European Crisis Is Chinese Opportunity

Jun 30 2010

By Antonaeta Becker

LONDON, Jun 30, 2010 (IPS) – When China designed the 2010 Universal Expo in Shanghai as a showcase for its new public diplomacy, it probably did not envision the exhibition will play a much bigger role as a magnet for recession-hit European businesses.

Successions of trade missions from Europe have travelled to Shanghai in the past two months, wooing Chinese investors in attempt to boost their weakened economies.

The Belgian trade mission was among the first to visit, hoping to persuade Chinese car manufacturer Geely to add beleaguered Opel Antwerp to its collection of European acquisitions such as Volvo and the London black cab.

Then Greek Economy Minister Louka Katseli used the Expo to hail China’s commitment to inject billions of dollars into the country’s debt-ridden economy and to invite Chinese companies to set up businesses in Greece. Earlier, Romanian business envoys discussed with Chinese bankers and investors a series of projects to allow Chinese money to flow in and buoy up the country’s struggling industries.

“If China had wanted to go into Greece in such a big way before, Greek politicians and the public may have objected, using the pretext of these standards and those requirements but because of the sovereign debt crisis the situation has changed,” says Lu Feng, researcher with the National School of Development at Beijing University. “The European crisis has brought some definite opportunities for Chinese investors.”

Beijing’s response has been quick and bold. Chinese Vice-Premier Zhang Dejiang signed 14 deals worth several billion euros during his visit to Athens earlier this month. The investment package, reportedly the biggest by China in Europe, will enable Chinese corporations to secure controlling stakes in major telecommunications, real estate and shipping organisations.

China’s aggressive foray came at the same time as credit rating agencies were downgrading Greek bonds to junk status. Commerce minister Chen Deming, however, said Beijing will encourage Chinese companies to invest in Greece.

Cosco, China’s powerful shipping group, has pledged to proceed with plans to build a new container-handling terminal at Piraeus port – Greece’s biggest. The company intends to turn Piraeus into a regional entry hub for Chinese goods and commodities.

“This is a strategic investment on our part and the sovereign debt crisis will not affect the project,” Wei Jiafu, president of Cosco told China’s 21st Century Business Herald newspaper.

Initial fears that the European crisis may give rise to protectionist sentiments in some of the affected countries have not materialised. Greece is not the only EU member looking to tap Chinese money to bolster its economy. Ireland’s business community is said to be working on obtaining an approval for a 50 million euros project to create a Chinese manufacturing hub in Athlone, central Ireland.

The attractions for Chinese investors in the Athlone project are numerous. A manufacturing centre operated inside the euro zone will bypass a range of tariffs and quotas levied by the EU on imported Chinese goods while benefiting from a developed infrastructure network and low corporate tax rates.

While the sovereign debt crisis has triggered a plunge in the value of the euro, which has made Chinese exports to the zone more expensive, it has also brought some advantages to investors.

“The slide of the euro has slashed business operation costs in Europe and has made investing there much more attractive to Chinese businesses,” says Zhou Jizhong, professor at the Shanghai University of Finance.

Before the crisis China has made only modest investments in European states. “They (the Chinese) feared the business environment here is too hostile and that there are too many regulatory aspects they are not familiar with,” says Duncan Freeman, senior research fellow at the Brussels Institute of Contemporary China Studies. “They have had some spectacular failures before as with TCL’s takeover of French electronics firm Thomson, which went bankrupt.”

Individual Chinese businesses have been coy making inroads into European markets, preferring to enter under the umbrella of bigger economic entities. The Shanghai economic partnership with Hamburg has been one of the few successful examples of Chinese investment in Europe on a larger scale.

Chinese mergers and acquisitions in Europe have grown in proportion with the rise of Chinese investments globally. In 2010 Chinese investments into foreign companies are projected to exceed 35 billion dollars, driven by big purchases within the resource sector.

In March 13-year-old Chinese carmaker Geely paid 1.8 billion dollars for Ford’s ailing Volvo unit. The deal was the largest acquisition of an overseas carmaker by a Chinese company and the first time China had acquired a major luxury brand.

In Sweden – Volvo’s homeland, – the acquisition triggered some negative comments in the media about China encroaching on European icons, but it did not stop the Belgians from courting (unsuccessfully) Chinese investment to rescue Opel Antwerp.

Chinese observers believe that by deploying hard currency to buy assets in depressed European markets China is getting more than just favourable deals. They argue China is setting an example of a responsible global player helping Europe ride out the crisis through its increased consumption of European goods.

The plunge in the euro has made European goods cheaper in China, resulting in a jump in EU exports to China. In the first quarter of 2010 European exports to China grew 47.3 percent, reversing a long-standing trend of soaring imports from China.

“We have not been sitting idly as the crisis in Europe has unfolded,” says Lu Feng. “We have bought more cars from Germany and more goods from other European countries. We have created a much needed demand for Europe.” (END)

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