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Looking for Investments, China Turns to Europe

When Prime Minister Wen Jiabao of China visited Athens last month, he came bearing gifts: billions of dollars worth of business deals and a wave of favorable attention from a crucial foreign investor.

China's Premier Wen Jiabao and Greek Prime Minister George Papandreou.
Louisa Gouliamaki | AFP | Getty Images
China's Premier Wen Jiabao and Greek Prime Minister George Papandreou.

“The support of our Chinese friends is fortunate for us,” Greece’s minister of state, Haris Pamboukis, said by telephone.

But China had much greater ambitions. Greece is one foothold for China’s broad, strategic push into Europe. It is snapping up assets depressed by the global financial crisis and becoming a significant partner of other hard-hit European nations.

Ultimately, analysts say, Beijing hopes to achieve not just more business for its own companies, but also greater influence over the economic policies set in the power corridors of Brussels and Germany.

“They are indicating a willingness to stick their nose into Europe’s business,” said Carl B. Weinberg, chief economist of High Frequency Economics.

“It’s very clever and sends a clear message,” he added, “that China is a force to be contended with.”

That message will be reinforced by a visit this week by China’s president, Hu Jintao, who is scheduled to meet with top officials and business executives of Portugal and France.

Europe’s financial crisis this year has created buying opportunities for cash-rich investors, including secretive hedge funds and Qatar, the natural gas giant of the Persian Gulf that recently agreed to invest $5 billion in Greece. But China is leading the charge. It is singling out Greek, Spanish and other downgraded government debt, as well as ports, highways and industries in troubled countries on Europe’s eastern and southern edges.

Ireland and Hungary, among others, are also competing to lure Chinese investments, in the hopes that they will create thousands of new jobs.

“What is happening is that the Chinese are expanding in Europe as they did in Africa,” said François Godement, a senior policy fellow of the European Council on Foreign Relations. “But in Europe, they’re coming in through countries on the periphery, which is extraordinary.”

China is concentrating its efforts on ports in Greece and Italy and highways that link Eastern Europe to Germany and Turkey, and aims to secure larger infrastructure investments over time. It has provided billions of dollars in state financing for key public works projects that support Chinese state-owned companies and Chinese workers.

Such moves could give China a bigger presence in the European chain of distribution and production, while allowing it to build a track record of investments that it hopes will also encourage Europe to support its position on divisive currency issues and in trade disputes at the World Trade Organization.

During his recent European tour, Mr. Wen reminded politicians in Brussels that China had acted as “a friend” to Greece, Spain, Italy and other troubled European countries in their darkest hour by buying bonds as other investors fled. In return, he admonished regional leaders not to “pressure China on the yuan’s appreciation,” referring to the Chinese currency, formally called the renminbi.

In the past several months, China has pledged to buy Greek bonds when the government starts selling again, and purchased $625 million in Spanish debt. On his visit, Mr. Wen hailed scores of business deals in Italy and Greece, including one that allows a Chinese state firm to run Greece’s top shipping port — one of the largest European gateways for Chinese goods.

For China, plowing a small but growing share of its more than $2.3 trillion in foreign currency reserves into European investments instead of low-yielding United States Treasury bills helps diversify its portfolio. Beijing also hopes that this kind of push helps reduce the international political pressure to raise the value of its currency.

“It’s not a coincidence that China is doing this,” said Jens Bastian, an economist at the Hellenic Foundation for European and Foreign Policy. “They have huge currency reserves, and these countries where they are going right now have a dying need for foreign investment.”

While Chinese foreign direct investment in Europe is still small compared with its investments in other regions, it has grown quickly over the past two years. And this spring Europe overtook the United States as China’s largest trading partner.

Struggling Ireland is also looking for a piece of the action, and moves are afoot to create an “investment gateway to Europe” for China in the town of Athlone, which hopes for the creation of thousands of jobs. Prime Minister Brian Cowen of Ireland said in June that China had vowed to be “as helpful as they can to a friend like Ireland in the difficult times that we have.”

The investments also allow Beijing to advance the interests of Chinese companies as they go global. Mr. Wen last month talked up a $4.5 billion credit line that troubled Greek shipbuilders could tap — but almost exclusively to purchase Chinese-made ships. An additional $5 billion is flowing to Greek coffers from China’s state-run Cosco shipping company, which is leasing Piraeus, the port of Athens, to transform it from Europe’s largest passenger port to a much bigger hub for cargo, with aims to more than double traffic to 3.7 million containers in 2015.

In Italy, Cosco is expanding the port of Naples, while HNA, a logistics, transportation and tourism group based in Hainan Province, China, is in talks to build a giant air terminal north of Rome for cargo arriving from China. Mr. Wen pledged an additional $100 billion in trade with Italy through 2015 and heralded 10 business deals between Chinese and Italian businesses.

Some of China’s investments have already raised eyebrows. Last year, China outbid European companies to build a highway in Poland using a Chinese business and workers — with European subsidies — prompting Chancellor Angela Merkel of Germany to call for reciprocity.

In the coming decade, Europe will be considering numerous new projects, such as clearing the Danube River of wartime ordnance to use it as a transportation passageway; building railways between countries like Germany and Macedonia; and carving new highways from Germany to Turkey, Mr. Bastian said.

“What Europe lacks is a transportation infrastructure network where Western and Eastern Europe meet,” he said. “This is where China is trying to take advantage of their current buildup.”

Still, for all the fears of ulterior motives on China’s part, many Europeans welcome the investment with open arms. China is mainly interested in promoting trade and making money, said Mr. Pamboukis, the Greek minister of state.

China’s investment strategy in Europe is “discreet and well thought-out,” he said. “I don’t think China is coming in here as a Trojan Horse.”

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