Europe | Charlemagne

Some Europeans fear a surge of Chinese investment. Others can’t get enough of it

There is more to cheer than jeer about Chinese investment in the EU

TO THIS day the trained eye can still spot the occasional boxy Chinese tractor lumbering around rural Albania, a reminder of the time when this Balkan backwater was China’s biggest champion in Europe. In the 1960s Chinese aid and capital propped up Enver Hoxha’s dire regime in return for its support at the UN, where Taiwan still held the Chinese seat. Now some fear that what comes around goes around. Chinese money is pouring into Europe’s heart and its periphery. It sometimes seems to have a political edge.

Public investment in the European Union is at its lowest for 20 years. Little wonder some are looking east. The stock of Chinese investment in Europe is low compared with America’s or Japan’s, but it is shooting up. According to one study, in 2016 its new FDI in the EU was over 77% above that the year before, at €35bn ($41bn). These days China’s attention is on the innovation hubs of northern Europe as much as on infrastructure, but crisis-hit southern economies have also lapped up its lucre, especially those that have had to divest state assets under euro-zone bail-outs. Last year Cosco, a Chinese state-owned shipping firm, acquired a controlling stake in the main Greek port of Piraeus, providing Chinese maritime exporters with a European foothold. Portugal is rolling in Chinese loot.

But the latest front is further east. This week Li Keqiang, China’s prime minister, swooped into Budapest for the annual meeting of the snappily titled Co-operation Between China and Central and Eastern European Countries (colloquially known as the 16+1 format), bringing promises worth €3bn. There is talk of investment in Estonian dairy, Slovakian freight and a high-speed rail link from Serbia to Hungary (which may violate EU tendering rules). Beata Szydlo, Poland’s prime minister, grumbled about Chinese red tape, but Viktor Orban, her Hungarian counterpart, was more effusive, celebrating China’s economic heft and its agreeable habit of not talking about democracy or human rights.

For some western Europeans all this revives old concerns, and sparks new ones. The first is that in their rush for renminbi some European governments will become proxies for Chinese interests. The fear is hardly groundless. In June Greece vetoed a common EU position at the UN on human rights in China. Earlier, pressure from Hungary, Greece and others had watered down an EU statement after an international court had condemned China’s mischief-making in the South China Sea. Balkan countries like Serbia, their accession to the EU years away, may be tempted to see China as a geopolitical hedge against Europe, even though most have little to offer beyond their position on the “Balkan Silk Road” between Piraeus and Europe’s rich heartlands.

This reflects less an unscrupulous strategy to cook up common positions with China than a straightforward desire to curry its favour. Call it “pre-emptive obedience”, an old East German term recalled by Thorsten Benner, director of the Berlin-based Global Public Policy Institute. That is worrying, and governments that subordinate European foreign policy to their own investment needs will win few friends. But it is no reason to panic. Chinese investments in eastern Europe are dwarfed by those from the west, notes Tomas Valasek of Carnegie Europe, a foreign-policy think-tank. For China, central Europe is at best a minor element of a larger Eurasian strategy linked to its “One Belt, One Road” infrastructure wheeze.

Europe’s second fear is of a wealthy, calculating China acquiring critical infrastructure and nabbing its secrets. This is another familiar concern, but the scale and manifest ambition of Chinese investment sharpen its edge. Beijing’s “Made in China 2025” strategy, explicitly modelled on Germany’s “Industry 4.0” policy, aims to transform the country into a high-tech manufacturing powerhouse in industries like aviation and robotics. Snapping up innovative European firms, and their patented technologies, is an obvious shortcut.

Investment with Chinese characteristics

In parts of Europe the ground is shifting, especially in Germany, where old concerns over a French-led protectionist push are yielding to fears of Chinese intentions. The acquisition last year by Midea, a Chinese appliance maker, of Kuka, a leading German robotics firm, was a turning-point. Sigmar Gabriel, the then economy minister, had unsuccessfully sought a European buyer in the hope of keeping Kuka’s technology out of Chinese hands. There is also dismay at the mounting difficulties European companies face inside China. The EU Chamber of Commerce there says its members are “suffering from accumulated promise fatigue”. Germany has tightened its investment-screening rules, and Mr Gabriel has warned China against playing European governments off against one another.

As it happens, they are perfectly capable of doing that themselves. Next to America’s or Japan’s, Europe’s toolbox for blocking foreign investment is limited. Leaders like Emmanuel Macron, France’s president, think that naive. Earlier this year a joint Franco-German-Italian statement urged centralising such powers in Brussels for “strategic” sectors. But the big three faced resistance from a coalition of northern European free-traders, central European chancers and southern European beneficiaries, all of whom see more to cheer than jeer in the prospect of Chinese investment. The European Commission has now proposed a limp draft law that allows co-ordination of national screening efforts.

There will be many more opportunities for this dispute to play out. The surge in China’s investment, and the shift in its targets, represent a serious challenge. It is perhaps harder than ever to balance openness to trade with caution against its abuse. But in the age of Trump and Brexit, it falls to Europe to bang the drum for open borders and a rules-based order. Its governments are not powerless. Vigilance is wise; confidence a useful adjunct.

This article appeared in the Europe section of the print edition under the headline "More than yuan Europe"

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