On March 21-26, 2019, President of the People’s Republic of China Xi Jinping paid a state visit to Italy, France and Monaco (the latter being the first visit by a Chinese president to the principality). The focus of Xi Jinping’s visit was the Belt and Road initiative (BRI). In a short time, less than six years, the initiative has undergone a significant evolution and today plays the role of China’s foreign policy strategy, and the EU’s attitude towards the BRI has changed very rapidly. In the beginning, the attitude was cautious and somewhat favorable, as the creation of a transit trade infrastructure should have had a positive impact on mutual trade between the EU and China, while landlocked countries in the middle of Eurasia might have a chance to become part of world trade. However, gradually the EU started worrying that this project began to resemble a manifestation of Beijing’s geopolitical ambitions. This was facilitated by the actions of China itself, such as an increase in the external debt of the countries participating in the BRI and the acquisition of strategic infrastructure. Brussels even developed special recommendations adopted by the European Commission on the eve of Xi’s visit and the April 2019 EU-China summit. The EU countries were recommended to interact with the BRI only jointly and on the basis of the principle of reciprocity. However, as further events will show, this did not help.
At the same time, Chinese diplomacy tried to “divide” countries within the EU: for example, Beijing created 16+1 (11 EU member states and 5 Balkan countries plus China), a special format of cooperation for the countries of Central and Eastern Europe. It was established before the BRI, but today it is a key platform for promoting the initiative in the two regions, and some countries have already signed deals to join the BRI. Under these conditions, Brussels tried to call on all the EU member countries to take a unified position on the initiative. To a certain extent, this was possible, especially taking into account the fact that the BRI did not find official support in most of the world’s leading economies, for example, in the G7 countries. However, this visit of the Chinese leader has become a turning point and, perhaps, will have a serious influence not only on the EU, but on the whole world, as Italy has become the first G7 state to participate in the BRI after signing a memorandum of understanding. This breakthrough of Chinese diplomacy was made possible thanks to the tremendous work with the countries of Southern Europe, which Beijing began in Portugal, Greece and Italy after the 2008 financial crisis.
For example, in Portugal, Chinese investments accounted for 3.6% of the country’s GDP between 2010 and 2016 [South China Morning Post, 2018] and reached approximately €12 billion. Paradoxically, it was the policy of Brussels that opened the way for Chinese investments, because one of the EU’s conditions for financial assistance to Lisbon was large-scale privatization. As a result, the China Three Gorges Corporation state-owned energy company became a 23.3% shareholder of Energias de Portugal [Kommersant, 2018]. Other Chinese energy investments went to the Redes Energéticas Nacionais and Galp Energia companies. In addition, China acquired shares in Portugal’s largest bank, national air carrier, largest insurance company, health care provider, real estate, and media. At the same time, the authorities of Portugal and China discussed the possibility of leasing the Port of Sines. The port has a low economic value, but may have military-strategic importance as it is located close to the Strait of Gibraltar.
Following approximately the same pattern, Chinese investments penetrated into Greece. In 2009, at the beginning of the Greek debt crisis, the Chinese COSCO company, one of the world leaders in container shipping, leased half of the Piraeus container terminal near Athens. Further, the need to repay the debt to Brussels pushed Athens to privatize the port, and COSCO bought its 67% share for €368.5 million [RIA Novosti, 2016]. In addition to this, COSCO committed to invest €350 million in the development of the port over the next ten years. It was planned that the port would become a Mediterranean hub for Chinese goods. As a result, in 2018, the turnover of containers increased six-fold compared with the crisis year of 2009. Besides, China has provided loans of nearly $4.1 billion to Greek ship owners. China also invests in other Greek infrastructure facilities, such as the airports of Athens and Crete, while another project, the construction of a railway between Piraeus and Central Europe, is not completed yet. Moreover, the State Grid Corporation of China owns 24% of the energy system of Greece after investing in the Independent Power Transmission Operator (ADMIE).
Such a sharp increase in China’s role in the Greek economy began to influence Athens’ foreign policy. In June 2017, Greece blocked the EU statement at the UN criticizing the human rights situation in China. Another case occurred in 2016, when Greece prevented the EU from adopting a resolution on the ruling of the Permanent Court of Arbitration concerning the disputed areas in the South China Sea in favor of the Philippines. However, it would probably be unfair to blame only Chinese investments for actions of the Greek authorities. It is possible that Athens wanted to take revenge on Brussels for its tough economic policies during the debt crisis. Then Greece received financial assistance eventually, but the conditions were very austere. Consequently, the government of Greece acted based on strong anti-European sentiments among the Greek population and managed to earn certain popularity among the electorate.
As for Italy, Chinese investors here are focusing on the energy, investing, in particular, in globally renowned companies Eni and Enel. The State Grid Corporation of China acquired 35% of CDP Reti, which is the 30% shareholder of the Snam gas transportation group [Reuters, 2014]. In addition, investors from China purchased shares of the tire manufacturer Pirelli, the manufacturer of machine tools Cifa, the auto maker Fiat Chrysler, the manufacturer of yachts Ferretti, Telecom Italia, and the world famous brand of clothing and footwear Ferragamo. Apart from that, Chinese investors purchased hundreds of Italian small and medium-sized businesses, especially wine producers. During the visit of President Xi Jinping to Italy on March 21-23, 2019, Rome and Beijing signed 29 deals worth €2.5 billion [BBC, 2019], with the prospect of reaching further agreements totaling €20 billion. The memorandum on Italy’s participation in the BRI provides for large-scale infrastructure contracts, the key of which are investments in the Italian ports of Genoa and Trieste. The China Communications Construction Company will work on the expansion and functional development of the port of Genoa, and in Trieste it will modernize existing and construct new railway lines in the direction of Central and Eastern Europe, the regions with which Beijing works under the 16+1 format.
The strengthening role of China in the economies of the South European countries seriously worries Brussels, and the participation of Italy in the BRI can now become a barrier to the development of a unified EU strategy to deter Chinese investments. Considering this, there is a danger that in the short term Southern Europe could become a zone of Chinese influence in the EU. In this economically weak region, anti-European sentiments are growing stronger, and citizens of these countries are increasingly positive about China. This can significantly limit a room for maneuver for Italian, Greek and Portuguese politicians if they decide to reduce the influence of China on their economies.
Nevertheless, Brussels attempts to limit China’s economic activities. To this end, the EU adopted a document that requires Beijing to take a series of measures aimed at changing investment agreements towards their openness. The EU also demands from China to open the Chinese stock and investment markets for fair competition. However, the creation of protective tools requires a unified position from all the EU members, and the actions of Italy obviously do not help this. In France, where President Xi arrived after Italy, President Macron, Chancellor Merkel and European Commission President Jean-Claude Juncker tried to convince the Chinese leader to build honest and mutually beneficial relations. At the same time, Paris and Beijing signed an agreement on the delivery of 300 Airbus passenger jets to China for approximately €30 billion [France24, 2019]. It is no wonder that Italian politicians referred to this deal to accuse France, which criticized Italy for joining the BRI, of double standards.
Against this background, Brussels needs to find a compromise with all the EU member states, otherwise Beijing will continue to use the contradictions between them. However, every European region has its own interests: for example, Northern Europe wants access to the Chinese market, Eastern Europe hopes to replace Brussels’ declining subsidies with Chinese money, and Southern Europe is already receiving Chinese investments. The EU needs to improve relations with China, its key trading partner, but, in general, it is obvious that Beijing has become an important player not only in the trade sphere, skillfully enjoying the EU’s present-day weaknesses. While the EU has always found a response to such challenges, this time the situation is significantly different from the previous ones. Therefore, it is difficult to make predictions about the future of the united Europe.
References:
BBC (2019). Italy joins China’s New Silk Road project. Retrieved from https://www.bbc.com/news/world-europe-47679760. Accessed on 10.04.2019.
France24 (2019). France, China sign multibillion trade deals as Xi Jinping meets Macron. Retrieved from https://www.france24.com/en/20190325-france-china-sign-multibillion-trade-deals-xi-jinping-meets-macron. Accessed on 11.04.2019.
Kommersant (2018). Three Gorges prepares to buy EDP for $ 10 billion. Retrieved from https://www.kommersant.ru/doc/3628068. Accessed on 10.04.2019.
Reuters, (2014). China State Grid quietly builds Mediterranean power network. Retrieved from https://www.reuters.com/article/utilities-mediterranean-china/china-state-grid-quietly-builds-mediterranean-power-network-idUSL6N0QB5NF20140810. Accessed on 11.04.2019.
RIA Novosti (2016). Greece transfers the Chinese Cosco port of Piraeus to the concession until 2052. Retrieved from https://ria.ru/20160408/1405597529.html. Accessed on 11.04.2019.
South China Morning Post (2018). Portugal welcomes China’s money as its influence worries EU partners. Retrieved from https://www.scmp.com/news/china/diplomacy/article/2176357/portugal-welcomes-chinas-money-its-influence-worries-eu. Accessed on 10.04.2019.
Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy