaging third parties such as arbitration committees (Fang 1997:114). This work finds that the studies conducted by Lubman (1983) and Mann (1989) are still valid in terms of COVEC’s investment, as this case confirms their hypothesis that the Chinese prefer to arrange things verbally and tend to feel insulted and embarrassed when confronted with clauses spelling out the penalties that would be applied if the commitments are not fulfilled. Therefore, Polish government’s threat of taking COVEC to court meant losing face for COVEC’s management (Pyffel 2011) and demonstrated that both parties were not familiar with each other’s norms.

 

4.3 Cooperation with local subcontractors

Finally, the communication gap between the Chinese and Polish entities can be observed through COVEC’s attitude towards the local subcontractors. Chinese companies have a reputation for being reluctant to hire local labour, preferring to bring workforce from China (Corkin 2012: 479). It was clearly visible, when COVEC was trying to avoid hiring local Polish subcontractors and instead attempted to employ the Chinese labourers only, in order to save costs. COVEC was reported to have brought 500 Chinese labourers to work in Poland in January 2011 and had an intention of arranging transport to bring another 300 workers with Chinese citizenship in May 2011 (Jones 2014: 792), however it turned out to be impossible. According to the EU law, when conducting business in the EU it is obligatory to hire a high proportion of workforce from the ranks of the EU labour market (Jones 2014: 792). Additionally, high financial outlays related to the import of labour from China, arrangement of working permits and visas impeded the arrival of more Chinese workers. As a result, COVEC, who lacked workforce and did not possess machines licensed to operate in the EU, had to hire the Polish subcontractors to obtain the manpower and lease the equipment.

Not only was COVEC’s management reluctant to hiring Polish subcontractors, the local companies in Poland were also not willing to cooperate. Studies show, that some Polish construction companies decided to act together in refusing to collaborate with COVEC (Wudarczyk 2014), which they treated as new competitor in the market. Polish construction companies organized against the Chinese consortium, denying them access to necessary supplies and complicating their efforts to recruit from local labour markets (Jacoby 2014; Millner 2012). Although the Polish companies were never officially accused of price-fixing (Wudarczyk 2014), the behaviour of the Polish subcontractors demonstrates their hostility towards the Chinese. To some extend this can be explained by construction companies’ fear of the competition with the Chinese SOEs (Interviewee 2), which proved to be capable of finishing the assigned job for significantly lower costs than the European enterprises as they receive subsidies from the Chinese government (Committee on Eastern European Economic Relations 2010: 2).

Both the Polish subcontractors who agreed to cooperate with COVEC, as well as the Chinese consortium, demonstrated unwillingness to embrace each other’s distinctive working practices. COVEC’s management complained that the Poles were not willing to work overtime like the Chinese (AFP 2011). Furthermore, the Chinese executives found it hard to understand that all employees, regardless of their citizenship, had to receive the salary adjusted to the EU law when they work in Poland (Jones 2014: 792). At the same time, Polish workers had difficulties in understanding some of the Chinese working habits and refused to take part in everyday activities organized for all workers, such as shouting slogans before the start of the working day to motivate people to work (Interviewee 3). Moreover, there was a language barrier between the Chinese and Polish construction workers which impeded communication and disabled the discussion on how to overcome specific cultural differences.

4.4 Summary

Communication gap between COVEC and Polish representatives had a significant impact on the investment’s failure. Unawareness of each other’s cultural norms led to many unpleasant situations when one of the parties felt ignored or even insulted. China’s appreciation of verbal agreements contrasted with Polish strict adherence to the written contracts resulted in many misunderstandings and different expectations from both sides. Finally, the miscommunication between the Chinese managers and Polish subcontractors demonstrated that COVEC was not sufficiently prepared to enter the EU market and did not manage to cooperate with the local companies.

 

  1. Legal aspects of the failure

This dissertation argues that in order to explain the roots of the problems associated with COVEC’s investment, the approach of both Chinese contractors and Polish authorities in regard to Polish national and EU level laws needs to be discussed. All companies that operate in the Polish public procurement market have to adhere to the Polish and European Union’s public procurement laws. These regulations are very complex and the case study of COVEC revealed that there are some significant differences between the EU and Polish domestic laws. This chapter aims at answering whether it was in accordance with the law to assign the contract to COVEC, who offered an extraordinarily low price, through the analysis of both Polish and EU laws on public procurement. It will also examine the criteria for tender award in Poland to explain why COVEC’s investment turned out to be problematic. Finally, the issue of various interpretations of specific Polish laws will be discussed.

5.1 COVEC’s offer in the light of Polish and EU laws

As the price offered by COVEC was unusually low, it can be questioned why the government did not check whether completing the project for the price offered by the Chinese was actually possible. The analysis of the Act of 29 January 2004 on Public Procurement Law, the most important legal document regarding public procurement in Poland, shows that in fact the government had no obligation to take any action to verify whether or not the price offered by COVEC was abnormally low. This is due to the issue of the burden of proof in the Polish legal system (Klee, Marzec and Skorupski 2014: 295). It means that given two competitors, if the competitor A offers a price which is very low, it is the responsibility of competitor B to prove that the price suggested by the competitor A was abnormally low and works could not be completed without a loss (Klee, Marzec and Skorupski 2014: 295). The whole procedure involves additional financial resources and time, therefore in many cases the competitors decide not to sue each other. Several amendments introduced to the Polish Public Procurement Law in 2014 reversed the situation making the contracting authority responsible for checking if the price offered by the contractor was not abnormally low (Podraska 2015), however these changes were introduced after COVEC won the bid for constructing the A2 motorway.

Since COVEC underbid the construction costs calculated by the Polish motorway administration by more than half (Committee on Eastern European Economic Relations 2010: 2) and offered the price over 20 percent lower than other European bidders, the hypothesis put forward by some competitors that the price was abnormally low seems to be justified. The Article 90 of the Polish Public Procurement Law can be used to support other competitors’ demands to verify COVEC’s offer. Although it does not oblige the contracting authority to request justification of the extraordinarily low price from the contractor, it recommends to request explanations, including evidence, relating to the calculation of the price or cost if it is 30 percent lower than the estimated value of the contract (Article 90, Paragraph 1, Act of 29 January 2004 on Public Procurement Law).

Although the analysis of the Polish Public Procurement Law demonstrated that the government acting as the contracting authority had no obligation to verify COVEC’s offer, the examination of the Directive 2004/18/EC of the European Parliament reveals that the Polish government did not entirely adhere to the European Union’s regulations as it should have done. The Article 55 of this EU Directive explicitly states that if the tender appears to be abnormally low, the contracting authority shall request in writing the details of the constituent elements of the tender which it considers relevant (Article 55, Paragraph 1 of Directive 2004/18).

Assigning contract to COVEC sheds light on the fundamental issue of the precedence principle, according to which the European law is superior to the national laws of Member States (EUR-Lex 2010). Even if the Polish domestic law did not impose the obligation of verifying COVEC’s offer, the EU law did, therefore the Polish government should have investigated the details of the Chinese consortium’s offer respecting EU law’s primacy. This thesis argues that the issue of the superiority of the EU regulations is less embedded in the new Member States and can to some extent be used by the third countries that are willing to enter the Polish market.

5.2 Criteria for tender award in Poland

In order to further explain the complexity of COVEC’s case study, the next part of this work will analyse the selection process of tenders in the Polish Public Procurement Law. According to the Polish law, the contracting authority shall choose the most advantageous tender, not the one that offers the lowest price. The Article 2 of the Polish Act of 29 January 2004 on Public Procurement Law clearly defines the most advantageous tender as the one that ‘provides the most advantageous balance of price or cost and other criteria relating to the subject-matter of public contract’ (Article 2, Act of 29 January 2004 on Public Procurement Law). Nevertheless, according to the Polish think-tank The Civil Development Forum Foundation (FOR), in 2011 over 90 percent of the public tenders were assigned only basing on the lowest price criterion (Jarzyński 2011: 2). The lowest price criterion seemed a safe choice for many officials involved in Polish public procurement market as it was clear and easily justified criterion for assigning the contracts (Jarzyński 2011: 16).

The issue of assigning public procurement contracts basing solely on the lowest price criterion was mentioned in the Polish Parliament’s session in November 2011, and the case of COVEC served as an example of loopholes in the current law on public procurement. It revealed the problem of interpretation of what the most advantageous tender is and encouraged the discussions on introduction of several amendments to the law. Moreover, it was suggested that if such aspects as contractor’s financial capacity to meet its obligations, references and guarantee period (Cedzyński 2011) were taken into account, then the investment project might had never been assigned to COVEC.

5.3 Various interpretations of law

COVEC’s unawareness of Polish and EU law regarding environment protection created additional problems. The environmental law in China differs significantly from the European ones in many aspects. For example, large-scale infrastructural projects in China often require some environmental deterioration and relocation of the local communities; however people who are being displaced show little resistance towards government’s construction and modernization agenda (Jing 2000; Wee 2012). This to some extent explains why COVEC expressed disagreement and confusion as they learnt about the environmental regulations in Poland, according to which some amendments to the working plan had to be made due to the presence of wildlife in the construction site.

Firstly, the works had to be halted for two weeks in autumn while seven rare species of frogs, toads, and newts were moved out of the path of the motorway (Godement 2012: 3, Jacoby 2014: 206). Secondly, according to the contract, COVEC had to construct special tunnels for the passage of wildlife (Godement 2012: 3, Liu 2016). These kinds of environment protection regulations are still uncommon in China and were not understood nor welcomed by COVEC because of high costs of tunnel building and different mentality of the managers, who simply saw no necessity to take additional measures to protect the wildlife. This work argues that COVEC’s representatives hoped to negotiate the terms of the contract in relation to environmental issues and believed that some of the requirements could be loosened. However, they were unaware of the importance of environment protection in Poland (Malec 2005) and strict adherence to environmental regulations.

This situation also showed the significant difference between the Polish and Chinese actors in their approach towards the law. This thesis finds that the Chinese treated law as a tool that serves to reach specific targets and can be adjusted, as it was seen through COVEC’s attempts to negotiate the regulations which were clearly stated by the Polish environmental law. This was not the case of the Polish government which believed that the law and the signed contract were non-negotiable and had to be strictly adhered to (CEED 2012: 30).

5.4 Summary

Differences in the Polish and European Union’s regulations on public procurement significantly complicated COVEC’s investment project. Although, acting as a contracting authority, the Polish government did abide by the Polish domestic legal regulations, it failed as the representative of the EU not adhering to the European law. Questionable legality of COVEC’s tender under the EU law additionally revealed the problem of EU law’s primacy in the Member States. Furthermore, COVEC’s case study showed the disputable criteria for tender award in Poland and shed light on the problem of different approaches towards law in Europe and China. The problem lies not only in the distinctness of Chinese and European laws, but also the interpretation of them and the extent to which they are adhered to.

 

  1. Policy failure in COVEC’s project

This dissertation finds that next to the communication gap and problems with legal framework, policy failure is another major factor that led to the collapse of COVEC’s project. To analyse the case study of COVEC’s investment as an example of policy failure, this chapter will firstly focus on the targets that COVEC and the Polish government had in the short run, concentrating purely on the matter of motorway construction. Secondly, the issue of divergent goals set up by both sides will be discussed in the broader perspective of China’s foreign policy on Europe and Polish international relations.

Every public policy involves a range of actors with different opinions regarding the outcome of implementation of specific policies, with some people claiming that it was successful and others being more likely to state it was a failure (McConnell 2010: 345). In reality, policy outcomes are often somewhere in between these extremes and are difficult to assess because they tend to have multiple dimensions, often succeeding in some aspects but not in others, according to facts and their interpretation (McConnell 2010: 345). This research argues that the case study of COVEC’s investment can be defined as a policy failure as it did not bring the expected outcomes both in the short run and in terms of broader framework of improving Sino-Polish bilateral relations. The failure will be attributed to different targets pursued by the Chinese and the Polish.

6.1 Polish government’s perspective

Firstly, the policy goals targeted by the Polish government at the national level and in the short run will be discussed. It can be argued that the main objective of assigning the contract to the Chinese consortium was getting the construction works done on time for as low cost as possible. Studies show that the Polish government had problems with finding the contractors for several parts of the A2 motorway and was under pressure of time to finish the road construction on time before the EURO 2012 (Kaliński 2013: 144). COVEC declared to be able to complete the work significantly cheaper than other bidders and offered the price for one kilometre of highway slightly higher than 5 million euro (VAT excluded), which was the lowest price for a highway construction project in Central Europe at that time (Nemec et al. 2014: 1057).

Not only was the offer attractive financially, COVEC also guaranteed that they would finish the work on time. Polish experts in construction business did not believe that it was possible to finish the work in the timeframe proposed by COVEC and suggested that the works should be done by the Polish companies as they did not trust the Chinese (Cragg 2010). The argument that the Polish government used was that it did not matter who would construct the road, the most important factor was the low price. Getting the road built by the Chinese consortium for lower cost would free up money for more infrastructure projects and create Polish jobs in the process, which in general would benefit the economy (Cragg 2010) and support various development policies.

6.2 COVEC’s perspective

Secondly, the policy of COVEC as a Chinese consortium willing to access the EU market will be explained. According to COVEC’s website, the company has 22 offices located in various parts of the world, with only one being situated in Europe, in Warsaw (COVEC 2016). This Chinese consortium has undertaken over 1,000 large and medium-sized international projects (Centre for Chinese Studies 2006: 95) with the major focus on Asia and Africa. Being selected for preferential support by China’s State-owned Assets Supervision and Administration Commission (SASAC) (Centre for Chinese Studies 2006: 95), COVEC decided to expand its international operations and enter the markets of the EU member countries.

The reason why they decided to choose Poland for their first European investment was related to the company’s strategy of targeting markets with lower entry barriers first (Interviewee 1; Interviewee 2), which in this dissertation are understood as markets with less strict administrative controls and less developed regulatory regimes (Smith et al. 1996: 8). This work finds that COVEC’s managers believed that renegotiations of the already signed deals would be more straightforward to conduct in Poland than in other EU member states such as Germany or France (Interviewee 2; Interviewee 5). Furthermore, if COVEC managed to get specific certifications to use their equipment, machines and materials in Poland, then each seal of approval would also be valid in other countries within the EU (Bartuś 2011). Therefore, it could be deduced that COVEC chose Poland because of relatively low entry barriers, hoping that it would enable further expansion into the Western Europe.

COVEC was often accused of constructing the road below cost (EUbusiness 2010, Gasowski 2014, Godement 2012: 4, Willis 2010).  However, it can be argued that COVEC did not aim at making huge financial profits but instead wanted to gain access to the Polish market (Interviewee 2). It did not prioritize financial benefits that the investment project could bring because it predominantly looked forward to establishing the ground for the future investments in the EU. Therefore, this research finds that COVEC offered an extraordinarily low price to make sure that they would win the bid and thus enter the EU public procurement market.

6.3 Poland’s goals in the long run
Thirdly, the case study of COVEC’s unsuccessful investment project can be analysed as an example of the policy failure of the Polish government who was hoping to enhance relations with the PRC. Poland is the largest net beneficiary of EU funds (Harris 2015; Taylor 2010), however the government is aware of the fact that the available EU funds might shrink in the foreseeable future, thus it decided to look for new sources of capital outside the European Union.

The policy of attracting the Chinese investment was already visible a year before COVEC won the bid to build some parts of the A2 motorway, when the Polish Minister of Internal Affairs Grzegorz Schetyna and the Minister of Sports and Tourism Miroslaw Drzewiecki visited China on the occasion of closing ceremony of Beijing Olympics to encourage Chinese companies to participate in public procurements (CEED 2012: 29). Furthermore, Polish government was keen to diversify its foreign policy and focus on cooperation with countries other than those in Europe, concentrating on China (Interviewee 4). Poland also wanted to show its openness for international cooperation before EURO 2012 (Interviewee 4) and broaden the spectrum of contractors available in the market (Karpiński-Rzepa and Biedrzycka 2011).

Nevertheless, this policy failed; COVEC had to hire Polish subcontractors as it is required by the EU law, therefore the pool of available contractors did not increase (Karpiński-Rzepa and Biedrzycka 2011). Due to lack of knowledge on how to cooperate with the Chinese, which was illustrated by various misunderstandings related to the communication gap, the Chinese companies were disheartened by the lack of support from the Polish government to COVEC and decided to approach other markets in the Central and Eastern Europe.

The Polish government’s attempt to enhance relations with China through cooperation with COVEC failed as the project instead of attracting more investment discouraged other Chinese SOEs to enter the Polish market. For example, in 2011, after withdrawal from Poland, COVEC signed the contract to rebuild the Budapest Airport (CEED 2012: 30). At the same time other Chinese companies signed 12 business agreements with Hungary in various sectors (CEED 2012: 30), prioritizing expansion on Hungarian rather than Polish market.

6.4 China’s goals in the long run

Fourthly, COVEC’s investment can be associated with Chinese government’s strategy of getting access to new European markets. This is closely linked to Beijing’s policy of pushing the domestic enterprises abroad to solve the problem of economic overcapacity and additionally supported by the fact that COVEC was chosen as one of the 167 SOEs to receive preferential support by SASAC to be a flagship enterprise (Centre for Chinese Studies 2006: 95).

It can be argued that COVEC was a part of a political deal, which assumed that after previous attempts of encouraging the Chinese companies to invest in Poland, the government in Warsaw would assist in the construction works (CEED 2012: 30). Beijing selected Poland as one of its future strategic partners and was acting in the long term perspective trying to gradually access the Polish market (CEED 2012: 29).

Nevertheless, this plan failed as the Chinese did not have enough experience in the European markets and lacked knowledge regarding the public procurement law and rules of operation in Poland. Furthermore, the strategy of managing the project through COVEC’s headquarters in Beijing did not work as expected (Interviewee 5) and the few COVEC’s representatives who were physically present in Poland did not manage to implement the project successfully.

6.5 Summary

In conclusion, the case study of COVEC’s investment in Poland can be evaluated as an example of the policy failure in four different dimensions. Taking into account both Chinese and Polish perspectives, this investment shows that in the short run Polish policy of getting the construction works done for an extraordinarily low price failed, and COVEC’s initiative to enter the new European market was not successful either. In the long run, Polish government did not manage to diversify the country’s foreign policy nor attract more investment from Beijing thanks to COVEC. Similarly, the PRC’s strategy of entering the EU public procurement market proved to be unsuccessful as the Chinese had not enough preparation and knowledge on how to conduct projects in Poland.

 

  1. Conclusions

Having analysed the factors that contributed to the failure of the A2 motorway construction in Poland, this work found that the case study of COVEC’s investment is a classic example of project management failure. It has been demonstrated that a communication gap, the complexity of Polish and EU legal regulations, as well as the policy failure were the major factors that impeded the successful implementation of the investment project.

COVEC’s managers and the Polish authorities were unaware of each other’s culture, negotiation style and business etiquette which led to miscommunication between both parties. It also complicated COVEC’s relations with the Polish subcontractors, who were not willing to adjust to the norms introduced by the Chinese partners. Distinctive approaches towards verbal and written agreements additionally widened the communication gap and revealed that COVEC’s strategy of offering the lowest bid and then renegotiating the financial terms of the contract cannot work in the European Union.
The analysis of the Polish public procurement law and the European Union’s one demonstrated the complexity of the legal regulations and the problem of different interpretations of these documents. It shed the light on the problem of the EU law’s superiority over the Member States’ national laws and showed that some legal regulations are differently approached in China.

Finally, this thesis argued that apart from analysing the factors that led to the investment’s failure it is necessary to recognize the different targets pursued by both Polish government and the Chinese contractors. This research showed that COVEC’s unsuccessful attempt to enter the Polish public procurement market was to a large extent caused by the policy failure. COVEC’s project proved to be a part of a political deal where both sides had different expectations regarding the project, not only in the short run, but also in terms of broader frameworks of bilateral cooperation.

COVEC’s failed investment had a lot of implications for Sino-Polish cooperation. It demonstrated that unfamiliarity with each other’s culture, norms and legal regulations significantly impedes collaboration. COVEC did not manage to establish good relations with the local companies (CEED 2012: 29, Kędzierski 2012: 21) nor create a network of strategic alliances because the company was not prepared well enough to operate in the Polish market. This led to unpleasant experiences of cooperation with the Polish authorities and discouraged other Chinese SOEs to invest in Poland. It was especially visible when many of the PRC’s companies decided to invest in other Eastern European EU Member States after COVEC’s withdrawal from Poland. This investment also created a negative picture of the Chinese companies and discouraged many Polish enterprises to cooperate with the Chinese firms.

This dissertation finds that the case study of COVEC’s investment can also be applied to the broader framework of China-EU relations as it reveals several challenges that both China and the European Union face in bilateral cooperation. Firstly, the investment made by the Chinese consortium in the Polish public procurement market demonstrated that many communication problems between China and the EU are related to different approaches to law represented by both parties. While the Chinese use it as a practical tool that is subject to negotiations, the EU promotes rules-based engagement and advocates strict adherence to the written agreements and laws. Secondly, it shows the ‘variable-geometry’ of the European Union, indicating that there are irreconcilable differences among the Member States (EUR-Lex 2016). This research demonstrated that China takes advantage of these differences and in the first place approaches the countries like Poland, whose markets have less strict administrative controls and less developed regulatory regimes.

The case study of COVEC’s investment in Poland provided a lot of valuable insights into the challenges that both Poland and the European Union face while cooperating with the companies from the PRC. Nevertheless, this dissertation acknowledges that more research on Chinese investment in the European Union is necessary, especially concerning the countries that joined the EU after 2004. The number of infrastructural projects conducted by China in Europe is going to increase under the One Belt One Road Initiative. Few of them were already implemented and some difficulties were reported. More research on the cases of failed Chinese investment in Europe would allow a better understanding of the causes of miscommunication between both parties and contribute to improving policymakers’ knowledge on how to avoid them.

WORD COUNT: 9946

 

 

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Primary sources:

Interviewee 1 – Assistant Professor at the Institute of the Middle and Far East, Jagiellonian University in Cracow. Interviewed on April 06, 2017 in Cracow, Poland.

Interviewee 2 – Assistant Professor at the Warsaw School of Economics, World Economy Research Institute. Interviewed on April 10, 2017 in Warsaw, Poland.

Interviewee 3 – Expert in cross-cultural psychology, lecturer at the SWPS University of Social Sciences and Humanities. Interviewed on April 11, 2017 in Warsaw, Poland.

Interviewee 4 – Associate Professor at Warsaw School of Economics, Department of Political Studies. Interviewed on April 11, 2017 in Warsaw, Poland.

Interviewee 5 – Professor at the University of Warsaw’s American Studies Centre. Interviewed on April 13, 2017 in Warsaw, Poland.

 

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JPR Status: Working Paper