1 Aug 2018
Chinese Investments in European Countries: Experiences and Lessons for the “Belt and Road” Initiative
By Philippe Le Corre, Senior Fellow at the Mossavar- Rahmani Center for Business and Government, Harvard Kennedy School
This chapter focuses on Chinese foreign direct investments (FDI) in Europe, and their potential impact on the landscape of the targeted countries. It examines the investment’s possible connections with the current Belt and Road Initiative (BR), which is primarily billed as an international network of infrastructure projects. With the BR in mind, this chapter asks whether Chinese state-owned enterprises (SOE) can build from their recent experiences in Western Europe, and looks at three main questions: (1) What is the political, economic, and social impact on targeted countries when it comes to public investments in the field of infrastructures? (2) How does it relate to the Belt and Road Initiative? (3) What are the stakes for the cooperation between Chinese investors on the one hand, and local public- and private-sector actors on the other?
The State of Chinese Investments in the European Union
China has almost a millennia-long history of commercial interactions with Europe through the ancient network of trade routes of the original Silk Road. However, these efforts have been redoubled in recent history. This is partly due to the euro debt crisis of 2008; a lower exchange rate for the euro between 2008 and 2016; an ongoing de-industrialization; and a Chinese hunt for world-famous brands and technologies, of which many are in the European Union (EU). According to a 2017 report by Merics and the Rhodium Group, Chinese investments in the EU reached a record $36.5 billion in 2016, up 77% from $23 billion in 2015, which now represents about 4% of total FDI stock in the EU. The United States, in particular, remains a much bigger foreign investor in Europe.
From 2000 to 2016, the top sectors receiving Chinese capital investment were energy, automotive, agriculture, real estate, industrial equipment, and information and communications technology. Chinese state-owned firms also seized opportunities to buy European mining companies, energy assets, and utilities. In 2016, the UK, Germany, and Italy were the three largest recipients of such investments.
China is investing in energy and raw materials in developing countries, and meanwhile looking for opportunities in energy distribution, infrastructure, mergers and acquisitions for brand names, high technology, and market shares in advanced economies. China has also shown a strong interest in airport infrastructures—it took 9.5% of London Heathrow Airport in 2013, 49.9% of France’s Toulouse Airport in 2014, and 82.5% of Germany’s Hahn airport near Frankfurt. China is also active in Eastern and Central Europe, with controlling stakes in Albania’s Tirana Airport and Slovenia’s Ljubljana Airport. In addition, the Beijing Construction Engineering Group (BCEG) is committed in a large £800 million project to redevelop Manchester airport, the UK’s second largest airport.
This wave of Chinese FDI in infrastructure on the European continent started in 2008 in the midst of the euro-debt crisis, when China was offered the opportunity to buy Eurobonds and invest in some of Europe’s infrastructure projects. Bilateral relations between China and EU institutions were also strengthened, and cooperation moved to a new level when President Xi Jinping proposed building a “China-EU partnership” in 2014. China may yet become the largest non-EU contributor to the European Fund for Strategic Investments (EFSI), the initiative launched by the European Commission, with the goal of raising 315 billion euros for stimulating growth and employment. China is expected to contribute 5–10 billion euros to the EFSI. A working group including experts from China’s Silk Road Fund, the European Commission, and the European Investment Bank has been set up to explore opportunities for co-financing….
Lessons to be Learned
It is much too early to make a definitive assessment about Chinese investments in Western Europe in the Feld of infrastructures. The number of compelling cases is limited. Only the Greek case seems worthy of an in-depth analysis because it encompasses several matters that we have alluded to in this paper. First, cooperation between Europe and China: is it short term, long-term, or strategic? Many agreements have been designed and signed, but both bureaucracies and multiplying EU crises have somewhat prevented a faster development. Second, the future of European infrastructures: There are technical aspects that involve the protection of local industries and environmental laws. Third, the impact of national elections on government decision-making: They can be quite radical, and more dramatic changes could take place in the years to come. Fourth, tensions between elites and grassroots views. There is a sense that decisions on allowing Chinese FDIs are sometimes “made by elites” against the will of the people, and not necessarily to the benefit of the latter. Sixth, human resources: Job creation remains the top priority of all the decision-makers in Europe. As explained in the COSCO/Piraeus case, Chinese investors have been better perceived when using local staff.
Most of these issues can be applied to future projects under the BR. If China is to lead through this new initiative, it is implied that it should develop a sense of universality, or at least an understanding of the political, social, cultural, and economic environments where it is intending to invest. Central Asian countries, for example, have a relatively short history as independent nations, but they have the same sense of belonging and history as any other country. Therefore, the BR will have to encompass local aspects as much as global aspects, financial sustainability, transparency, and local political systems.
The internationalization of China, and of its companies in particular, is one of the most important phenomena of the beginning of the twenty-first century. After taking an interest in Africa, Oceania, and Latin America, China has started looking at developed countries, where it engaged in some increasingly important investments. Each of the European countries possesses a sophisticated legal apparatus inherited from its history. The legislation of the European Union adds still another layer of complexity. However, if they want to be engaged over the long term, potential Chinese investors will have no other choice but to understand and accept this system.
Now that China is engaged in a major initiative that will give it responsibilities not just towards its own people, but also towards the foreign populations in countries where it is investing, it is hoped that Beijing’s decisions will not be oriented exclusively towards its domestic public opinion, especially when acquiring European technological jewels, or even utilities. Moreover, promises of Chinese infrastructure projects directed at Central Asia, Pakistan, and even Europe must be followed by actual deeds. In too many cases, announcements of cooperation have been made without them becoming reality.
Please click to read full report.