As Europe’s leaders look east for a solution, China has been buying up some of Europe’s biggest infrastructure.
Rewind half a decade and the story was that European companies were succeeding in China. Now one recession later in 2011 it is the Chinese who are strategically acquiring European companies .This emergence of China as a rapidly expanding economic powerhouse is currently sending financial shockwaves through the EU as they continue to purchase European assets in what seems to be the most uncertain of international markets. The State owned Chinese shipping behemoth Cosco took control of Pier Two of the Greek port Piraeus in a £2.8 billion deal to lease the pier for the next 35 years, investing £470 million in upgrades, in the process. The Chinese vision of creating a network of ports, logistics centers and railways to distribute their products across Europe and the creation of a valuable economic foothold on the continent is underway and many see the Chinese investment in Piraeus as just the beginning of a far broader scheme to access European markets.
Thus, the fact they want to upgrade Piraeus to rival Europe’s biggest port of Rotterdam should come as no surprise to any prudent spectator.
Indeed, whilst we are witnessing a departure of investors from struggling European nation’s such as Greece, Spain and Italy the Chinese believe they have a fantastic opportunity to make strides into Europe, gaining access to our markets for a relatively low cost as the obtain increasingly key assets. 30% of China’s investments are now in Portugal, Greece, Italy and Spain; with a further 10% invested in Central and Eastern Europe. From October 2010 to March 2011 Chinese firms and banks committed $64 billion in European contracts which is over 50% of Europe’s total investment and trade facilitation flow since 2008.
This however, is not the first instance of Chinese investors seeing opportunity wherein others see adversity. The booming economy has enabled the Chinese to invest heavily in the mining and infrastructure of various African states, enduring criticism for allegedly removing valuable raw materials whilst bearing little or no consideration to the local economies of their investments. Such ‘vulture’ tactics are unlikely to be repeated in European investments as Katinka Barysch, deputy director of the Centre for European Reform has pointed out “Member’s of the EU have a much more solid legal framework. There are clear constraints about what foreign investors can and cannot do in our markets.”
The risk to the EU is different to our African counterparts. Member states would be right to be more concerned with the risk of investors rushing through development of ‘trophy assets’ and then mismanaging them or failing to keep them profitable. With investment in Europe struggling at the moment it appears that most Chinese investment will have little political opposition and why should it? China needs to maintain European demand for its products if it wishes to continue its meteoric rise. China is also one of the few nations that can invest as it holds $3.2 trillion in foreign currency reserves.
For this writer the real question is whether China should help out the indebted euro-zone countries at the expense of its own people. It is easy to forget when looking at China’s booming economy that this is still a country where some inhabitants are struggling to feed themselves; with a third of the population living on less than $2 a day. Never mind the conspiracy theories circulating about Chinese investments influencing human rights and labour laws (see ‘The scramble for Europe’ by Francois Godement and Jonas Parello-Plesner).
It is the potential for a credit crisis of their own and immorality of the Chinese government’s willingness to trade its seemingly vast reserves for European influence despite it coming at the expense of developing living standards for its citizens at home that should really cause concern.
The Chinese are however certainly making their mark in Europe and with their new financial clout in the region you wouldn’t bet against them achieving their high aspirations in the near future.
