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For over a decade, Chinese political and corporate leaders have been hunting for investment opportunities around the globe with bottomless wallets. From Asia, to Africa, the U.S and Latin America, China has asserted itself as an emerging world power. The multi-billion dollar belt and road initiative which some have called as the “Chinese Marshall Plan,” is designed to encourage economic connectivity and integration to the Eurasia strategic landscape, by linking Europe and Asia by land.
Europe is a key piece in China’s grand ambitions and China has been significantly expanding its economic footprint in Europe. So much so that it has led the EU to devise a counter-strategy in order to prevent the creation of political and financial dependencies. I’m Kasim, welcome to KJ Vids and in this video we take a look at China’s investments in Europe.
Since 2008, the landscape of Chinese foreign direct investments in the European Union has changed dramatically. From $840 million invested in 2008, China’s annual FDI in Europe grew to $42 billion in 2017. According to a recent compilation by Bloomberg, total Chinese investments in Europe, including both mergers and acquisitions (M&A) and greenfield investments, amount to $318 billion, 45 percent more than Chinese investment in the U.S. between 2008 and 2017.
China has taken over approximately 360 European companies. In the first six months of 2018, research by global law firm Baker McKenzie found that the value of newly announced Chinese merger and acquisitions in Europe hit $22 billion by the mid-point of the year, nine times higher than in North America where it was just $2.5 billion.
China’s investments are broadly spread geographically, although the largest European economies – the United Kingdom ($70 billion in cumulative Chinese investment), Italy ($31 billion), Germany ($20 billion), and France ($13 billion) – attract the largest share of Chinese capital. Among China’s iconic investments in Europe is the Hinkley Point nuclear plant in southern England, which is one third funded by China.
For over a decade now, the City of London has been a magnet for Chinese cash as Beijing tries to build its currency, the Yuan, into a world currency. By and large, Chinese money has been going into real estate and finance, with Chinese state banks well represented and active in the bond market and the international exchange market. Chinese citizens represent almost half of the investor visas the UK granted in 2017, outnumbering Russians, the next largest group of investor visa recipients, by 250 percent. Despite the largely uncertain future of the UK as a market once it exits the EU, China is betting on the British capital as an emerging hub of Chinese finance.
In Germany, China’s investments started with the purchase of family-run industrial companies, such as machine-tool maker Putzmeister in 2010, and continued with the Chinese company Midea’s acquisition of robotics company Kuka AG in 2016 for $5.2 billion. More recently, a Chinese investor’s $1 billion acquisition made it became the top shareholder of Daimler AG. German debate over Chinese FDI has intensified since the launch in 2015 of China’s Made in China 2025 strategy, a national plan that aims to make the country a champion in key high-tech industries such as aerospace, robotics, and artificial intelligence. Many Chinese companies have eyed German companies with the goal of acquiring technologies and orchestrating transfers of these technologies.
In Italy, China’s Silk Road Fund helped China National Chemical Corporation, also known as ChemChina, buy tire maker Pirelli in 2015 for $7.7billion. ChemChina has also acquired a string of industrial and energy related companies.
In the EU’s immediate neighbourhood, Switzerland has captured the lion’s share of Chinese FDI with ChemChina’s acquisition of Syngenta, one of the world’s largest agri-business conglomerates. The deal was finalized in 2018 for $46 billion, making it the world’s single largest acquisition by a Chinese company.
The islands of Cyprus and Malta, both full EU member-states, are throwing open the gates to Chinese investors, especially in finance and real estate. Both have also become strong supporters of China. Then there are the cases of Greece and Portugal, two Southern European countries that together account for a modest 2.5 percent of the EU’s GDP in 2017.
China has become a key-investor in Greece, mainly through a central investment project. In 2016, a Chinese state-owned corporation, China Ocean Shipping Company (Cosco), took over 67 per cent of Athens’ Piraeus harbour. China has signalled that it intends to use this port as the main platform for its maritime Silk Road, part of Beijing’s “Belt and Road” Initiative. Most Chinese companies are now using Piraeus as their principal port of entry in Southern Europe. Visiting China in 2016, Prime Minister Alexis Tsipras declared that Greece intends to “serve as China’s gateway into Europe”.
To the west, Portugal has become a key recipient of Chinese investment. Per capita, it is one of the largest in Europe. During a Euro region’s crisis in 2011, the Lisbon government was under pressure from the European Commission, the European Central Bank, and the International Monetary Fund (IMF), the so-called “troika,” to sell state assets. China stepped forward to offer foreign investment. As part of the bailout, China Three Gorges bought 26 per cent of EDP, and State Grid Corp. of China bought a stake in Portugal’s power distributor, REN-Redes Energeticas Nacionais SA. Fosun Group, a privately-owned Shanghai-based company, controls the Portugal’s largest insurer, Fidelidade, and a group of private hospitals. The list of Chinese investments seem endless, but does any of this translate into political influence?
According to Thomas Wright, the Director of the Centre on the United States and Europe at Brookings, the Chinese leadership’s seeking of political influence in the EU is driven by two interlocking motivations: ensuring regime stability at home and presenting its political concepts as a competitive way of political and economic governance to a growing number of third countries.
Unlike the current Russian government, Beijing is interested in a stable — but pliant and fragmented —EU and the large and integrated European single market that underpins it. Properly managed, the Chinese leadership has concluded, parts of Europe can be a useful conduit to further its interests. Politically, it is seen as a potential counterweight to the U.S. – one that is even more easily mobilized in the era of the Trump administration’s “America First” approach. Beijing is also acutely aware that Europe has many assets like technology and intellectual property, which China needs for its industrial upgrading, at least in those domains in which it has not yet established its own technological leadership. The EU is also useful as a ‘legitimizer’ of Chinese global political and economic activities, such as the Belt and Road Initiative (BRI).
Beijing pursues three related goals. The first is aimed at building support among third countries like EU member states on specific issues and policy agendas, such as gaining market economy status from the EU or recognition of territorial claims in the South China Sea. A part of this short-term goal is to build solid networks among European politicians, businesses, media, think tanks, and universities, thereby creating layers of active support for Chinese interests. Recent Chinese attempts to discourage individual EU countries from taking measures that run against Chinese interests, such as supporting a coordinated EU response to China’s territorial claims in the South China Sea, meeting with the Dalai Lama, or criticizing Beijing’s human rights record, are cases in point.
According to Thomas Wright, the second related goal is to weaken Western unity, both within Europe and across the Atlantic. Beijing realized early on that dividing the U.S. and the EU would be crucial to isolating the U.S., countering Western influence more broadly, and expanding its own global reach. China senses that a window of opportunity to pursue its goals has opened, with the Trump administration seen as withdrawing from the role as guardian of the liberal international order that the U.S. has long played. This comes in addition to the challenges Western liberal democracies face from the rise of illiberal-authoritarian political movements.
The third goal is broader in terms sense of “making the world safe more China’s autocratic model.” This means creating a more positive global perception of China and presenting its political as well as economic system as a viable alternative to liberal democracies. In large part, this is motivated by China’s continued fear of the appeal of so-called Western ideas like liberal and democratic values. From the vantage point of Beijing, European and Western ‘soft power’ has always had a sharp, aggressive edge, threatening the Chinese regime. At the same time, this goal is based on the idea that as China rises in economic and military terms, it should command more respect in the court of global public opinion. Activities geared towards long-term shifts in global perceptions include improving China’s global image through measures like media cooperation, making liberal democracy less popular globally by pointing out real or alleged inefficiencies in democratic decision-making processes, and supporting illiberal tendencies in European countries.
Given the rapidity of China’s economic development in the past 30 years it has taken the EU some time to acknowledge the growing power and influence of Beijing. Not only has China become a trading giant, it sits on the world’s largest currency reserves and is an increasingly important provider of foreign investment including in Europe.
Recently, however, a number of developments have generated a sense of caution among European politicians and policymakers. On 19th September 2017, the EU published its much-anticipated strategy to counter China’s increasing economic influence in Europe.
China’s refusal to tackle the dominant position of its state-owned enterprises led the EU to refuse to grant China market economy status. Beijing’s targeting of European technology has also led to plans for screening of Chinese investments in Europe. But it was the massive infrastructure investments under BRI that raised concerns in Brussels, as well as Washington, Delhi and other capitals about the implications of China’s approach.
In the spring of 2018 EU ambassadors in China penned a report critical of the BRI for being economically, environmentally, socially and financially unsustainable. It also criticised China for discriminating against foreign businesses, the lack of transparent bidding processes and the limited market access for European businesses in China.
China’s involvement in the EU and its neighbourhood also rang warning bells. In 2014, Montenegro concluded an agreement with China Exim Bank on the financing for 85% of a highway construction project, with the estimated cost equalling 25% of the country’s GDP.
The IMF has repeatedly stated that construction should only continue on the basis of concessional funds. Many believe that a debt default is likely, which may result in the involuntary handover of critical infrastructure to China.
Likewise, China’s entire or partial acquisition of ports in Belgium, the Netherlands, Spain, Italy and most notably Greece has not gone unnoticed. Without serious hindrance, China is buying up critical infrastructure in Europe, whereas European foreign direct investment in China is decreasing.
China has already reaped some political benefit from these investments with some member states blocking resolutions critical of human rights in China or condemning Beijing’s conduct in the South China Sea.
Similarly, European officials have also questioned the environmental and economic sustainability of various Chinese connectivity projects. The planned construction of six coal-based power plants in Pakistan whose joint output capacity equals 27% of the country’s current capacity has been criticised as environmentally unsustainable.
Sri Lanka has been unable to repay Chinese loans for the construction of the Hambantota port. As a result, the port and surrounding acres of land, strategically located at the crossroads of the Indian Ocean, the Bay of Bengal and the Arabian Sea, will now be under Chinese control until the year 2114.
Malaysia and Myanmar are also seeking to renegotiate loans taken out under the BRI.
These examples have increased EU concerns as China has expanded its influence in Asia, Central Asia and Europe. But the EU was well aware that mere peer pressure would not drive China to reconsider its strategy. To secure its own political and economic interests, the EU had to put forward an ambitious and comprehensive response, which was to strengthen its own links with the host countries and to present them with a credible and sustainable alternative offer for connectivity financing.
The new strategy will give Asian and European states a much clearer idea on the basis of which the EU wishes to engage with them, and what they can expect. Although some financing is mentioned in the EU paper, we will have to wait and see how the ongoing negotiations for the next EU budget will be in allocating sufficient EU funds to connectivity financing in order to mobilise additional investment from private and multilateral investors. The EU strategy will also need united support from member states, a solid public communications strategy, and broad bi- and multilateral outreach programmes to the EU’s partners.
Geopolitical competition in Eurasia will undoubtedly increase with China, Russia, the US and the EU competing for influence. The connectivity strategy of the EU has set down a marker that the EU is part of the Great Game.
Thanks for watching another KJ Vid, see you next time.