China’s economic tentacles are grabbing Southern Europe

Next month Chinese President Xi Jinping is undertaking a state visit to Spain and Portugal, cementing China’s quiet diplomatic and economic progress in these countries. Italy is also being seduced by Chinese money, following the success in the polls by the unlikely populist marriage of the anti-establishment Five Star Movement and the right-wing Lega. Italy is in trouble with the European Union (EU), with its recent budget proposals which do not conform to Brussels’ rules, so it’s not surprising that mega-dollar temptations wafted over the heads of Italy’s politicians are too tempting to resist. Greek politicians have already succumbed. China’s economic tentacles are firmly grabbing Southern Europe.

Take a look at some of the larger investments made by China in Southern Europe. In Portugal, the Three Gorges Corporation, a Chinese stateowned company, has taken a share in the energy company, Energias de Portugal and is currently bidding for majority control. China is also in discussion for the lease on the major strategically located port of Sines, a key objective for China’s Belt and Road Initiative (BRI) stretching into Europe. Add to this China’s stakes in Portugal’s national carrier Transportes Aereos Portugueses, real estate companies and media groups, the picture becomes clear.

Greece’s relationship with China goes back to 1979 when Prime Minister Konstantinos Karamanlis visited Beijing. Successive Olympic Games in Athens (2004) and Beijing (2008) also played a crucial role in the closer relationship that began that decade. However, it was the financial shock that moved the Sino-Greek relationship into a new phase. It’s no surprise that China has taken a strong interest in Greece, which hosts one of the region’s best harbours and is well connected to the Near East, South Europe and North Africa. Greece is now at the heart of the maritime Silk Road.

If you go down the road from Athens to its port city Piraeus you will see the huge commercial and passenger terminals awarded to the Chinese state-owned shipping giant China Overseas Shipping Company (COSCO) on a 30year concession following the 2008 financial crisis. COSCO paid $570 million for the concession, said at the time to be five times the market value. Since then it has invested a further $300 million in the existing terminal, turning it from a struggling harbour, worn down by decades of industrial decline and the effects of the country’s protracted debt crisis, into the port of entry into Southern Europe with the aim of targeting opportunities in Balkan and Mediterranean countries. There has been no pretence by Greece’s leaders about this major project. During a visit to China, Prime Minister Alexis Tsipras declared that Greece intended to “serve as China’s gateway into Europe”. The following year he attended Beijing’s BRI summit.

There even appears to be competition between the Southern European countries to be China’s best friend. Following Italy’s coalition success, the former Shanghai-based finance professor, Michele Geraci, was appointed Italy’s Undersecretary for Economic Development. Geraci has long been a supporter of Chinese investment in Italy, saying that the country could be “China’s friend in the Mediterranean”. Chinese investors have purchased the iconic Pirelli tyre manufacturer and the machine tool maker Cifa. Chinese funds have found their way into the Italian national electricity agency CDP Reti, the automobile manufacturer Fiat Chrysler, yacht maker Ferretti, Telecom Italia and the world famous fashion designer Ferragamo.

As members of the EU, these countries have a voice in all major EU decisions and announcements and China’s economic power has become a powerful instrument of soft power in the region, subtle but hugely important. Take the case of China’s expansion of territory in the South China Sea. In July 2016, the EU wanted to issue a strong statement critical of Beijing after the International Arbitration Court’s ruling on the South China Sea. Instead, following objections by Greece, the EU issued a watered-down version, delivering a symbolic victory for China. The following year, Greece blocked another statement by the EU, this time intended to endorse a UN criticism of China’s human rights. Furious EU diplomats complained that Greece’s block undermined efforts to confront Beijing’s crackdown on activists and dissidents. Sensing the dan- gers of finance and influence, the European Commission, backed by Germany and France, called for a more cautious approach towards investment in infrastructure and technology. Aware that their much-needed inward investment might be affected, Greece was among several EU countries which declared that they would not support any such move.

China’s targets in Europe extend well beyond Portugal, Spain, Italy and Greece. In 2010, 16 Central and Eastern European (CEE) countries, 11 members and five non-members of the EU, formed the so-called 16+1 group with China. The latest 16+1 summit took place four months ago in Sofia, Bulgaria, at which over 20 cooperation documents were signed. Not only does this provide China with influence and leverage in the EU through both existing and aspiring members, but as China sits at the centre of the CEE circle, it is able to use its unique knowledge of each country to amplify its influence.

There remains substantial resentment of the EU in the economically weak region of Southern Europe, alarmed by German hegemony. Not only is there rising anti-European sentiment, but early negative attitudes to the “arrival of the Chinese” are lessening as the populations benefit from the investments. Brussels initially viewed Chinese activity in the CEE region with deep suspicion, concerned that it would affect the unity of the EU, undermine its high-level standards and exercise negative influence over EU members. Such paranoia is unfounded. China is a hugely important partner for the EU and the EU should accept that Southern and CEE countries have the legitimate right to develop separate relations with China. If it fails to do this, Europe’s splintering politics will lead to total failure of the 65-year project.