While Europe’s sovereign debt crisis may have shaken the euro and exposed fissures in the European Union, one country’s hand in the region has been strengthened: China’s. It has converted Europe’s crisis into an opportunity to extend Beijing’s clout in the region.
As matters came to a head in the first half of the year, with Greece within a hair’s breath of defaulting on its voluminous debt, the EU was a divided entity. Germany, the region’s most prosperous nation, proved reluctant to aid its southern cousin. It took months of wrangling before Brussels was able to offer a bailout package of substance to aid Athens.
But in June, only hours after credit agency Moody’s downgraded Greece’s credit rating to junk, it was China that held out a financial lifeline, in the form of a multibillion euro investment package. While signing the deal, Chinese vice premier Zhang Dejiang gave the eurozone’s weakest link a public vote of confidence, declaring Beijing’s belief in Athens’ ability to overcome its fiscal problems, an announcement that moved markets positively, following weeks of turmoil.
Under the agreement, Chinese company Cosco undertook the construction of up to 15 dry bulk carriers in Greece. It had already taken over the cargo management at Piraeus, the eastern Mediterranean's premier dockyard, on a 35-year concession worth $1billion last year, despite heated opposition from trade unions. Other than shipping, tourism and telecommunication were the main sectors included in the deal.
At the time, Greek deputy prime minister Theodoros Pangalos praised China in an interview, echoing sentiments often expressed by African nations indebted to Beijing. “They are not like these Wall Street people, pushing financial investments on paper. The Chinese deal in real things, in merchandise. And, they will help the real economy in Greece,” he said.
A month later, as fears of the Greek contagion spreading to Spain gathered momentum, the Chinese once again stepped in, buying ¤400 million of Spanish bonds. Last month, Spanish Prime Minister Jose Luis Rodriguez Zapatero, while on a trip to China, said he hoped the Chinese would continue to increase their holdings of Spanish government debt.
It’s not only debt-laden southern European countries that find themselves beholden to Beijing. Even power house Germany’s continued economic buoyancy owes much to its exports to China. Jonathan Holslag, research fellow at the Brussels Institute of Contemporary China Studies, notes that Germany’s economic recovery over the past year is due in substantial part to its exports of cars and advanced machinery to China.
Twin strategy
Holslag says China’s “charm offensive” is two-pronged. Their gestures of goodwill help to bolster the euro. And, private and state-owned Chinese companies are using the current crisis in Europe as an opening to secure interesting deals and access to technological know-how. Examples include the $1.8 billion acquisition in March by Chinese car maker Geely of Ford’s ailing Volvo unit.
Access to technology is also increasingly being built into deals struck by Chinese corporations. For example, the Greek package included an exchange of know-how between China's Huawei Technologies and OTE, the Greek telecom organisation.
While the commercial interest behind companies capitalising on the European downturn is clear, reasons for the Chinese government’s “goodwill” gestures are murkier. Holslag believes Beijing is motivated by the desire to ward off creeping protectionism in Europe, thus ensuring its most important export market remains open. In July, when German chancellor Angela Merkel visited Beijing, Chinese Premier Wen Jiabao was explicit in making the connection.
“The European market has been in the past, is now and will be in the future, one of the main investment markets for China’s foreign exchange reserves,” he pledged, his words given depth by the fact that at $2,450 billion, China’s stockpile of forex reserves is the largest in the world. “At this time, when some European countries are suffering sovereign debt crises, China has always held out a helping hand.”
In return, Merkel made a joint statement with Wen, vowing to oppose protectionism in Europe.
Payoffs
There are other pluses for Beijing from its increasing influence. Chinese demands for the lifting of an arms embargo have been already publicly backed by Spain. Holslag believes with Beijing’s new leverage with certain EU member-states, backing for this and other issues like the granting of market economy status to China will intensify.
More, strong public support for the euro is a smart political move at a time when China’s exchange rate policy is still vulnerable to international criticism.
Economic clout can translate into greater political influence, a lesson the Chinese know well and apply in their diplomacy across the world. Europe’s economic woes have opened room for these techniques to be used within the EU.
For Holslag, the outcome of Chinese efforts remain in the balance. “There is growing concern in Europe over Chinese assertiveness but there is also increasing restraint in acting against Chinese interests,” he concludes.
In sum, the region’s economic fragility has allowed the Chinese government to project itself as a benevolent supporter of the euro, even as it acquires strategic leverage and Chinese companies sniff profitable deals. The kind of win-win situation that Beijing is partial to.
