Prague Opened the Door to Chinese Influence. Now It May Need to Change Course.

When CEFC China Energy, a once-unknown private Chinese conglomerate, decided to make a play for global dominance, it chose the Czech Republic as its staging ground.

In 2015, the company opened its European headquarters in Prague, making huge investments in the country’s real estate and media industries and forging close ties with the Czech government. That year, company chairman Ye Jianming was named an advisor to Czech President Milos Zeman.

Just two years later, CEFC rose to global prominence when it purchased a $9.1 billion stake in the Russian state-controlled oil giant Rosneft.

But after Ye’s detention in China, announced on March 1 and allegedly at the personal orders of President Xi Jinping, the Czech Republic appears to be rethinking its embrace of China and Chinese investment.

Zeman deployed two aides, Vratislav Mynar and Martin Nejdely, on a presidential delegation to China this week to find out what, exactly, is going on. It’s not just investment that’s at stake. Zeman has made significant ideological concessions to Beijing after cozying up to CEFC, raising questions of heavy-handed Chinese political influence in the central European country. The Czech Republic isn’t alone — Chinese investments across Europe have raised concerns of Beijing buying influence.

The chain-smoking, heavy drinking, politically incorrect Zeman wasn’t always so fond of Chinese investment. In 1996, he denigrated Czech leaders who sought to please China, crassly calling them “ready to undergo plastic surgery to slant their eyes.”

But two decades later, Zeman changed his tune. After coming out of retirement to become the first directly elected Czech president in 2013 — Zeman had previously served as prime minister from 1998 to 2002 — he tried to forge close ties to China.

Zeman’s partnership with CEFC brought immediate results. A 2017 report on Chinese investment in the Czech Republic by the European Think-tank Network on China noted that “Chinese acquisitions and investments have increased markedly in the last two years, and are expected to continue on this new trend,” though China still lags behind numerous other major investors such as the Netherlands and even Taiwan.

The report identified CEFC China Energy as the most prominent Chinese investor, whose holdings include stakes in hotels in Prague, a soccer team, breweries, a financial group, and the airline firm that controls national carrier Czech Airlines.

But Zeman didn’t just usher in Chinese investment. He also made domestic political moves that align with major Chinese Communist Party ideological goals, including sidelining Tibetan and Chinese dissidents.

In 2016, Zeman denied a Holocaust survivor a government medal because his nephew, a government minister, had upset China by meeting with the Dalai Lama. When Chinese President Xi Jinping visited the Czech capital that same year, Czech police helped suppress anti-Beijing demonstrators in a worrying capitulation to Chinese political interests.

In addition, the Czech media assets that CEFC acquired have provided “exclusively positive coverage of China,” according to a study completed in June 2017 by ChinfluenCE, a watchdog group.

“CEFC is quite central to everything that is happening with Chinese influence in the Czech Republic,” says Martin Hala, director of Project Sinopsis, which tracks China’s impact in the country.

The oil conglomerate has also been vigilant regarding its portrayal in Czech media. Its Czech law firm — connected to a close friend of a former prime minister — sent legal notices to Czech media outlets after they alleged CEFC had ties to a political influence arm of the People’s Liberation Army.

CEFC did not immediately respond to request for comment.

Despite it all, Chinese efforts to influence the Czech Republic have received less attention than worries about Russian interference in Western media, as evidenced by initiatives such as “Kremlin Watch” and a focus on Russian meddling in Zeman’s re-election. Chinese interference in Czech politics, in contrast, has largely flown under the radar outside of Czech-language media.

The company’s meteoric rise, capped by its acquisition of a big stake in one of the world’s largest oil companies, has led to speculation about the true nature of its relationship with the Chinese government. Observers are at a loss to figure out how a little-known private company suddenly amassed a multibillion-dollar war chest which it used to make overseas deals advancing Beijing’s geopolitical objectives.

Zeman should, perhaps, have done more due diligence on the company before intertwining his country’s fortunes with it. In November, Patrick Ho, the head of CEFC’s think tank, was arrested in New York on corruption charges; he allegedly used his United Nations connections to attempt multimillion-dollar bribery schemes aimed at securing oil rights in Chad and Uganda. Ho was named special advisor to the U.N. General Assembly president in 2015, the same year that Ye became an advisor to the Czech president.

The Chinese government said it is investigating Ye for economic reasons, but Hala doubts that’s the whole story. “It is also possible it might be connected to the corruption case against Patrick Ho in New York, which might have embarrassed the Chinese government,” says Hala.

The Czech delegation in China may be offering a word of warning as much as seeking to find out what’s going on. “I suspect their real purpose in China is to try and explain how Chairman Ye’s uncertain future undermines the Czech-China relations that Zeman and his advisors put so much of their own political capital into,” Hala says.

Given CEFC’s extensive holdings and high-level political connections, Hala added, “whatever happens with the company will probably resonate through the political scene in the Czech Republic.”

Those reverberations could include a louder voice for a politician as anti-China as Zeman is starry-eyed. While the new prime minister, billionaire Andrej Babis, is struggling to form a government, he is once-bitten, twice shy when it comes to China.

“He had some little business experience in China like 15 years ago, and the Chinese somehow stole it from him. And he remembers it very well,” Jan Machacek, a Babis advisor, tells Foreign Policy, referring to an experience Babis had with his fertilizer business.

That bitter taste could drive the Czech Republic to reappraise its lurch into China’s arms, because foreign policy is made more in the prime minister’s office than the president’s. Babis doesn’t see a lot of dividends from Chinese investment, unlike previous infusions from Korea and Japan. “It’s good for us in geopolitics. His bad experience is working for us well,” Machacek said.

And that might take tangible shape in the form of Prague joining other countries seeking to rein in Chinese investment in Europe. The previous, Social Democrat-led government resisted joining countries like France and Italy in calling for greater screening of Chinese money; a Czech government source suggests that might now change.

“This might open the door for renewed debate on control of Chinese investment,” the source says.