China's scramble for Europe

China is using its growing economic strength to buy up strategic assets in Europe, from companies to government debt and infrastructure contracts. A new brief published by ECFR – The Scramble for Europe – explores the extent and nature of China’s game-changing presence in Europe.

China has moved on from buying African ports and building Saudi railways, taking advantage of its economic strength and European weakness to buy up Europe. Its acquisitions include infrastructure such as ports and railways, symbolic car companies like Volvo and MG, and high tech firms. It has bought large quantities of debt in the EU’s troubled periphery and won government contracts while excluding European companies from bidding for Chinese contracts.

The report’s authors, Francois Godement and Jonas Parello-Plesner, argue that:

• European supply is fed by the short-term need of cash-strapped countries, but this threatens Europe’s medium term interests.
• China’s acquisitions are dividing European countries, just as they were developing a more coordinated and tougher strategy towards Beijing.
• The crisis is allowing Chinese companies not just to strike cut-price deals but also to play off member states against each other and against their own collective interests – a strategy China has already used in the developing world.
• If China wins support for its policies with this greater influence, Europe may pay the price on a range of issues, from global financial reform and international governance to environmental norms and human rights.

Click here for a pdf copy of The Scramble for Europe.

“Five years ago the story was European companies establishing bases in China. Now the story is that China is strategically acquiring European companies – giving it ownership of vital infrastructure, access to cutting-edge technologies and allowing it to play some European countries off against others.”
François Godement and Jonas Parello-Plesner.

Recommendations:

1. The EU needs a system to vet direct investment in specific industries such as defence, media, education and critical technologies.
2. Europe needs to introduce fair competition for public procurement (eg to force Chinese firms to demonstrate that they do not benefit from soft loans) and push to be allowed to compete for Chinese contracts.
3. Europe needs a clear statistical system to track Chinese bond purchases.

Background:

• In the two quarters from October 2010 to March 2011 Chinese firms and banks committed $64 billion on European contracts – more than half the total investment and trade facilitation flows in Europe since 2008.
• China is thought to own 25% of its reserves in euros, but there is no way of knowing whether this figure is correct.
• 30% of China’s investments are in Portugal, Greece, Italy and Spain; another 10% are in central and eastern Europe.

Notes for editors:

1. This report, like all ECFR publications, represents the views of its authors, not the collective position of ECFR, the steering group or ECFR Council Members.
2. You can find out more about ECFR’s China programme in this special section of our website.
3. The European Council on Foreign Relations (ECFR) is the first pan-European think-tank. Launched in October 2007, its objective is to conduct research and promote informed debate across Europe on the development of coherent and effective European values based foreign policy.