What if China took over the world?
Investor, partner, competitor : How dangerous China really is for Europe
A more detailed version of this article can be found here. There is also an interactive map on Chinese investments in Europe.
The promise from the Far East usually reaches Germany at night. Almost endless container trains with Chinese characters come to their final destination on the banks of the Rhine in Duisburg after a journey of 11,000 kilometers. Trucks and ships are ready there to distribute all kinds of Chinese goods, from smartphones to swimwear, to the surrounding countries.
The spectacle is repeated around 30 times a week and gives the freight yard in the industrial district a resounding title: The city's managers speak of the “end of the Silk Road” and praise the three-week shorter delivery times compared to ship transport. There are already more than 100 Chinese companies in the city, and many more are set to follow. “China”, says Erich Staake, the head of the project, “is an important component for our future development”.
This also applies to Croatia, 1,300 kilometers away. There, the Chinese state is fulfilling a long-cherished dream for the residents. In a picturesque Adriatic bay, Chinese workers are using huge hammer towers to drill steel piers 120 meters deep into the sea floor. Soon they will be carrying a two and a half kilometer bridge to connect the mainland with the Dubrovnik exclave, which has been separated since the war in Yugoslavia.
The 200 or so Chinese workers toil non-stop and “do it very well”, praises the head of the district government. Above all, they are cheap, and no European competitor could keep up.
The new users of the venerable Loreto Palace in the heart of Lisbon's old town also come from China. The employees of the Chinese company Fosun reside behind the facade from the 18th century. Its corporate empire in Europe ranges from the former Portuguese state insurance company "Fidelidade" to the travel company Thomas Cook to the fashion brand Tom Tailor and the German private bank Hauck & Aufhäuser.
Not far away are the offices of China's state-owned company State Grid and Three Georges, which have bought into the country's power supply. Investments of more than nine billion euros now make Portugal a “strategic partner”, said China's ambassador in Lisbon.
This is how it works across Europe. Railway lines, ports and power grids, mechanical engineering, tourism and finance - Chinese companies are buying into the European economy in all of these sectors. They have already invested well over 300 billion euros here.
China is everywhere and that creates fear. “The voracious Chinese dragon” divides Europe, “that is why we must be afraid” wrote the “Bild”. China's "huge investments abroad give it a sharp power," which it uses to "silence critics," warned the Economist.
EU stated that China was "both a partner and a systemic rival"
Leading EU politicians have recently adopted the same tone. The competition between China and Europe “is not fair”, complains EU Commission President Jean-Claude Juncker, because the government in Beijing is gaining unilateral advantages. "The time of European naivety" must "be over", demands French President Emmanuel Macron. And for the first time in March, the EU governments stated that China was “both a partner and a systemic rival”.
But is the Chinese investment plan really a threat to Europe's prosperity? Does the entanglement entail the risk of making common cause with the authoritarian regime in Beijing? The Investigate Europe team (see below) investigated these questions and came across surprising answers.
Of the 500 largest companies in the world, 119 are already based in China
Investments from China have long been considered a welcome consequence of globalization, especially since European companies have already invested far more in China. According to the Beijing Ministry of Commerce, at least 5,000 companies from Germany alone are involved in China with more than 100 billion euros.
However, due to its rapid rise, the Asian economic giant is increasingly becoming a competitor. Of the 500 largest companies in the world, 119 are already based in China, only two fewer than in the USA. For the first time since the Industrial Revolution, the supremacy of Europeans and Americans in the world economy is in question again.
The fears this triggers became apparent in May 2016 when the Chinese home appliance company Midea bought the German robotics manufacturer Kuka for 4.6 billion euros. It is to be "feared that such companies will only be used as tools and thrown away when they have transferred enough technology," warned Michael Clauss, the then German ambassador in Beijing.
But the “fear of being sold out” by European industry to China, as the “Frankfurter Allgemeine” wrote, ignores what is actually happening. Since 2016, investors from China have bought more than 160 other European companies for more than 100 million to 43 billion dollars each (see table).
Most of the companies that have been bought are doing better today
In most cases, as confirmed by managers and workers from Norway to Italy to Investigate Europe, the acquired companies are doing better today than they were before. "As a rule, Chinese investors adhere to the laws and collective bargaining agreements," states Rüdiger Luz, head of the company policy department at IG Metall and an expert on European industry.
The Chinese state-owned company ChemChina, the “most dynamic globalizer among China's state-owned companies,” said the “Economist”, is an example of this. The tire company Pirelli from Italy, the enzyme specialist Adisseo from France, the silicone producer Elkem from Norway, the Swiss agrochemical manufacturer Syngenta and the German world market leader for plastics machines Kraus-Maffei belong to ChemChina. The driver behind it is the self-made millionaire Ren Jianxin, to whom the government entrusted the redevelopment of many ailing businesses.
"Otherwise we would have fallen into the hands of competitors"
The managers he employs leave the subsidiaries in Europe largely free. For the approximately 6,200 employees at the Norwegian silicone specialist Elkem, sales to China are “only positive”, assures Marianne Færøyvik, representative of the trade unions on the supervisory board. The company has "grown well" since the takeover in 2011 through acquisitions. The employees at Pirelli, the “Prada of the tire industry”, as Ren calls it, have the same experience.
After the takeover for more than seven billion euros in 2015, he offered his Italian colleagues an astonishing contract: Although the acquired 45 percent of the shares give ChemChina full control, the corporate headquarters can only be relocated abroad if the other owners agree. Pirelli remains Italian and CEO Tronchetti Provera is convinced that the deal was “the best for Pirelli”. "Otherwise we would have fallen into the hands of competitors and that would have been the end of Pirelli."
Europe's business leaders are afraid
Frank Stiehler, head of the Munich machine builder Krauss-Maffei, also sees his company in good hands with ChemChina. "We are investing twice as much today as in the years under the leadership of Anglo-Saxon financial investors," says Stiehler Investigate Europe. Four new plants are being planned and built, three of them in Germany. 800 new jobs have already been created.
ChemChina landed the biggest coup in Switzerland. There, in 2015, the chemical companies fought a bidding war to take over the agrochemical manufacturer Syngenta. “It was a fillet in the industry and everyone wanted it,” recalls a German manager who was involved. Initially, Monsanto offered $ 35 billion, and competitors from BASF to Dow sounded out bids of up to $ 38 billion. But then Ren offered Syngenta shareholders another $ 5 billion more. “No one else could keep up,” says the German chemical manager.
According to the Federal Ministry of Economics, the state is often behind the buyers
But that is exactly what scares Europe's business leaders. "With the treasury behind them, the Chinese state-owned corporations have unlimited financial strength. That is not fair competition," complains a leading official in the EU industry lobby. Ironically, the German industry association BDI, whose members are closely associated with China, warned in January of the “Chinese model of an economy with a strongly controlling state influence”, which is “in systemic competition with liberal market economies”.
"German industry is very concerned," said BDI department head Fridolin Strack. “The Chinese hybrid economy is mobilizing enormous resources for strategic acquisitions in Europe.” These “market distortions” have to be “eliminated”, he demands.
The Chinese state is often behind the buyers, according to a strategy paper of the Federal Ministry of Economics from 2017. According to this, “the buyer is able to pay more money for the company and thus gain an advantage”. That is why the “European states should have more opportunities to examine takeovers and, if necessary, to prevent them”.
China's leading economic diplomat in Europe wants to dispel doubts
But how this is to be done is completely unclear. Current law does not allow “taking action against the acquisition of a European company just because the buyer has benefited from foreign subsidies,” admits the EU Commission. In addition, the fear of subsidy doping is based on mere assumptions.
When asked, a spokeswoman for Minister Peter Altmaier stated that “the federal government has no knowledge of the influence of state subsidies on the investment activities of Chinese companies abroad”. In other words: nothing specific is not known.
Wang Weidong is not surprised. China's leading economic diplomat in Europe resides in the former SED quarter on Mayakowskiring in Berlin-Pankow, where the red China flag in front of the classicist pillars of the embassy building still exudes a little GDR feeling. There, Wang received a cup of green tea and explained "the misunderstanding" with the subsidies.
The Chinese state "does not have the money to pay for the acquisition of state-owned companies abroad," he says. ChemChina also financed its purchases in Europe “not only with loans from state banks, but also from the international capital market on commercial terms”.
Isn't it just normal business?
In addition, interest rates are "even higher in China than in Europe". In fact, the company is now struggling with the debt burden. So Ren had to vacate his post and hand it over to the head of Sinopec, the second chemical giant in the country, who is to merge the two companies. No trace of unlimited financial strength.
Isn't it just the normal business that European companies have always done? Critics like the economist Max Zenglein from the Berlin Mercator Institute for China Studies disagree. He thinks "that Germany is too willingly strengthening China's innovation offensive".
The actors would "neglect the risk of undesired technology transfer in areas that are crucial for the progress of their own industries," he writes and warns: "Germany's economic foundations could be damaged immediately."
Wang knows economic history is on his side
But Zenglein cannot explain exactly how this should work. Economically, economic diplomat Wang argues that a decline in European industry would not be in China's interest because the EU is its largest trading partner. That is why this fear has "nothing to do with reality". Of course you are in competition, "but Europe also has that with the USA, globalization is not a zero-sum game, everyone can win," argues Wang like a classic market liberal and knows economic history on his side.
When Germany and Japan brought their economies to world market level after the Second World War, their companies also cooperated with US corporations in order to later become world market leaders themselves in some sectors. This has in no way harmed the US economy. South Korea and Taiwan later followed the same model.
The EU countries' China policy is contradicting itself
Krauss Maffei boss Stiehler and many of his colleagues see it the same way. "As long as we have such a large domestic market in China that leads to products that will subsequently take our shares away from us on the world market, we have no choice but to position ourselves in the country," he explains the commitment of many European companies to China. He therefore does not share the Merics Institute's assessment, said Stiehler. "Isolation and obstacles to free market access" are "especially dangerous for Germany as an export nation."
As contradictory as this debate is, the China policy of the EU states is also contradictory. Nowhere is this more evident than in the crisis countries Portugal and Greece. There, the other euro states have been compelling the governments since 2011 to sell their state property, regardless of whom. European investors, however, were not interested or offered little.
In the port of Piraeus, Europe is more Chinese than anywhere else
China's rulers, on the other hand, saw the opportunity. And so ports, power companies and large parts of Portugal's financial sector came under Chinese control. "It's really ironic, we were forced to privatize according to the logic of the market economy and finally sold to companies of state capitalism," comments political scientist Raquel Vaz-Pinto from the University of Lisbon.
The result is particularly explosive in Greece, visible from afar in the country's largest port: Piraeus. The coastline on the west side of Athens has been the Greek gateway to the world for more than 2500 years. Here the fleets started the war against the Persia of antiquity.
Here, the orphaned piers showed economic decline until 2010. And here, on the roughly ten kilometers of coast between ferry docks, tank farms, old factories and a forest of cranes, Europe is now as Chinese as nowhere else. From the containers to the ships to the loading towers, everything is emblazoned with Chinese characters.
"We are losing a bit of sovereignty," says France's ex-Prime Minister Raffarin
The path there began in 2008. When Greece's shipowners began to have their ships built and financed by China, they also brought the state-owned shipping and port giant Cosco to Piraeus. Cosco bought the concession for two container piers for 650 million euros.
Eight years later, the euro finance ministers then forced the “privatization” of the entire rest of the port - a bizarre deal. The forced sale took place without competitors and brought Cosco full control for just 280 million euros. Theodoris Dritsas, then Minister of Shipping, recalls: “Although we knew that only the Chinese would benefit from it, the Germans in particular insisted on it. I haven't understood that until today ”.
Now even the port authority is in Chinese hands, and the facility has become a kind of extra-territorial area. What comes in and what goes out is decided solely by the managers sent from China. Based on Cosco's container fleet, the third largest in the world, Piraeus rose from a run-down provincial port to become the second largest transshipment point in the Mediterranean. According to its own information, the port company contributes more than $ 300 million annually to the Greek economy and created 3,100 jobs.
However, Piraeus is just the beginning. Cosco and its sister company China Merchant have long since bought their own terminals and shares in a further 13 European ports from Malta to Rotterdam (see map). Does this mean that the Europeans are in danger of losing control? "Yes, we are losing a bit of sovereignty," says the former French Prime Minister and China expert Jean-Pierre Raffarin, who advises the Macron government. "Ports are of strategic importance and we have to clarify in Europe how to deal with them," he demands.
However, that is almost impossible. Europe's port cities do not care about sovereignty, but rather fierce competition for the favor of investors from China. Franck Dhersin, port manager in Dunkirk, France, speaks of "fierce rivalry".All port operators “organize advertising trips to China in order to establish partnerships there; I have just come from Shanghai myself,” he says.
At the same time, the cities compete for the associated industrial settlements. Marseille, for example, put 6.5 million euros in subsidies on the table this summer in order to persuade the Chinese silicone manufacturer to build its new factory at the port and to outdo its competitor Rotterdam. For each of the promised jobs that's 48,000 euros. The Dutch countered by sending a video of the last strike in the port of Marseilles, lamented Philippe Maurizot, deputy head of the city's economic department. "The competition is really tough."
There has been a lack of investment across the EU for ten years
And not just between the ports. The same is happening across Europe at all levels. Whether district town or metropolis, provincial government or heads of state, everyone is struggling with the same misery: there has been a lack of investment across the EU for ten years because, unlike the USA, the EU went on an austerity course after the great financial crisis. Spending on new factories and infrastructure has still not even reached the 2008 level. But that makes the billions from China all the more tempting and puts the Europeans in a position against each other.
The intra-European dispute over China's “Silk Road” program reveals the strategic dilemma between fear and business. The government of party leader Xi Jinping is pumping around 1,000 billion dollars into the construction of transport routes around the world beyond American control.
China's regents announced major construction projects for Eastern and Central Europe
Above all, the countries in Eastern and Central Europe rely on this. Together with Beijing they founded the “16 plus 1” group, recently expanded to “17 plus 1” with Greece, for which China's rulers announced major construction projects. This is a hodgepodge of power plants, motorways and railways, mostly outside the EU.
So far, only Hungary has landed a significant project within the Union: a railway line from Budapest to Belgrade and from there to Piraeus, financed with Chinese loans, is intended to give China further access to Europe. The € 357 million bridge construction in Croatia is also part of the Silk Road Initiative, although EU taxpayers pay more than four-fifths of it, while China only provides the construction company.
Despite its little practical importance, western EU politicians see the association as a threat. The Warner cite the case of Greece as evidence. After the takeover of Piraeus, “this member state” “did not agree with the rest of the Union to a declaration on human rights in China” in June 2017, complained about Trade Commissioner Cecilia Malmström. "That undermines European unity."
No other EU country is more dependent on China than Germany
But it is by no means that clear, explains the Greek Foreign Minister at the time, Nikos Kotzias. He only demanded that all serious human rights violations be named, including those in Pakistan and Saudi Arabia. But that did not happen in 2017. That is why he used his veto. “It wasn't about China, but about double standards,” assures Kotzias. A year later, the EU Commission also mentioned the breaches of law in Pakistan. “And we agreed again.” China's pressure on dependent Greece obviously doesn't go that far.
When the Italian government signed a “Memorandum of Understanding” with China in March, hoping for the same upswing for the ports and construction industry as in Piraeus, Foreign Minister Heiko Maas warned against a “bitter aftertaste. If some countries believe they are doing smart business with China, one day they will wake up and become dependent. "
But that sounds cheap, especially from a German mouth. No other EU country is more dependent on China than Germany. The new superpower in Asia has long been the largest trading partner. On average, BMW, Daimler-Benz and VW sell a third of their cars there, more than in any other country. At the same time, they are intertwined with Chinese companies, above all Daimler-Benz, where the private car company Geely and its state competitor BAIC have two of the three largest shareholders.
The governments meet every two years for consultations
And nobody is more closely integrated with China than the Germans. The Federal Government alone maintains 70 “dialogue forums” with partner institutions in China. Every two years, the governments meet for consultations, which always end in new large contracts. Chancellor Merkel has just returned from her twelfth state visit to Beijing, during which the top managers traveling with companies such as Airbus, Siemens and Allianz again concluded eleven cooperation agreements worth billions.
But that is where the real risk lies. The growing dependence on China's huge market is far more likely to be blackmailed than China's investments in Europe. Even Jörg Wuttke, President of the European Chamber of Commerce in China and who has been doing business with the one-party state for BASF for 22 years, warns: "The Chinese are unscrupulous in using their economic power to exert political influence."
The managers at Daimler, for example, felt this in February 2018. A marketing employee dared to adorn a Mercedes advertisement on Instagram with a quote from the Dalai Lama. "Look at the situation from all sides and you will become more open," the author advised the readers, but from the point of view of the Beijing rulers, the mere mention of the "separatist" is a crime.
Chinese shit storm against Daimler
A shit storm raged within hours and the people's newspaper, the party's mouthpiece, declared Daimler an “enemy of the people”. The Daimler board of directors immediately called the harmless motto "an extremely wrong message" and Dieter Zetsche, until recently CEO, declared that he "deeply regrets the suffering that the insensitive mistake brought to the Chinese people".
The camera manufacturer Leica had a similar experience. A PR film produced on behalf of the company advertised world-famous photographs, including those of the lonely demonstrator who opposed the tanks on Tiananmen Square in Beijing in 1989.
Europe's governments also submit indirectly
The nationally directed protest against this also arose promptly, and the company had to publicly regret “any misunderstandings or wrong conclusions that were drawn”. VW boss Herbert Diess even made a fool of himself in front of the camera for the satisfaction of the Chinese gentlemen. When a BBC reporter asked him in April how he could run a factory in Xinjiang, where the regime of party dictator Xi is holding more than a million Uyghurs imprisoned for their Muslim beliefs, he unceremoniously claimed “I don't know about that”.
Europe's governments also submit indirectly. In the past, the Dalai Lama, as the spiritual leader of the Tibetans colonized by China, was a welcome guest in all capital cities, despite harsh criticism from Beijing. That has changed radically. Since 2016, no European head of state has dared to shake hands with the famous Buddhist.
So it is no wonder that the common China policy of the Europeans has not progressed very far. In a first step, all member states committed themselves in April to reporting direct investments from non-EU countries to the EU Commission. But she didn't want to commit herself to clear rules for possible bans. The Commission can only advise, not intervene.
Europeans cannot get into China's state-owned company
If it were up to the Brussels commissioners, then the EU would also act tough against European investors in China being subject to narrower limits than the other way around. The Chinese government is still blocking 13 economic sectors from agricultural production to flight operations for foreign companies.
In addition, Europeans cannot get into state-owned companies, while conversely the predominantly private companies in Europe are open. That is why the Commission has been negotiating an investment agreement with China since 2014. But not much has happened yet because the Chinese also feel they have been treated unfairly. “It is clear to us what is allowed and what is not,” says business diplomat Wang.
The dispute over the telecom manufacturer Huawei is exemplary
In Germany, on the other hand, “it just looks like all sectors are open. In reality, the officials can forbid anything as they see fit. ”That is why there are many projects that fail because the ministry does not grant approval for months. "It's also a way of blocking China's businesses," Wang complains.
The EU follows the interests of its members in a serpentine way. But that can't go well for much longer. Because at the same time the economic war between the old superpower in the west and the new one in the east is escalating. And Europe threatens to become a battlefield.
The dispute over the telecom manufacturer Huawei is exemplary. This is the first Chinese company to become the world market leader in its sector. In Germany alone, Huawei contributes 2.4 billion euros in sales and 28,000 jobs to the German economy, according to a study by the German Institute for Economic Research.
US government threatens European high-tech suppliers
But that is exactly what the Trump administration does not want to allow and demands that all business with the coveted supplier be stopped. Poland and the Czech Republic have already followed suit, but in France and Germany telecom operators are allowed to continue working with Huawei after official reviews. In the next step, the US government threatened Huawei's European high-tech suppliers with blocking the US market.
The British chip designer ARM had to give up its billion dollar business with Huawei. But what would happen if the US government expanded that into other industries as well? How will Europe react if China, on the other hand, demands compliance with the treaty and thus a break with the USA?
The economists Jean Pisani-Ferry, advisor to President Macron, and Guntram Wolff, head of the leading Brussels think tank Bruegel, wrote a memo for the future EU Commission. A “decoupling” of the EU economy is “not in Europe's interest”, they warn. "The central task of the EU will therefore be to defend its economic independence and at the same time to remain closely linked to both the USA and China." That could only succeed, if at all, if all EU states pull together . Time is running out for this.
Investigate Europe is a team of journalists from nine countries that research topics of European relevance and publish the results across Europe. Donations from readers are an important contribution to financing the work. The project is supported by the Schöpflin Foundation, the Rudolf Augstein Foundation, the Hübner & Kennedy Foundation, the Fritt-Ord Foundation, the Open Society Initiative for Europe, the Gulbenkian Foundation, the Cariplo Foundation and private donors. In addition to Tagesspiegel, the media partners for researching Chinese investments include “Aftenbladet”, “Diário de Noticias”, “De Groene Amsterdammer”, “Il Fatto Quotidiano”, “Mediapart”, “Republic”, “Trends” and "Gazeta Wyborcza". In addition to the authors, Wojciech Ciesla, Ingeborg Eliassen, Juliet Ferguson, Nikolas Leontopoulos, Maria Maggiore, Leila Minano, Paulo Pena, Jordan Pouille and Jef Portmans were involved. More about the project at: www.investigate-europe.eu
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