The Opened Upwards Door Swings Back: The Challenge Of Chinese Investment

Ronald H. Linden*

On 26 February, the Taurus docked at pier 3 inwards Greece’s rebuilt port of Piraeus. At nearly ii hundred m tons, the ship is longer than iv football game fields together with capable of carrying 20,000 of those familiar half dozen meter containers. It is the largest ship always to dock inwards a province known for its transportation prowess, and, inwards fact, the largest always to dock anywhere inwards the Mediterranean. The goods beingness transported, the ship itself, the divergence together with arrival ports are all built, owned together with run past times China. Chinese investment into Piraeus has catapulted a relatively sluggish port into ane of the superlative destinations for transporting goods to Europe and, coincidentally, produced a 92 per cent growth inwards the port’s operating profits inwards 2017. Influenza A virus subtype H5N1 half-billion-dollar expansion of port facilities is planned past times the Chinese-run port authority.[1]

The famous “Open Door” of early on final century has directly swung broad – but non inwards the management envisioned past times that policy. Articulated past times the United States, the Open Door Policy aimed to boot the bucket on Cathay “open” for other countries (like the US) to portion inwards the gains beingness made in that location past times European powers. Now, those really European states that ane time elbowed each other to larn into Cathay are doing the same to attract Chinese investment to Europe. And they are succeeding.

Spurred past times Chinese President Xi Jinping’s “One Belt, One Road” mega-policy, Chinese unusual straight investment (FDI) into Europe, ane time negligible, has grown nearly iv times since 2013. For 3 of the final 5 years, Chinese FDI to Europe surpassed the amount invested past times Cathay inwards the US.[2] And, different the mass of Chinese investment inwards developing countries, Chinese FDI inwards Europe is aimed at securing assets inwards high-value manufacturing (e.g. cars, machines, high-tech), communications, electronics together with liberate energy distribution.

This investment is closely tied to expanding Chinese merchandise – Cathay is the superlative root of imports to Europe – so infrastructure investment is a primal focus for Beijing. Cathay is the unmarried largest investor inwards electricity transmission inwards Europe. The port of Piraeus is exclusively ane of several container ports, from Kumport inwards Turkey to Algeciras inwards Spain, to Zeebrugge inwards Kingdom of Belgium that are owned or run past times Chinese companies.

By ane estimate,[3] Cathay directly controls 10 per cent of the port capacity of Europe, where export dependence averages nearly 44 per cent of gross domestic product (by comparison, inwards the US, it stands at eleven per cent). Of item involvement to Chinese investors are small-to-medium size manufacturing businesses, particularly those inwards export-oriented sectors similar data applied scientific discipline where the hope of much needed investment upper-case missive of the alphabet is aureate amongst the lure of the Chinese market.

More recently, along amongst hospitality investments (hotels, entertainment) together with fifty-fifty soccer teams, or so of the best known “European” brands, e.g. Pirelli, Volvo, MG, together with retail together with fashion outlets (Harvey Nichols, Bally) together with fifty-fifty the London Taxi Company get got been purchased past times Chinese conglomerates.

How has this happened together with should it live a root of concern? After years of anemic growth inwards the EU, weak investment resources, together with inwards or so cases fifty-fifty penalization (e.g. Greece), China’s offering of seemingly unlimited funds tin hardly live spurned. This is truthful fifty-fifty when – equally is virtually oft the instance – the investor is a state-owned company together with thence dependent plain to Chinese authorities control.

By itself, the size of the Chinese stake inwards the European economic scheme is non troubling – Chinese investment is nevertheless dwarfed past times that coming from the US together with European Union “cross-border” ties. Instead, concern lies inwards at to the lowest degree 3 areas: sensitivity, elasticity together with fungibility.

The start is evident from the sudden focus of Chinese investment, for example, inwards infrastructure, together with raises the possibility of Beijing gaining command of the licensing, production together with sale of high-end technology. Such investment has caught the attending of or so European governments, such equally Italy together with Germany, who get got introduced a screening process at the national level.[4] But scrutiny does non yet be at the European Union level, where it powerfulness live virtually valuable if Europe is to avoid (ironically) a “race to the bottom” to lure investors.

Elasticity together with its dangers are non novel to capitalism, fifty-fifty province capitalism. The vicissitudes of depending on Cathay for cash were made clear inwards 2017 when Cathay imposed novel controls together with restrictions on investment outflows – leading to a sharp drop inwards Chinese FDI both inwards the US together with Europe.[5] More pointedly, Italian fiscal analyst Francesco Galietti[6] points to the fate of Taranto, a ane time touted port inwards southern Italy, brought to the political party past times Chinese promises of development, together with and then left, ane powerfulness say, for to a greater extent than attractive prospects inwards other ports.

The virtually serious concern is political fungibility. Can together with volition the Chinese government, which, after all, controls virtually of the investments, exercise its economical presence to erode European unity together with to create policy distance from the United States? In 2017, Hellenic Republic vetoed the EU’s annunciation on Cathay at the United Nations Human Rights Council.[7] Athens has inwards fact executed a sudden plough on the number of Chinese investments, drawn past times prospects similar Piraeus together with frustrated past times harsh handling from Brussels.

Similarly, after the Hague Tribunal inwards 2016 issued an unequivocal ruling denying China’s all-encompassing claim to the South Cathay Sea, the EU reaction was, to say the least, tepid, only acknowledging the ruling together with calling on the parties to “resolve it through peaceful means”. Evidently watered downwards past times Republic of Hungary together with Greece, both darlings of Chinese investment, the controversy differed past times several nautical miles from that of the US – which pointedly called on Cathay to abide past times the ruling together with characterized equally “binding”.[8]

By working together, the US together with European Union could create effective measures to monitor the nature together with extent of Chinese investment. Together they line of piece of job concern human relationship for nearly one-third of global gross domestic product together with imports, together with the bulk portion of personal consumption together with inward FDI. They are each other’s superlative trading together with investment partners.[9]

The US Chamber of Commerce together with European Commission get got both sharply criticized the lack of reciprocity inwards China’s merchandise together with investment practices.[10] Washington together with Brussels both decline China’s demand that it live considered, for World Trade Organization purposes, a marketplace economy. The unapologetically authoritarian nature of the Chinese regime, amongst its novel President-for-Life, is clear. Some activeness is evident on both sides of the Atlantic. The US Congress has begun the process of making its screening machinery to a greater extent than muscular.[11]The European Commission has position forth a proposal but nether its terms, judgments volition non live binding together with the aim of this novel machinery is non “to flora EU-level screening”.[12]

Unfortunately, at a minute when both the US together with the European Union look to recognize the challenge of Chinese investment, the Trump direction has chosen a path that makes effective multilateral cooperation to a greater extent than difficult. The Transatlantic Trade together with Investment Partnership (TTIP), negotiated over several years, is dead, together with directly the President has unleashed a merchandise state of war against its virtually of import fix of economical together with political allies. This is happening exactly when European together with American views together with interests coincide.

In facing China, “America First” powerfulness good hateful “Europe Alone.” In such a situation, private states – fifty-fifty marrow European economical powers – volition live left lonely to confront a rigid economical giant, ane that is barging through an opened upward door that directly swings inwards the reverse direction.

* Ronald H. Linden is Professor of Political Science at the University of Pittsburgh together with a visiting Fulbright-Schuman Scholar at the Instituto Affari Internazionali (IAI).

[1] David Glass, “Cosco Reveals $620m Piraeus Development Plan”, inwards Seatrade Maritime News, 29 Jan 2018, https://goo.gl/AWrcdi.

[2] Data from Rhodium Group. See Baker McKenzie, Chinese FDI Squeezed inwards 2017 past times Regulatory Crackdowns at Home together with Abroad, 17 Jan 2018, https://www.bakermckenzie.com/en/newsroom/2018/01/chinese-fdi-2017. For a country-by-country review of Chinese investment inwards Europe, run into John Seaman, Mikko Huotari together with Miguel Otero-Iglesias (eds.), Chinese Investment inwards Europe. Influenza A virus subtype H5N1 Country Level Approach, European Think-tank Network on Cathay (ETNC) report, Dec 2017, https://www.ifri.org/en/node/13942.

[3] Keith Johnson, “Why is Cathay Buying Up Europe’s Ports?”, inwards Foreign Policy, 2 Feb 2018, http://bit.ly/2Ez0UNG.

[4] Rasmussen Global, Foreign Investment Screening together with the Cathay Factor, xvi Nov 2017, https://rasmussenglobal.com/?p=910.

[5] Baker McKenzie, Chinese FDI Squeezed inwards 2017, cit.

[6] Author’s interview, Rome, 27 Feb 2018.

[7] Robin Emmott together with Angeliki Koutantou, “Greece Blocks European Union Statement on Cathay Human Rights at UN”, inwards Reuters, eighteen June 2017, http://reut.rs/2sDm89q.

[8] European External Action Service, Declaration on the Award rendered inwards the Arbitration betwixt the Philippines together with China, xv July 2016, http://europa.eu/!UW99Hp; US Department of State, Decision inwards the Philippines-China Arbitration, 12 July 2016, https://2009-2017.state.gov/r/pa/prs/ps/2016/07/259587.htm.

[9] Daniel S. Hamilton together with Joseph P. Quinlan, The Transatlantic Economy 2018, Washington, Center for Transatlantic Relations, 2018, Ch. 2, http://transatlanticrelations.org/?p=3479.

[10] US Chamber of Commerce, Made inwards Cathay 2025: Global Ambitions Built on Local Protections, Washington, March 2017, https://www.uschamber.com/node/143221; European Commission, On Significant Distortions inwards the Economy of the People’s Republic of Cathay for the Purposes of Trade Defence Investigations (SWD/2017/483), xx Dec 2017, http://trade.ec.europa.eu/doclib/html/156474.htm.

[11] Elias Groll together with Keith Johnson, “Washington Strikes Back Against Chinese Investment”, inwards Foreign Policy, half dozen March 2018, http://bit.ly/2teR168.

[12] Gisela Grieger, “EU Framework for FDI Screening”, inwards EPRS Briefings, Jan 2018, p. 6, https://wp.me/p2qdgs-7ZY.

Authors:

Ronald H. Linden

Details:

Roma, IAI, March 2018, 4 p.

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