Have you ever done business with the Chinese
The dreaded partner
The promise from the Far East usually reaches Germany at night. Almost endless container trains with Chinese characters arrive at their final destination on the banks of the Rhine in Duisburg after a journey of 11,000 kilometers. Countless trucks and ships are available there to distribute all kinds of Chinese goods to the surrounding countries, from the latest smartphone models to chic swimwear.
The spectacle is repeated around 30 times a week and gives the freight yard in Duisburg's 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 a hundred 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 seabed. Soon they will be carrying a two and a half kilometer bridge to connect the mainland and the exclave of Dubrovnik, which have been separated since the war in Yugoslavia.
The 200 or more Chinese workers flown in work around the clock and “do it very well,” praised the head of the district government. Above all, they are cheap; 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 ranges in Europe 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 totaling more than nine billion euros are now making Portugal a “strategic partner”, said China's ambassador in Lisbon.
I - China is everywhere
This is how it works across Europe. Railway lines and highways, ports and power grids, mechanical engineering and the automotive industry, tourism and finance - in all of these sectors, Chinese companies are buying into the European economy. They have invested well over 300 billion euros here since 2009.
China is everywhere and that creates fear. “The voracious Chinese dragon” divides Europe, “that's why we have to be afraid”, wrote the Bild newspaper. China's "huge overseas investment gives it a keen power," which it uses to "silence critics," the Economist warned. 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.
For the first time last March, the EU governments stated that China was “both a partner” and a “systemic rival”. The strategy paper signals that Europe is beginning to fear that it will become dependent on the party dictators in Beijing with the billions from China and that it will ultimately sell its economic power.
The main results of the research
But is the Chinese investment plan really a threat to Europe's prosperity? Does the economic entanglement harbor the risk of making common cause with the authoritarian regime in Beijing? The Investigate Europe team investigated these questions and came across surprising answers:
- China's economic foray into Europe has brought growth and jobs to companies from Norway to Greece and is in most cases welcomed by workers too, with no evidence of economic damage so far;
- However, China's rulers use their economic power to suppress criticism of their repression of minorities and dissidents, forcing managers of dependent companies such as Daimler-Benz into political submission;
- The EU wants to prevent the sale of critical infrastructure to China's state-owned corporations, but the governments of the euro states have forced this themselves in the crisis countries beforehand; therefore the EU cannot agree on a common line;
- Europe is so dependent on the Chinese market that foreclosure like the one the US government is aiming for would be priceless. America's economic war against China threatens to divide Europe.
Investments from China have long been seen as 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.
With its rapid rise, however, 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.
II - Unlimited financial power
II - Unlimited financial power
The fears that this triggers first 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 if they have transferred enough technology,” warned Michael Clauss, the German ambassador in Beijing at the time.
But the "fear of selling out" of European industry to China, as the Frankfurter Allgemeine wrote, ignores what is actually happening. Since the deal with Kuka, investors from China have bought more than 160 other European companies for prices ranging from more than $ 100 million to $ 43 billion.
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 the sale. In addition, Chinese investors “generally adhere to the laws and collective bargaining agreements,” says Rudolf Luz, who, as head of the company policy department at IG Metall, knows the European industrial landscape very well.
Interactive: China's major investments in Europe
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.
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.
Rescue for the "Prada of the tire industry"
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."
Frank Stieler, 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," said Stieler Investigate Europe. Four new plants are being planned and built, three of them in Germany. 800 new jobs have already been created.
"Everyone wanted the fillet piece"
ChemChina landed the biggest coup in Switzerland. There, in 2015, the chemical companies fought a bidding war to take over the agrochemicals company 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.
But that is exactly what scares Europe's business leaders. "With the treasury behind them, the Chinese corporations have unlimited financial power, which is not fair competition," complains a leading official in the EU industry lobby. Ironically, the German industry association BDI, whose members are closely connected to China, warned in January against the “Chinese model of an economy with a strong state influence”. "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 have more opportunities to examine takeovers and, if necessary, to prevent them ”. But how this is to be done is completely unclear.
In addition, the fear of subsidy doping is based on mere assumptions. When asked, a spokeswoman for Minister Peter Altmaier said, “The federal government does not have any information on the influence of state subsidies on the investment activity of Chinese companies abroad.” In other words, nothing is known.
Subsidy doping or misunderstanding?
Wang is not surprised, Weidong is not. China's leading economic diplomat in Europe resides in the former SED quarter on Majakowskiring 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 acquisitions of state-owned companies abroad,” he assures. ChemChina also financed its purchases “not only with loans from the state banks, but also from the international capital market on commercial terms.” In addition, the interest rates “in China are even higher 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.
Beijing uses the domestic capital market
This coincides with the research results of the Chinese economist Shuwen Bian, who conducts research at the University of Kassel. She looked into the financing of 166 takeovers in Germany. To this end, the companies involved, above all listed companies, have financed their acquisitions mostly through private and state investment funds. The treasury is then involved, but as a partner.
The aim is to increase the market value of the parent companies in China with the company takeovers abroad. The funds, including the state ones, would usually sell their holdings again later at a higher value. In this respect, the government is “making use of the domestic capital market”, says Bian, “but it is not a subsidy in the classic sense”. The fact that the accusation still holds up can be attributed to the Chinese corporations. None of the Chinese state-owned companies asked was ready to ask critical questions.
So is it just the normal business that European and American companies have always done? Critics like the economist Max Zenglein from the Berlin Mercator Institute for China Studies (Merics) disagree. He believes that “Germany is too willingly strengthening China's innovation offensive through numerous partnerships in business and research.” The actors “neglect the risk of undesirable technology and know-how transfer in areas that are crucial for the progress of their own industries ", He writes and warns:" This could directly damage Germany's economic foundations. "
"Globalization is not a zero-sum game"
But he cannot explain exactly how this should work. Economically, a decline in European industry would not be in China's interest because the EU is its largest trading partner, says economic diplomat Wang. That is why this fear “has nothing to do with reality.” Of course there is 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.
Krauss Maffei boss Stieler 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 and defend our position," he explains the commitment to China his and many other European companies. He therefore “does not share the Merics Institute's assessment,” Stieler told IE. “Isolation and obstacles to free market access” are “especially dangerous for Germany as an export nation”.
III - Sale on the Mediterranean
III - Sale on the Mediterranean
As contradictory as this debate is, the policy of the EU states in dealing with their economic partner China is also contradicting itself. Nowhere is this more evident than in the crisis countries Portugal and Greece. Since 2011, the other euro states have been compelling the governments to sell their state property as quickly as possible, to whom. But European investors were either not interested or offered little.
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 is really ironic, we were forced to privatize according to the logic of the market economy and finally sold to companies of state capitalism," comments the 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 container cranes, Europe is now as Chinese as nowhere else.
The "privatization" of Piraeus - a bizarre business
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 by the managers sent from China.
Based on the third largest container fleet in the world belonging to the same company, Piraeus has since grown from a run-down provincial port to become the second largest transshipment point in the Mediterranean. According to its own information, the port company contributed $ 337 million to the Greek economy last year and created 3,100 jobs.
Critical infrastructure in Chinese hands
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. Initially, this only follows economic logic. The "maritime ambitions reflect the role of China as the world's largest exporter, which wants to secure access to the infrastructure and resources that it absolutely needs for its development," wrote the Global Times, the foreign magazine of the Beijing government.
"This means that Europe is losing some of its 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 don't care about sovereignty when Cosco promises sales and investment. Beyond all geostrategy, they are engaged in fierce competition for the favor of investors from China.
Franck Dhersin, port manager in Dunkirk, France, who also does business with China Merchant, can tell about this. "In France there is a fierce rivalry between the various ports to attract more Chinese containers," he says. "All port operators organize promotional trips to China in order to build partnerships there, I have just come from Shanghai myself."
At the same time, the cities compete for the associated industrial settlements. This summer, the city of Marseille put 6.5 million euros in subsidies on the table to persuade a 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."
China fills Europe's investment gap
And not just between the ports. The same is happening across Europe at all levels. Regardless of whether it is a district town or a metropolis, a provincial government or heads of state, everyone is struggling with the same misery: There has been a lack of private and public 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, businesses, education and infrastructure still hasn't even reached 2008 levels. But that makes the billions from China all the more tempting and puts the Europeans in a position against each other.
IV - Between fear and business
IV - Between fear and business
The intra-European dispute over China's “Silk Road” program (BRI) reveals the strategic dilemma between fear and business in dealing with the rising superpower. The Xi government is pumping around 1,000 billion dollars into the construction of transport routes around the world beyond American control. Above all, the countries in Eastern and Central Europe rely on this. They founded the group "16 plus 1", expanded to 17 + 1 with the accession of Greece, at whose annual conferences China's rulers like to announce major projects.
This is a hodgepodge of power plants, motorways and railways, mostly outside the EU. Among the EU states, only Hungary has so far landed a notable project: a railway line from Budapest to Belgrade and later to Piraeus financed with Chinese loans is intended to give Europe’s trade with China further, quick access. In the absence of other flagship projects, the Silk Road strategists also declared the EUR 357 million bridge construction in Croatia to be part of the program, although EU taxpayers pay four fifths of it through the regional fund, while China only provides the construction company.
Despite this rather modest practical meaning of “17 + 1”, Western EU politicians see the association as a political threat. The Warner always cite the case of Greece as evidence of this. 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".
The dispute over the Greek veto
But it is by no means that clear, explains the Greek Foreign Minister at the time, Nikos Kotzias. Greece has always agreed to the annual EU declaration at the UN Human Rights Council that is critical of China. In 2016, he then demanded that all serious violations be named, including those in Pakistan and Saudi Arabia, recalls Kotzias. A year later, however, this did not happen again, "because the large EU countries instrumentalize human rights where they pursue their own politics". That is why he vetoed it in 2017.
“It was not about China, but about double standards,” assures the ex-minister. A year later, the EU Commission named the breaches of law in Pakistan and other countries, "and we agreed again". China's pressure on dependent Greece does not seem to go that far.
When the Italian government signed a “Memorandum of Understanding” with China in March, hoping for the same upswing for its ports as in Piraeus, Foreign Minister Heiko Maas warned against “a bitter aftertaste”. If some countries believe that they are doing smart business with China, one day they will wake up and become addicted ”.
No country is more dependent than Germany
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 most important trading partner of all. The DAX 30 groups generate 15 percent of their sales with China. Volkswagen, BMW and Daimler-Benz sell around a third of their cars there, more than in any other country.
At the same time, all car companies are also 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. And nobody is more closely integrated with China than the Germans. The Federal Government alone maintains 70 “dialogue forums” with partner institutions in China. The two governments meet every two years for extensive consultations, which always end in large new treaties. 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 once again concluded eleven billion-dollar cooperation agreements.
But that is the real risk. The growing dependence on China's huge market makes it far more vulnerable to blackmail than China's investments in European factories, ports and financial companies. Even Jörg Wuttke, President of the European Chamber of Commerce in Beijing and who has been doing business with the one-party state for BASF for 22 years, warns: "The Chinese are ruthlessly using their economic power to exert political influence."
"Enemy of the people" Daimler-Benz
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. Within hours, a shit storm rose on the country's social media and the people's newspaper, the party's mouthpiece, declared Daimler an “enemy of the people”. Immediately the Daimler board of directors had to crawl and called the harmless motto “an extremely wrong message” Dieter Zetsche, until recently CEO, stated in a personal letter, “I deeply regret the suffering and grief caused by the negligent and insensitive error brought over the Chinese people ”.
The camera manufacturer Leica had a similar experience last April. A promotional film commissioned by the company featured world-famous photographs, including the one of the lone fighter who opposed the tanks on Tiananmen Square in Beijing in 1989 that crushed the peaceful protest. The national protest arose promptly against this, and the company was forced to “distance itself from the content” and regretted “any misunderstandings or wrong conclusions that were drawn”.
VW boss serves China
Such experiences create anticipatory obedience. VW boss Herbert Diess even made a fool of himself in front of the camera. When a BBC reporter asked him in April how he could run a factory in Xinjiang, where the regime of party dictator Xi is imprisoning more than a million Uyghurs in so-called re-education camps because of their Muslim beliefs, he simply 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.
Against this background, the Eastern Europeans cannot be blamed for their cuddling course with Beijing, says the green MEP Reinhard Bütikofer, who is known as a China critic. The western countries have been doing big business for years, "and the others also want a piece of the pie".
Europe's China policy runs in serpentine lines
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 to reporting direct investments from non-EU countries to the EU Commission since April of this year. But there was no majority for clear rules for possible bans. It is only legally required to check investments for possible security or economic risks in twelve of the 28 EU countries, and the Commission has no powers to intervene, but is only allowed to advise.
If it were up to the Brussels commissioners, the EU would also act tough against European investors in China being subject to stricter limits than the other way around. The Chinese government is still excluding foreign companies in 13 economic sectors from agricultural production to flight operations or is calling for a Chinese majority stake. Above all, however, the Europeans cannot get into the numerous state-owned companies to which, conversely, the predominantly private companies in Europe are open. That is why the Commission has been negotiating an investment agreement with the Chinese government since 2014.
The Chinese also feel they have been treated unfairly
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. 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 of Economic Affairs does not issue a permit for many months. "It's also a way of blocking China's businesses," Wang complains.
At the same time, the EU Commission is also calling for a “level playing field” on the market for government contracts. As the bridge construction in Croatia shows, China's construction giants in the EU can outperform their European competitors, while it is "very difficult for EU companies to get access to government contracts in China", says the latest EU strategy paper on China.
On the other hand, the Commission is calling for a "procurement instrument" with which it can lock out the Chinese if they do not give EU companies the same rights. But at the first attempt in 2017, 17 EU governments turned against it, including the German one. It is questionable whether the new attempt announced by the commissioners will soon be successful.
Europe becomes a battlefield in the economic war
So the EU follows the economic interests of its members in a serpentine way here and there. 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 be the world market leader in its sector and to play a major role in Europe. In Germany alone, Huawei contributes 2.4 billion euros and 28,000 jobs to the German economy, according to a study by DIW. But that is exactly what the Trump administration does not want to allow, and is calling on its allies to cease all business with the coveted supplier.
Poland and the Czech Republic have already followed suit, but the governments in France and Germany want to keep control themselves and continue to work with Huawei after a technical review. But in the next step, the US government threatened Huawei's European high-tech suppliers with blocking the US market, and the British chip designer ARM had to give up its billion-dollar deal with Huawei.
What if China demands a break with the US?
But what would happen if the US government extended this struggle for supremacy to other industries? How will Europe react if China, conversely, demands compliance with the World Trade Organization treaties and thus a break with the USA?
The economists Jean Pisani-Ferry, advisor to President Macron, and Guntram Wolff, head of the Brussels think tank Bruegel, wrote a “memo” for the future EU Commission. A “decoupling” of the EU economy could “not be in Europe's interest”, they warn. "The central task of the EU will therefore be to defend its economic independence, while at the same time remaining closely linked to both the USA and China."
But this 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 jointly research topics of European relevance and publish the results across Europe.
Donations from readers are an important contribution that makes the work possible. The project is supported by the Schöpflin Foundation, the Rudolf Augstein Foundation, the Hübner & Kennedy Foundation, the Norwegian Fritt-Ord Foundation, the Open Society Initiative for Europe, the Portuguese Gulbenkian Foundation, the Italian Cariplo Foundation and private Supported donors.
The media partners for research on Chinese investments include Tagesspiegel, “Aftenbladet”, “Diário de Noticias”, “De Groene Amsterdammer”, “Il Fatto Quotidiano”, “Mediapart”, “Republic”, “Trends” and “Gazeta” Wyborcza ”. More about the project at www.investigate-europe.eu
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