As with so much involving China, the details are hard to pin down. But some facts are clear. Chinese actors in Europe are usually state-backed firms and investment funds, which, according to an analysis by Bloomberg, represented 63% of deals by value in the decade to 2018. Particular focuses have been energy, chemicals and infrastructure. Chinese outfits now own most or all of Syngenta, a big Swiss pesticide producer; the Port of Piraeus, Greece’s biggest; and Hinkley Point C, a British nuclear power station. Airports like London’s Heathrow, Frankfurt Hahn and Toulouse have sizeable Chinese ownership. So do PSA Group, maker of Peugeot and Citroën cars, and Pirelli, an Italian tyremaker.
Road to riches
The investment is marked by regional trends. In eastern Europe, the focus is on infrastructure that can solidify links between the old continent and BRI projects farther east. In southern Europe Chinese buyers participated in the wave of privatisations during and after the euro-zone crisis. In Portugal they snapped up stakes in ports, airlines, hotels and much of Energias de Portugal, the country’s main electricity operator. In Greece China provided valuable capital during the crisis.
The largest sums of Chinese cash have flowed into western Europe. In Britain it accelerated after a push by George Osborne, then chancellor of the exchequer, to make his country China’s “best partner in the West”. Even France, long sceptical of foreign investment, has seen Chinese buyers hoover up Bordeaux vineyards.
China’s focus in Germany is on high-tech firms with the specialised knowledge it needs as part of Mr Xi’s “Made in China 2025” strategy to make his country more industrially and technologically self-sufficient. German authorities were alarmed by the purchase of almost 10% of Daimler, the owner of Mercedes-Benz, in February. The Chinese media’s portrayal of the deal as a triumph for its domestic industry did not help. Another big worry is that Chinese companies are gobbling up small, specialised Mittelstand firms, a cornerstone of German industrial success, whose founders are growing old and lack heirs eager to run the family firm.
Path dependency
What does China want, ultimately? It would be a mistake to attribute too much grand strategy to its actions. It is not, like Russia, interested in precipitating the collapse of the EU. Quite the opposite: it sees in Europe’s openness and wealth advantages for itself. China, it is true, used to wonder whether Europe might become a partner in a multi-polar world. It watched with glee as Franco-German resistance to the American-led invasion of Iraq in 2003 splintered Western unity. It sought to learn from European capitalism, especially the Nordics’ social-market model. But the enthusiasm for Europe as an equal did not last. Today Chinese leaders enjoy lecturing ambassadors and visiting European leaders about the West’s failures.
Some Europeans see China playing four-dimensional chess to divide and conquer their continent. But most European envoys in Beijing think the reality is less dramatic than that, and more opportunistic. In foreign policy, as in all things, China is the distilled essence of self-interest. Europe is a means to an end.
The supreme goal, of which its leadership never loses sight, is for China to become an advanced, modern superpower that others dare not gainsay. Its idea of Europe is as a wealthy, innovative region that could help it reach that goal. In contrast it is obsessed with America, seeing an ageing, vengeful hegemon that could stop it from achieving its aims. So where China once considered the EU a prospective partner and even a model in some areas, now it approaches Europe with less respect—as a sort of supermarket of opportunities to extract benefits that can help it rise, neutralise opposition to its foreign policy and keep the West from acting as one against it.
What this process looks like in practice is evident in the Czech Republic. Take CEFC China Energy, a well-connected privately held (now state-backed) energy giant with links to Chinese military intelligence. It arrived in Prague in 2015 with an open chequebook and went on a shopping spree, buying stakes in J&T, a big financial group; Travel Service, the country’s largest airline; Empresa, a media conglomerate; even SK Slavia Prague, the capital’s second football team—and its stadium to boot. CEFC hired various influential Czechs: Jaroslav Tvrdik, a former defence minister, became vice-chairman of its European operations; Stefan Fule, previously a European commissioner, joined its supervisory board; Jakub Kulhanek, a one-time deputy minister in the foreign ministry, joined as a consultant.
Almost immediately, this bought China influence. Milos Zeman, the Czech president, appointed Ye Jianming, CEFC’s chairman, as an adviser within months of the company’s arrival. (Mr Ye was detained earlier this year in China in murky circumstances.) Mr Zeman, an erratic figure who seems genuinely to admire Mr Xi’s strongman style, says one European diplomat in Beijing, hopes his country becomes the “unsinkable aircraft-carrier of Chinese investment expansion” in Europe. TV Barrandov, a television channel owned by Empresa, now features a weekly interview with the president conducted by Jaromir Soukup, the channel’s chief executive, in which the president frequently airs pro-China views.
This is paying diplomatic dividends. A long-standing Czech commitment to human rights, rooted in the 1968 uprising against the Soviet Union and Vaclav Havel’s years as president in the 1990s, had made it the most acidic European voice on Chinese human-rights abuses. That has vanished. When Mr Xi visited Prague in 2016 to upgrade the Chinese-Czech relationship to a “strategic partnership” police cracked down on pro-Tibet protests. When the Dalai Lama, once warmly welcomed in Prague, visited that same year several senior figures, including the prime minister, distanced themselves from his trip. And when that year the European Council tried to agree on new screening rules for investments, the Czech Republic was one of the countries that watered down the measure.
The influence is generally more explicit the farther east and south you get. In 2016 Hungary and Greece prevented the EU from joining America and Australia in backing the Permanent Court of Arbitration’s ruling in favour of the Philippines over China in a dispute over maritime borders in the South China Sea. In fact, the EU’s statement did not even mention the Chinese government. “It was shameful,” admits one EU diplomat in Beijing. Last year, for the first time, the EU did not issue a statement at the UN Human Rights Council after it was blocked by Greece for its “unconstructive criticism of China”.
The main drag
These examples typify an important trait of China’s dealings in Europe: bilateralism. It much prefers to deal with states one-on-one, where its size advantage is greater. Its annual “16+1” summits with central and eastern European states, are really 16 one-plus-one summits, where each government deals with China on its own terms. For some of these states, the sense of having been overlooked or disrespected by countries in western Europe makes China seem more attractive: “Central Europe has serious handicaps to overcome in terms of infrastructure,” Viktor Orban, Hungary’s autocratic prime minister, told German business leaders in January. “If the EU cannot provide financial support, we will turn to China.”
China is skilled at using protocol to appear magnanimous. It goes out of its way to treat smaller countries to the same red carpets and ministerial meetings that are lavished upon larger ones. Though meetings can be formulaic and involve Chinese ministers reading from a script, one diplomat says that Beijing is a less humiliating place, at least formally, than Washington, where smaller countries trying to secure a meeting must expend tremendous effort befriending congressmen with ancestral ties to their country or an interest in it. Even small states enjoy visits by and with top leaders, notes the ambassador of Iceland, Gunnar Snorri Gunnarsson. “They are a realistic global power, so they know the difference between big and small countries. But on paper and in principle they say they want to respect smaller countries,” he says. Besides, he notes, “from China’s perspective, all countries are small.”
The influence is less flagrant in Europe’s bigger economies, but it exists. It is growing especially fast in Italy, says Mikko Huotari of the Mercator Institute for China Studies, a think-tank. Meanwhile, Chinese firms and foundations are securing access to Europe’s elites by hiring the likes of David Cameron, a former British prime minister (who advises an investment fund), Jean-Pierre Raffarin, a former prime minister of France (director of a manufacturing firm), and Philipp Rösler, Germany’s former vice-chancellor (who is the boss of the charitable wing of a large Chinese conglomerate).
One of the continent’s greatest vulnerabilities is its naivety. For a long time, America and Australia were notably tougher than Europeans, who still believed that China would open up and liberalise as it became integrated with the West. The Germans called it “Wandel durch Handel” (change through trade), until they realised that the Wandel in question would make China a competitor and that Handel was no guarantee of Chinese co-operation.
Poking at Europe’s belly and finding it soft, China is testing how far it can push. It recently tried to ban a pro-Taiwan British MP from a parliamentary-committee trip to China. It obtained an apology from Daimler for including a quote from the Dalai Lama on an Instagram advertisement.
Such soft-core humiliation is not the only danger of Chinese money in Europe. Another is that the political, and thus unreliable, nature of the investments means that they often do not succeed. A recent run of fiascoes—along with China’s continuing reluctance to open up its markets to EU investment—have made European governments increasingly dubious about all that cash flowing in. CEFC almost collapsed when its boss was detained and was only saved when CITIC, an investment body directly owned by the Chinese state, stepped in. The construction of a Budapest-Belgrade railway has stalled (the route will skip several important Hungarian industrial towns). A Chinese-financed motorway from Warsaw to the German border was never completed. Promised cash for developments in Liverpool never materialised.
It is notable that this scepticism has spread to more traditionally China-friendly economies. Britain, leaving the EU and desperate for investment and trade deals, is more susceptible to Chinese entreaties than its continental neighbours, but even it has tightened up its policies in recent years. The last 16+1 summit saw central and eastern European states, led by a Poland fed up with being bossed around, challenge China about the effectiveness of its investments in their countries.
Germany has introduced and tightened its national laws for screening investments. Along with France it has called on the EU to establish a common framework to do the same thing on a European level.
Changing lanes
The resulting legislation should make it onto the statute books before the European Parliament elections next year. Though it will leave ultimate control over screening in national governments’ hands, it aims to spread information and norms across member states. “There has been a surprising degree of consensus on the proposal,” says a European official. “The directive would have been unthinkable a few years ago,” adds another.
A big part of the shift among states involves doing more at a European level. The EU adopted a new China strategy in 2016 envisaging greater co-operation between member states. It is working more closely with the 16+1 states to co-ordinate their positions. In his State of the Union speech in September, Jean-Claude Juncker, the European Commission’s president, admitted that “it is not right that Europe silenced itself at the United Nations Human Rights Council when it came to condemning human-rights abuses by China because one member state opposed it. I give this one example—I could give many others.” He proposes shifting from unanimity to qualified-majority voting on certain foreign-policy subjects, including human rights. Getting that past member states like the Czech Republic and Greece will be difficult. But the direction is clear: Europe is wisening up.
There is more to do. “Why do we only look at state aid from within the EU but not China?” asks one European official. Mr Huotari, the think-tanker, advocates better checks on state-subsidised purchases of assets by Chinese firms and tougher accountancy standards. For Thorsten Benner of the Global Public Policy Institute in Berlin, a think-tank, it is about something more fundamental: “We Europeans need to be less defensive. The most powerful answer we can give China is to improve our own competitiveness and project our own model: openness.”
This is Europe’s challenge. Its countries and institutions are among the most open in the world. Prague, with its history of standing up to Soviet oppression, is a symbol of that openness, but the city is increasingly also an example of how China is taking advantage of it to pursue its national interest. To compete, Europe must stay open while also calling out and if necessary blocking outside powers that abuse its open-door policies. In this special year, Europe would be foolish not to heed the Chinese president’s wise words, and grab “the opportunity to gain wisdom and the power to march forward”.
