China is taking over Europe. While British companies hope to sign deals worth £1 billion during Chinese Premier Wen Jiabao’s three day UK visit, as well as securing greater access for their exports to China, Chinese firms are already buying up the old continent in three ways:
1. Bond diplomacy: China’s purchase of Spanish and Greek bonds over the past year, and yesterday’s promise to buy from Hungary, have made it a bilateral lender of last resort for politicians in indebted countries – with serious implications for Europe’s ability to present a united front to China on issues including trade reciprocity, climate change and human rights.
2. Direct investment: Five years ago, China’s total direct investment in Europe was $1.3 billion. So far in 2011, there have already been three deals that have exceeded that amount.
3. Europe’s open market for public procurement: While European companies are excluded from public procurement in China, European taxpayers are subsidising Chinese businesses that bid for European contracts.
In July, the European Council on Foreign Relations will release a new policy brief entitled "The Scramble for Europe", which will explore the extent and nature of China’s game-changing presence in Europe.
This expansion of China’s presence in Europe comes just as the EU was beginning to develop a tougher, more coordinated strategy towards China. But the effects of the economic crisis are already undermining Europe’s embryonic unity and making it much harder to implement this new approach.
In particular, if China becomes a major financial, investment and public provider for Europe, it will leave the Europeans little leverage to improve their own access to these very same sectors in China, which are mostly closed or controlled. In short, as Europeans compete with each other for Chinese business, they diminish their leverage and thus reduce their chances of collectively striking a better deal with China.
In "The Scramble for Europe", the authors will argue that Europeans should not blame China for taking the opportunity to expand its economic foothold inside Europe and leverage its financial and commercial influence with cash-strapped member states. But they should push for decisive steps to develop their own capacity to coordinate their interests in order to meet this challenge from China.
They should leverage the EU’s internal market to improve access in China, harnessing China’s surplus financial resources for mutual benefit, improving Europe’s level of unity instead of enlarging divisions. If they don’t, they risk facing a version of the prisoner’s dilemma, in which each member state will strike its own private deals and in the process undercut any possibility of a common policy towards China.
The authors are available for comment now on the brief’s key findings, Wen’s visit and related issues.
- contact to request a copy of the full brief when it is published
Selected key facts: