Advisory: The Scramble for Europe

China is taking over Europe. While British companies hope to sign deals worth £1 billion during Chinese Premier Wen Jiabao’s three day UK visit, as well as securing greater access for their exports to China, Chinese firms are already buying up the old continent in three ways:

1.    Bond diplomacy: China’s purchase of Spanish and Greek bonds over the past year, and yesterday’s promise to buy from Hungary, have made it a bilateral lender of last resort for politicians in indebted countries – with serious implications for Europe’s ability to present a united front to China on issues including trade reciprocity, climate change and human rights.

2.   Direct investment: Five years ago, China’s total direct investment in Europe was $1.3 billion. So far in 2011, there have already been three deals that have exceeded that amount.

3.    Europe’s open market for public procurement: While European companies are excluded from public procurement in China, European taxpayers are subsidising Chinese businesses that bid for European contracts.

In July, the European Council on Foreign Relations will release a new policy brief entitled "The Scramble for Europe", which will explore the extent and nature of China’s game-changing presence in Europe.

This expansion of China’s presence in Europe comes just as the EU was beginning to develop a tougher, more coordinated strategy towards China. But the effects of the economic crisis are already undermining Europe’s embryonic unity and making it much harder to implement this new approach.

In particular, if China becomes a major financial, investment and public provider for Europe, it will leave the Europeans little leverage to improve their own access to these very same sectors in China, which are mostly closed or controlled. In short, as Europeans compete with each other for Chinese business, they diminish their leverage and thus reduce their chances of collectively striking a better deal with China.

In "The Scramble for Europe", the authors will argue that Europeans should not blame China for taking the opportunity to expand its economic foothold inside Europe and leverage its financial and commercial influence with cash-strapped member states. But they should push for decisive steps to develop their own capacity to coordinate their interests in order to meet this challenge from China.

They should leverage the EU’s internal market to improve access in China, harnessing China’s surplus financial resources for mutual benefit, improving Europe’s level of unity instead of enlarging divisions. If they don’t, they risk facing a version of the prisoner’s dilemma, in which each member state will strike its own private deals and in the process undercut any possibility of a common policy towards China.

The authors are available for comment now on the brief’s key findings, Wen’s visit and related issues.

Contact:

Jonas Parello-Plesner: .(JavaScript must be enabled to view this email address)  +44 (0)7787 431820

François Godement: .(JavaScript must be enabled to view this email address)  +33 6117 27544

Fran Yeoman, ECFR Communications Manager: .(JavaScript must be enabled to view this email address)  +44 (0)7796 143298
- contact to request a copy of the full brief when it is published

Selected key facts:

• In June 2010, China bought Greek bonds as a quid pro quo for acquiring major public assets In July 2010, China’s announcement that it would buy Spanish bonds boosted market confidence – even though China eventually bought a mere €500 million of bonds.
   
• Major Chinese investment in Europe in the past year has included the acquisition by Sinopec of Spain’s Repsol holdings in Brazil for $7.1 billion, the purchase of a Hungarian chemical firm for $1.7 billion and the acquisition of a major Norwegian silicon unit for $2 billion (while China was boycotting Norwegian smoked salmon as a reprisal for the award of the Nobel Peace Prize to Liu Xiaobo).
   
• In 2009, a Chinese road construction company bid successfully for a major highway in Poland that was subsidised by the European taxpayer. The company then proceeded to bring Chinese workers into a country that itself exports its labour force to western Europe (note that China has since suspended work on the project, the future of which remains unclear).