European leaders’ dilemma when dealing with Chinese investors

The hunt for foreign investors is a fact of modern times. It is certainly a priority for many cash-strapped governments dealing with a sluggish economy. However, democratically-elected politicians cannot just call in foreign entities to help them rescue their public finances or even some of their industries. At the very least, politics need to be explained and justified, as events in Europe have shown in the past few months.

Four days after winning Greece’s January legislative elections, the left-wing Syriza-led coalition government declared that it was halting the privatization of a 67 percent stake in the Piraeus Port Authority. China’s shipping giant China Ocean Shipping Company (COSCO) was one of the suitors for the privatization.

China immediately asked the Greek government to protect the rights and legal interests of Chinese companies, including COSCO, which has already been managing two Piraeus terminals for the past five years. At €500 million, this has also been the biggest foreign direct investment (FDI) in Greece in modern times.

The Greek administration is not the only European government running a troubled economy and facing a dilemma—how to attract Chinese FDI while responding to an increasing uneasiness from the public about their local enterprises being managed by China? In Athens, public opinion seems split. Some say COSCO has been running its two terminals efficiently, increasing commercial traffic through the port and attracting multinationals such as ZTE and HP to use the cargo terminals as logistics centers for their products. Greece’s powerful unions—some of them with close links to Syriza—do not agree, and think the previous Samaras government did not run a fair game to COSCO’s competitors in exchange for badly-needed cash. In addition, they claim the Chinese company wants to enforce changes in the workforce that would roll back workers’ rights.

For the past five years, European governments have been cozying up to Chinese investors. One can say that the latter have also made use of a situation where debt-ridden countries were looking for financial help. In Portugal, a 21.3 percent stake of national grid Energias de Portugal has been bought by China Three Gorges; in Italy, the year 2014 saw a total of €3 billion invested through multiple deals in the energy sector including China State Grid’s purchase of a stake in CDP Reti, the country’s national grid agency; London has seen a massive flock of Chinese investments, especially in real estate; and in France, Club Med, a 65-year old leisure company has been acquired for almost $1 billion by Shanghai-based Fosun Group. Another Chinese consortium, Symbiose, bought 49.9 percent of Toulouse airport, located a stone’s throw from Airbus French headquarters.

We know how strong a debate has been taking place in the United States for some years about allowing or not Chinese investments, especially in telecommunications and high tech. In recent months, a debate has also taken place in France. Should the country allow China to invest in French infrastructures? Is it not counter-productive in the long run? When China announced it was investing in a new Brittany dairy factory (in order to export powder milk to China), local politician Richard Ferrand said workers thought their production facilities were taken away by a foreign power. (1) Meanwhile, Karine Berger, a Socialist party official in charge of economic affairs, said she was “not comfortable at all” with the sale of the Toulouse airport to a non-European investor. (2)

Amongst several European leaders who have prominently been advocating an “open-door policy” to Chinese investors stands Manuel Valls, French prime minister. “Huayin lai Faguo” (Welcome to France) was the message addressed—in Chinese—by Valls to his Chinese hosts during his trip at the end of January. “Why should we be able to sell Airbus planes to China, and not let the Chinese invest in France?” questioned Manuel Valls in an interview. Almost a year ago, British Prime Minister David Cameron had said he was “not embarrassed that China was investing in British nuclear power, or has shares in Heathrow airport or Thames water.”

With its falling currency (€1 against $1.12), Europe has become an even more attractive continent for Chinese firms, in line with Beijing’s plan to increase financial support to encourage overseas investment. For the year 2014, and for the first time ever in history, China’s outbound investment is expected to surpass its inbound investments and, according to a study by Deutsche Bank, Chinese investment stock in Europe has grown from €6.1 to €27 billion between 2010 and 2014.

But European politicians are having a hard time in explaining to their electorates that China—a country with a poor human rights record—is also a powerful investor that will help reviving local industries. Despite Beijing’s efforts in improving its image in the west, the country remains unpopular in most European countries. For example, according to a survey conducted last year by Pew Research (3), only 26 percent of Italians and 28 percent of Germans have favorable opinions of China. Italy is one of Europe’s largest recipients of Chinese investment, and Germany is China’s top European trading partner. Misunderstandings remain high and, in times of growing populism and austerity, European leaders should deal with China cautiously if they want to make their countries beneficiaries of Chinese foreign reserves. Chances are high that China will continue to be a visible actor in Europe’s troubled economies in the near future.

(1) Le Corre (Ph) and Sepulchre (A): L’Offensive chinoise en Europe, Fayard, 2015, p. 166
(2) “Welcome to Chinese invaders”, Le Monde, 17 February 2015
(3) Pew Research Center, Global Attitudes, Spring 2014