Chinese Trade and Investment in the Visegrad Countries: Mapping Increased Exposure and Volatility

Abstract

A Central European manufacturing nexus has emerged in the past three decades, encompassing Germany, Austria and the four Visegrád countries. In this regard, a scrutiny of trade statistics based on value-added methodology indicates a significant increase in exposure of V4 countries towards China. Assessment of financial linkages shows a higher volatility potential of Chinese investments. Since the Chinese driven 16+1 and Belt and Road Initiatives strive for an increase in trade and investment flows between China and the region, both exposure and volatility are poised to grow further. However, economic interdependence within the manufacturing cluster decreases the efficacy of domestic policy actions aiming at reducing volatility. In order to mitigate potential macroeconomic volatility, V4 countries must pursue closer macroeconomic cooperation within the region, particularly with Germany.