Saturday, January 8, 2011

China Comes Calling in Europe

Europe is becoming a new horizon for China's business-based diplomacy, less than a year after the European Union overtook the US to become China's second-largest trading partner. Chinese investment expansion is increasingly turning to Europe, and it is finding a grateful audience, particularly in Ireland.

Last September, before the arrival of the International Monetary Fund and an €85 billion bailout offer-you-can't-refuse for the economy once known as the Celtic Tiger, Ireland Prime Minister Brian Cowen tried to sell Chinese investors on the proposition that the country could be a low-tax Anglophone gateway to Europe.

After meeting with a Politburo delegation in Dublin, Cowen said that China's representatives had vowed to be "as helpful as they can to a friend like Ireland in the difficult times that we have." That friendship appears to include a consortium of Chinese investors who are starting work on "an investment gateway to Europe" – an industrial park in central Ireland.

Nor is Ireland alone. Other struggling European economies need the money and the external vote of confidence. Right now Vice-Premier Li Keqiang is touring Spain, the United Kingdom and Germany, and already the visit has yielded some spectacular headlines - if apparent global economic landmarks are your thing. China will purchase some of Spain's debt and ease pressure on the country's struggling economy, where 40 percent of the country’s youth are unemployed, by promising to buy more Spanish wine and agricultural goods as part of US$7.5 billion worth of trade deals signed on Jan. 5 and 6.

The platitudes delivered by Vice-Premier Li in Ireland came amid talks about the proposed multi-million dollar investment park, which is lined up for the midlands Irish town of Athlone. If it comes to fruition, the project could provide around 10,000 jobs - including 2,000 in the initial stages for Chinese construction workers at a time when Ireland's suicidal property bubble has left thousands of builders on the breadline and tens of thousands of newly-built houses unoccupied.

"Right now, we are not sure, however, just exactly what is being planned," conceded Athlone Mayor Sheila Buckley-Byrne. "What the project involves, how much money, how many jobs – these details are yet to be ironed out."

If and when the work gets underway, the end-game will apparently be a showcase-entrepot for Chinese investment in the EU. Ireland's 12.5 percent corporation tax is apparently as much of a draw in China as it is in the US, as seen in Dell, Google, Intel lining up among the multinationals that have made Ireland their European headquarters.

Ahead of Li's visit to the UK, where he is to be accompanied by a retinue of more than 100 business executives, China's ambassador in London wrote in the Daily Telegraph that his country’s policy in Europe is to do "what the Chinese proverb says about sending charcoal in snowy weather." The charcoals in question are the world's largest foreign reserves, around US$2.6 trillion, which China is keen to diversify into currencies other than the US dollar.

China is keen to prevent collapse of the euro, which is being threatened by the debt crisis in Europe, according to Premier Wen Jiabao. Buying European debt would help China move away from the dollar and no doubt buy Beijing support in its struggle with the US over the value of the renminbi, also known as the yuan, which Washington sees as too low and a cause for America's huge trade deficit with China.

Three months ago Wen posed for photos in front of Greece's landmark antiquarian monuments during a European tour in which he reminded Brussels that China is "a friend" to Greece, Spain, Italy and other troubled European countries, proven by Beijing's willingness to help out by buying bonds as other investors fled.

Wen demanded that other European leaders not "pressure China on the yuan’s appreciation," perhaps seeing an opportunity to drive a wedge between the US and some European countries on the issue. China’s assistance to Europe, though not the Marshall Plan that some pundits have labeled it, is a similar mix of apparent economic altruism masking strategic interest.

China's intervention could enable the rest of the EU dodge a bullet. A Greek or Irish-style crisis in Spain could be doomsday for the euro. The cost of a Spanish bailout, if needed, could be beyond what the rest of Europe is willing to pay, given that the Spanish economy is twice the size of Greece’s, Ireland’s and Portugal’s combined. Germany has come through the global downturn – really a western problem - in good stead, partly due to rising exports to China. The public mood might not tolerate more German money being spent on another of the so-called PIIGS -- Portugal, Ireland, Italy, Greece and Spain.

Ireland's take-up of the IMF/EU bailout depends on the passage of various finance bills over the coming months, and possibly could be derailed by a looming election. The near 7 percent interest sought for repayments of some parts of the Irish bailout has been described as excessive by some in Ireland, so perhaps there is still scope for China to offer a loan, or pitch in on the EU/IMF offer at a lower rate.

The first €5billion of the money will be given to the Irish Government early next week, though full acceptance of the bailout is pending the passage of several finance bills in the Irish parliament over the coming weeks.

Whether or not that happens, China's willingness to buy up European debt should at least lower borrowing costs for the PIIGS quintet, all of which have seen credit ratings agencies drive up the cost of their borrowing on international markets.

While China has yet to confirm details of whatever bond purchases it has made in Europe, there has been ample publicity surrounding more tangible investments. Wen's Greek visit saw China's shipping giant Cosco take over cargo management at Piraeus, the biggest port in the eastern Mediterranean. Other deals included proposed technology exchanges between Huawei Technologies and the Greek telecoms entity OTE and, as with Spain, agreements signed by local food firms to export olive oil to China, where wealthy consumers offer a growing market for western food.

However, the growing ties may not mean European countries will hand over the family silver in exchange for easy Chinese money, even if this is just talking the talk so far. EU industry commissioner Antonio Tajani believes that Europe should establish a new oversight body with powers to block foreign takeovers of strategic European businesses, akin to the Committee on Foreign Investment in the US, and prevent Chinese businesses, many of which are closely aligned to the country's Communist Party and military, from acquiring strategically-important European enterprises. Li's visits to the UK and Germany should reveal more about how this all could play out in the coming years. Asia Sentinel


  1. Money does not grow on trees and nothing comes for free. If the Chinese offer to help Europe out of its crisis, there is no question that they will want something in return. The Chinese will want open access to European markets for its goods (no trade barriers). They will also want access to whatever advanced technologies the Europeans have. For example, investment in Airbus Industries or technology transfer deals from Airbus to Chinese aircraft manufacturers. They will also want access to France's nuclear power and reprocessing technology. Lastly, they will slowly want to maneuver Europe out of U.S. military-political orbit and to bring it into Chinese political orbit.

    At least these are all things I would extract out of Europe in return for saving their hides if I were running China. I'd be really Machiavellian about it, too.

    Too bad I'm not the Chinese premier.

  2. The Chinese are smart, too. They do not believe in this feel-good, multi-culti greenie delusional BS that the Europeans believe in.