In the rapidly shifting geopolitical and geoeconomic landscape, Central and Eastern Europe (CEE) finds itself at a crossroads. Whether the region can defuse the crisis it faces and turn challenges into opportunities will determine the trajectory of its economic development.

Traditionally, the CEE region's economic model has leaned heavily on Europe for investment, Russia for energy and the United States for security.

For decades, CEE nations, such as Hungary, have leveraged their European Union and NATO memberships and access to low-cost Russian energy to attract substantial Western European investments, cementing their position as Europe's backyard of manufacturing.

However, these foundational pillars are now teetering. A sluggish European economy has dampened market demand and investment in Western Europe, and the spillover has hit CEE enterprises that were key suppliers to that market. Surging energy prices have squeezed profit margins for the CEE's energy-intensive industries.

And the US has pulled back from its security commitments, urging CEE countries to shoulder more responsibility.

Faced with these headwinds, CEE countries have adopted a three-pronged strategy: diversifying investment sources, energy supplies and security guarantees to offset the waning role of Western Europe, Russia and the US in driving economic growth.

First, the region is making a concerted push to attract Asian capital to accelerate its integration into the new energy vehicle industry chain.

Traditional automotive manufacturing is the cornerstone of the CEE economy, contributing 7 to 14 percent to the region's GDP. But Western European automakers are grappling with hurdles in their electrification transition, forcing downstream CEE economies to turn to Asian investment in NEV and battery manufacturing.

The Republic of Korea has emerged as a leading non-EU investor in recent years and China has been Hungary's largest source of FDI since 2023.

It was precisely to meet the need for investment diversification that Serbian President Aleksandar Vucic visited China last month, announcing that Chinese enterprises across various sectors — including automotive parts manufacturing, humanoid robotics, energy, and artificial intelligence — will invest €940 million in Serbia.

Second, CEE countries are broadening the sources of their energy imports and boosting domestic supply to safeguard energy security and price stability. Norway, the US, Qatar and Central Asia are new energy suppliers. Most CEE nations have either phased out or drastically cut oil and gas imports from Russia. Although Hungary and Slovakia continue to purchase Russian energy, they are also scaling up imports from Azerbaijan and Central Asia.

Romania, with its Black Sea natural gas reserves, is poised to become energy self-sufficient. Other CEE countries are enhancing the interconnection of energy pipelines or ramping up the development of nuclear energy, wind power and photovoltaic power to increase electricity supply.

Third, the region is bolstering its domestic defense industry to foster new economic growth drivers.

With the Russia-Ukraine conflict continuing to escalate and the US scaling back its strategic presence in Europe, CEE countries have no choice but to strengthen their self-defense capabilities. Czechoslovak Group, a major Czech defense manufacturer, has signed a seven-year ammunition procurement deal worth up to €58 billion ($67 billion) with the Slovak government.

Defense firms from Poland, Romania, Bulgaria, Hungary and other CEE states are engaging in joint production with international players such as Germany's Rheinmetall, ROK's Hanwha Aerospace and Hyundai Rotem.

Furthermore, CEE countries are utilizing funds from the EU's Connecting Europe Facility to improve north-south vertical infrastructure interconnection, thereby bolstering the defense capabilities of NATO's eastern flank.

The CEE's diversification strategy not only aims to maintain economic growth, but also to seize the opportunity for structural adjustment to enhance the added value of local industries.

Many CEE countries are linking investment incentives to local production and high-value-added R&D activities. For example, Slovakia requires Gotion High-tech to collaborate with local R&D teams at Inobat and establish a research center in the country.

The Czech Republic has shifted its investment incentives from job creation to high-value-added creation, successfully attracting automation giants such as Japan's Fanuc to set up technical support centers. The Polish government has mandated that ROK defense enterprises conduct production, assembly and post-sales maintenance in the country, and transfer production technologies to local firms.

Given this backdrop, China and CEE countries can strengthen economic cooperation in four major fields.

First, both sides can deepen collaboration in the NEV industry chain, with Chinese NEV manufacturers exploring partnerships with local CEE enterprises for conducting research and training programs with universities and institutions, and investing in local battery recycling and reuse.

Chinese NEV manufacturers can also continue to strengthen cooperation with local suppliers in CEE, leveraging technology spillover effects to facilitate the upgrading of CEE's local automotive industry.

Second, both sides can consolidate cooperation in renewable energy. Chinese enterprises can continue to develop projects with CEE counterparts and provide battery energy storage systems, virtual power plants, and other cost-effective solutions for the region's green economic transition.

Third, China and CEE countries can implement an integrated infrastructure project management model covering investment, financing and construction to promote market-oriented operation and sustainable development of infrastructure projects.

Fourth, scaling up the China-CEE Investment Cooperation Fund can finance green energy, digital economy, logistics and other sectors. By combining syndicated loans with equity financing, the fund can provide full-cycle financial support for major investment projects.

Ma Junchi is an assistant research fellow at the Institute of European Studies, Chinese Academy of Social Sciences, and Sun Yanhong is a senior research fellow at the same institute.

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