China firms push ex­pan­sion in Europe as U.S. re­treats

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - DU­SAN STOJANOVIC THE AS­SO­CI­ATED PRESS

SMEDEREVO, Ser­bia — A gi­ant Chi­nese red flag flut­ters on a pole where an Amer­i­can flag once flew at a steel mill in this dusty in­dus­trial Ser­bian town. The com­pany lo­gos of U.S. Steel are faded on the huge chim­ney stacks, re­placed by those of a Chi­nese com­pany.

When U.S. Steel sold its loss-mak­ing smelter in Ser­bia to the gov­ern­ment for the sym­bolic sum of $1 in 2012, few here thought the ail­ing com­mu­nist-era fac­tory would ever be re­vived. Then came along a state-owned Chi­nese com­pany.

He­bei Iron & Steel’s $52 mil­lion pur­chase of the Steel-

works Smederevo last year is part of China’s broader ef­fort to project in­flu­ence and gain an ac­cess point to the European mar­ket as other tra­di­tional pow­ers, par­tic­u­larly the U.S. un­der Pres­i­dent Don­ald Trump, re­treat from the world stage.

The dy­namic was laid bare at a world sum­mit over the week­end, where Trump showed lit­tle in­ter­est in pro­mot­ing free trade and was at odds with other coun­tries on is­sues such as cli­mate change. China, mean­while, was keen to pro­mote it­self as a cham­pion of com­merce and open­ness.

The Ser­bian plant is eco­nom­i­cally ir­rel­e­vant in the short term to China, which abounds with steel pro­duc­tion at home. But the deal saved 5,200 lo­cal jobs and gained Ser­bia’s po­lit­i­cal fa­vor.

“It seems to me that ev­ery­thing China has been do­ing in the past sev­eral years in the field of its in­vest­ments abroad also has a po­lit­i­cal back­ground and con­no­ta­tion,” said Mi­jat La­kice­vic, a Ser­bian po­lit­i­cal and econ­omy an­a­lyst.

“China doesn’t re­ally need the Ser­bian plant that pro­duces prac­ti­cally noth­ing com­pared to the steel pro­duc­tion in China,” he said. “So, I would de­scribe this as plac­ing a foot in the door­way in or­der to en­ter the mar­ket and the area

where Rus­sia and Amer­ica are al­ready present.”

The longer-term strat­egy for China is to open mar­kets for its busi­nesses as its home econ­omy slows. The most high-pro­file ef­fort in this di­rec­tion is the am­bi­tious $900 bil­lion Belt and Road project, of­ten re­ferred to as the New Silk Road — a trans­port and trade cor­ri­dor run­ning from China to Germany, via Greek ports, the Balkans and Cen­tral Europe.

An­nual in­vest­ment by Chi­nese com­pa­nies in Europe reached an all-time high of $18 bil­lion in 2014, with an­nual in­flows

av­er­ag­ing $10 bil­lion over the past four years, ac­cord­ing to the Rhodium Group, a China in­vest­ment mon­i­tor.

China is en­cour­ag­ing its in­dus­tries to di­ver­sify abroad in hopes of re­duc­ing China’s re­liance on ex­ports and its do­mes­tic mar­ket. That has also led to a string of ac­qui­si­tions in chem­i­cals, tourism, in­sur­ance, bank­ing and other in­dus­tries.

Steel pro­duc­ers have an ex­tra in­cen­tive be­cause China is try­ing to shrink its bloated state-dom­i­nated in­dus­try at home. China’s pro­duc­tion glut has led to a flood of low-priced ex­ports, which has de­pressed

global mar­kets and cost jobs in the U.S. and Europe, rais­ing po­lit­i­cal ten­sions.

As China ne­go­ti­ates the is­sue with the U.S. and EU, its acquisition of the Ser­bian plant gets it some rare good head­lines in which it is cred­ited with sav­ing, not de­stroy­ing, jobs.

Chi­nese com­pa­nies are also start­ing to make in­roads into Eastern European con­struc­tion and en­gi­neer­ing mar­kets, in­clud­ing plans to build a $2 bil­lion high-speed rail line from the Ser­bian cap­i­tal, Bel­grade, to Bu­dapest in neigh­bor­ing Hun­gary.

AP/DARKO VOJINOVIC

A worker di­rects a crane lift­ing a roll of coiled steel plate onto a barge in Smederevo, east of Bel­grade, Ser­bia, on June 29. He­bei Iron & Steel’s $52 mil­lion pur­chase of the Steel­works Smederevo is part of China’s ef­fort to project in­flu­ence and gain ac­cess to the European mar­ket.

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