Category Archives: China

Dec 2015

More than ever, all roads lead to Rome

As China’s Belt and Road Initiative unfolds, Rome has a pivotal role to play. In fact, the Mediterranean Sea, with Italy at its centre, sits at the end-point of the maritime Silk Road. Combining a land-based Silk Road Economic Belt and a sea-based 21st Century Maritime Silk Road, which connects China to Europe through Southeast Asia, Central Asia and the Middle East, the Belt and Road Initiative aims to boost connectivity and commerce between China and 65 countries traversed by this grand project.

China’s total financial commitment to the project is expected to reach $1.4 trillion (1.3 trillion euros). Beijing has already committed about $300 billion for infrastructure loans and trade financing in the coming years, a sum that includes a $40 billion contribution to the Silk Road Fund for infrastructure development and the $50 billion initial capital (to be raised eventually to $100 billion) allocated to the China-initiated Asian Infrastructure Investment Bank. In March 2015, after the UK lead, Germany, France and Italy joined the bank as a founding member.

The People’s Bank of China, through the State Administration of Foreign Exchange, which manages foreign exchange reserves, has invested more than 3.5 billion euros ($3.9 billion) in stakes of about 2 percent each in 10 of Italy’s largest companies: These include Monte dei Paschi di Siena, Unicredit, Saipem, Mediobanca, Fiat Chrysler Automobiles, Telecom Italia, Prysmian, Assicurazioni Generali, ENEL and the state-controlled ENI (oil and gas operator). This has made the People’s Bank of China the 10th-largest investor in Italy’s stock exchange.

Chinese President Xi Jinping and Italy's Prime Minister Matteo Renzi shake hands

Chinese President Xi Jinping and Italy’s Prime Minister Matteo Renzi shake hands

Alongside the bank, Chinese state-owned enterprises have been active in the Italian market. For example, in May 2014 Shanghai Electric Group bought a 40 percent stake in the power engineering company Ansaldo Energia for 400 million euros. This was quickly followed by China’s State Grid’s acquisition of a 35 percent stake in the energy grid holding company CDP Reti for 2.1 billion euros.

In March 2015, China National Chemical Corp bought a stake of 16.9 percent in Pirelli, the world’s fifth-largest tire-maker, in a deal worth 7 billion euros. Beijing has so far invested more than 6.5 billion euros in listed companies on the Italian stock market, a sum that corresponds to about 10 percent of total Chinese investments in European stocks.

In the past 12 months, Italy has been the top destination in Europe for Chinese outbound investment, surpassing the UK. The ancient motto “All roads lead to Rome” has never rung more true.

An extended version of this article (written with Rita Fatiguso) was originally published in the China Daily Europe

Oct 2015

China’s forays into the West

China’s outbound direct investments increasingly target the countries touched by the One Belt, One Road (OBOR) initiative. This is China’s biggest diplomatic project in decades. It combines a land-based Silk Road economic belt and a sea-based 21st century maritime Silk Road, which connects China to Europe through Southeast Asia, Central Asia and the Middle East, covering 55 per cent of world GNP, 70 per cent of global population, and 75 per cent of known energy reserves.

A study by Grisons Peak, a London-based boutique investment bank, published in June shows that the majority of 67 overseas loan commitments made by China’s largest policy lenders – China Development Bank and the Export-Import Bank of China – have been in areas interested in the OBOR project since its launch in late 2013. Loans for infrastructure projects contribute to upgrading the Chinese economy at a time of domestic restructuring of various sectors – including heavy industries involved in building and maintenance of transport and energy infrastructure, but also consumer goods. Trade financing serves to maintain existing, as well as find new, markets for Chinese products.

The stated aim of this grandiose project is to boost connectivity and commerce between China and 65 countries. China’s financial commitment is likely to reach up to $300 billion in loans for infrastructure and trade financing in the coming years – not counting the leveraging effect on private investors and lenders. This sum includes a $40 billion contribution to the Chinese-led ‘Silk Road Fund’ for infrastructural developments. Sitting at the end-point of the Silk Roads project, central and eastern Europe, the Balkans and the Greek ports have been so far the main beneficiaries of these funds.

In June, Hungary became the first EU member to sign a memorandum of understanding with China on integrating the ‘belt and road’ initiative with Hungary’s ‘opening to the east’ and ‘opening to the south’ initiatives. Poland is also considered a pivotal country for the OBOR project. Plans have been made for building a railway connecting the Chinese province of Sichuan with the Polish city of Lodz as well as for developing several Polish harbours such as Gdansk – all financed by soft loans from China. Other EU members have integrated China’s OBOR project with their own investment strategies or are in the process of doing so. For instance, in June China and France signed an agreement for prioritizing cooperation in third-party markets, including joint ventures and project financing.

At the last EU-China summit on June 29, 2015, Juncker called for the creation of synergies between his European Fund for Strategic Investments and China’s ‘belt and road’ initiative. Premier Li Keqiang replied to Juncker by making a multibillion dollar investment commitment to the EFSI, though no precise amount has been unveiled so far.

Juncker and Li Keqiang  at the EU-China Summit on 29 June 2015. Source:

Jean-Claude Juncker and Li Keqiang at the EU-China Summit on 29 June 2015. Source:

Totalling €315 billion, Juncker’s plan aims to relaunch growth and job creation in sectors ranging from innovation to research, education, and transport infrastructure. Policymakers in Brussels are identifying appropriate cooperation mechanisms between the belt and road initiative and Juncker’s fund. Ideas presented so far include the establishment of a China-EU joint investment fund, joint contracting and co-financing. European critics worry, however, that the initiative lacks transparency rules and the opaque financing deals may threaten the competitiveness of European companies.

Greater Sino-European connectivity will inevitably entail some economic and political costs for Europe – and the same could be said for China. Yet, the OBOR remains, ultimately, a great opportunity for a continent that is still struggling to recover from the crisis. What is urgently needed in Europe is a comprehensive response to the belt and road initiative. The focus should not be limited to economy and trade, but also include political and security issues.

An enlarged version of this article was published with the title China’s inroads into the West in The World Today

Sep 2015

Greek port is spearhead of Chinese investment push in Europe

China’s investment outflows are growing fast, and Europe is one of their main destinations. Over the past year, China has targeted Central and Eastern Europe (CEE), which has received almost US$7 billion. The Balkan Peninsula, including the Greek port of Piraeus at its southern end, is now the new frontier for Chinese outbound direct investment. In the coming weeks, China will start building a high-speed railway connecting Budapest and Belgrade; it will later be extended to Skopje and Piraeus, where the China Ocean Shipping Company, or COSCO, has a 35-year concession to run two container piers. The new transport route could cut shipping times from China to inland cities of the European Union by one-third, to 20 days.

Signing of high-speed railway connecting Budapest and Belgrade. Source: German Press Agency

Signing of high-speed railway connecting Budapest and Belgrade. Source: German Press Agency

The investment foray into Eastern Europe and the Balkans is part of Beijing’s broader strategy to export capital and political influence along the planned Silk Road Economic Belt, and the complementary Maritime Silk Road.

At the third meeting of heads of government of China and 16 Central European countries, held in Belgrade in December 2014, Prime Minister Li Keqiang highlighted the role that the region would play in the transport corridors, pledging to inject more investment to boost infrastructure and improve sea and land connections between China and the region. During the Belgrade meeting China, Hungary, Serbia and Macedonia agreed to build a land-sea express route linking Piraeus – one of Europe’s largest container ports – with at least six Central and Eastern European countries, turning the facility into a Chinese hub for trade with Europe. The US$2.5 billion project is financed by soft loans from China’s Export-Import Bank, and will be built by the state-owned China Railway and Construction Corporation. Works on the line are scheduled to begin by the end of 2015, and should be completed in 2017.

The 370 kilometre railway between Belgrade and Budapest will significantly improve transport of passengers and goods, cutting travel time between the two capitals from eight hours to less than three. After further investments in the Greek and Macedonian portions of the line, a double track between the Mediterranean and the Danube will enable trains to run as fast as 200 kilometres per hour. By reducing shipping times, the new line will make Chinese products more competitive in the European market, helping to offset rising production costs.

Chinese goods are currently shipped through the Suez Canal, then in a wide loop through the Mediterranean, the Bay of Biscay and the English Channel to ports on Europe’s north-western coast, from where they are dispatched by road and rail to inland cities. Once the Balkan projects are completed, Chinese products will go from the Suez Canal – which recently doubled its capacity – directly to Piraeus to be loaded onto trains, cutting transit times from roughly 30 days to 20.

Piraeus is central in Beijing’s strategy of linking China with Europe. The Greek port is, in fact, the gateway between the Middle East, the Balkans and European markets – from a Chinese perspective, it is a unique entry point into the EU. Growing investment into the Greek port together with the overhaul of the transport system in the Balkans could make of Piraeus as big and strategic a container port as Hamburg, Rotterdam or Antwerp.

An earlier version of this article was published in World Review

Aug 2015

Dispute for islands in the South China Sea heats up

Global companies operating in South East Asia should pay attention to rising tensions between China and some of its neighbours over disputed islands. These dynamics, if not properly managed, could impact their business and shipping operations.

China is investing in a ‘modern maritime military force’ to protect the country’s ‘maritime rights and interests.’ The force will assist in asserting China’s claims over the disputed islands in the South China Sea. In May 2015, Beijing released its first ever White Paper on military strategy. The Paper outlines plans to build military forces with expeditionary capabilities, including naval and air platforms that can operate over long ranges.

Beijing aims to move from ‘near seas defence’ to a combination of ‘near seas defence’ and ‘far seas protection,’ which would involve at least a limited power projection capability. The force would allow China to show resolve at points of contention, such as disputed islands in the South China Sea. China has long said that it owns most of the reefs and islands in the South China Sea, buttressing pretensions to more vaguely defined rights to most of the Sea itself.

Source: World Review (

Source: World Review (

In recent years, Beijing has intensified construction on islands of military installations, some of which could be used for offensive purposes against other claimant states. These facilities include an airstrip, garrisons, air-defence batteries and radar and communications equipment. The new infrastructure boosts China’s ability to patrol surrounding waters and monitor the activities of other claimants.

Beijing seems intent on making enforceable the strongest possible claim to civil control of the disputed areas, leading eventually to formal legal control. This can be achieved by asserting physical control at specific points through the use of coastguard vessels to protect fishing rights and to ward off others. Moreover, China is deploying flotillas of trawlers and patrol vessels to protect the interests of its national oil company, which is drilling in disputed waters and now physically enlarging and developing atolls in the Paracel Islands.

At the end of June, Beijing announced that it had completed some of its land reclamation activities on the Spratly Islands, which are also claimed by other countries in the region. Before January 2014, the Chinese presence in the Spratlys consisted of a few concrete blockhouses perched on top of seven coral atolls. Today, these reef-based constructions have grown from five acres to an area covering 2,000 acres.

By asserting, in no uncertain terms, that it considers this area to be its exclusive domain, Beijing is heightening tensions with its neighbours and the United States. As a result, military spending in the region is increasing. The Stockholm International Peace Research Institute (SIPRI) has found that major South East Asian naval powers have increased their defence spending by more than one and a half times since 2003, while China’s spending has grown more than fivefold in the same period. China’s South Sea Fleet has more major surface ships than all the South East Asian countries combined.

The waters of and the airspace above the South China Sea are filling up with military hardware as the dispute for islands heats up. Companies operating in the area should pay close scrutiny to these dynamics, including the potential impact of rising tensions for their business.

An enlarged version of this article was published in World Review

Jun 2015

Beware of Taiwan’s evolving political dynamics

Taiwan’s political landscape is undergoing profound changes which are likely to have an impact on cross-strait relations in the years to come. Taiwan’s ruling party, the Kuomintang (KMT), suffered one of its worst electoral defeats when the Taiwanese elected more than 11,000 mayors, councillors and town chiefs in November 2014. The elections saw the KMT even lose the capital city Taipei which it had controlled for 16 consecutive years. The results are a huge political blow to Taiwan’s President Ma Ying-jeou. The winner is the Democratic Progressive Party (DPP) whose gains surprised many observers. DPP mayoral candidates won 13 of Taiwan’s 22 counties and major cities, up from a previous six. DPP mayors now govern more than 60 per cent of Taiwan’s 23 million people and are poised to win the presidential elections scheduled for January 2016.

Taiwan’s opposition leader Tsai Ing-wen spent 12 days the United States from May 29 to June 9, 2015 with a two-fold goal: win Washington’s support for her presidential bid in 2016 and reassure US officials about the intentions of her party vis-à-vis cross-strait relations. It is worth reminding that the DPP controlled the presidency from 2000 until 2008, when President Ma took over amid widespread dissatisfaction with corruption in the DPP and its tense relations with China.

Dr. Tsai Ing-wen,  Chairperson of the Democratic Progressive Party (DPP). Source:

Dr. Tsai Ing-wen, Chairperson of the Democratic Progressive Party (DPP). Source:

Tsai Ing-wen had a series of meetings with government officials, academics and overseas Taiwanese. She saw the administration of US President Barack Obama on June 2. The US is following the political dynamics in Taiwan closely after the DPP’s best election results in history in November 2014.

The resounding defeat of current Taiwanese President Ma Ying-Jeou’s party was the result of both domestic factors – such as an unequal distribution of wealth, sluggish government reform, the KMT’s perceived coolness towards youth and civil movements – and the way President Ma is dealing with cross-strait relations. There is widespread belief, prevalent among Taiwanese youth, that only Taiwan’s business elite is reaping the economic rewards of closer ties with China. President Ma has signed 21 agreements with China so far, including a ground-breaking free-trade pact – the Economic Cooperation Framework Agreement (ECFA) – in 2010.

Taiwan’s youth was at the forefront of an occupation of the legislature during the ‘Sunflower Movement’ of March and April 2014. Thousands of mostly young people protested about the Cross-Strait Service Trade Agreement (CSSTA), which, if passed, would open much of Taiwan’s service sector to investment from mainland China. Protesters claimed that the KMT had pushed the CSSTA through the legislature without following proper democratic procedures. They feared the agreement would harm Taiwan’s economy and give China too much leverage.

The DDP prefers to maintain a comfortable distance from being integrated with China, but it also has to find a way to achieve economic growth. The mainland is Taiwan’s most important economic partner by far, while the US remains the ultimate guarantor of its security. These dynamics need to be carefully considered when doing business in Taiwan.

May 2015

40 years after: the road ahead for EU-China relations

On May 6, 1975, forty years ago, in the wake of the thaw in relations between Washington DC and Beijing, and without much fanfare, Brussels and China established diplomatic relations. It was certainly a different period in history. The European Community was in its infancy, China was a poor country, in the midst of a power struggle for the succession to Mao Zedong who, already very sick, died the following year.

Today, the relations between Europe and China are among the world’s most important, having taken on such a strategic importance that they are the object of close scrutiny – and sometimes apprehension – by the United States. Just think of Washington’s disapproval when four important EU countries – Germany, France, Great Britain and Italy – joined as founding partners the Asian Infrastructure Investment Bank (AIIB), the multilateral bank promoted by Beijing.



The turning point between Brussels and Beijing goes back to 2003 and the signing of a strategic partnership: the various parties reached an agreement on the joint development of Galileo, the European satellite navigation system and alternative to the American GPS, and the foundations were laid for improved relations in the field of security and the defence industry. Germany and France took the lead, but Italy and Spain were with them, and they proposed to begin discussions to lift the embargo on arms sales to China.

While the European Union was enlarged to include Central-Eastern European countries, Brussels became the most important trading partner of Beijing, while China climbed to second place as the most important trading partner of the EU, just behind the United States. The Europeans were, however, unable to agree on the embargo issue, and the European Council in June 2005 decided to postpone indefinitely the solution, leaving the Beijing leaders with a bitter taste in their mouth.

Even the euro played an important role in the relationships between China and Europe. In 2003 the European Central Bank and the Chinese one signed an agreement that led Beijing to diversify their basket of reserves, increasing in a gradual but constant manner in the coming years their exposure to the common European currency, while reducing their exposure towards the dollar.

China supported the euro during the sovereign debt crisis to accelerate the shift against the dollar when, in August 2011, Standard & Poor’s downgraded the sovereign rating of the United States: the growth in the share of reserves held in the common European currency went from approximately 26% in 2011 to approximately one third at the beginning of 2015. What’s more, two years ago, for the first time, the European Central bank signed an historic contract with the People’s Bank of China that opened a swap line in renminbi between these two areas of the world to facilitate investments in both directions, despite the non-convertibility of the Chinese currency.

China is investing heavily in European companies to acquire know-how and technology that is necessary to modernize Chinese industry. At the end of 2014, it made purchases through SAFE (State Administration of Foreign Exchange, ed.’s note), the administrative agency governing foreign exchange market activities, for about $ 54 billion in listed companies on European stock markets, ranking fifth for the size of the investment, just behind Japan.

The 40th anniversary of Europe-China relations coincides with an important note on the strategic agenda of cooperation between the European Union and China valid until 2020, signed in Beijing in November 2013: the possible closure of European Union-China bilateral negotiations on investments. A turning point that could open the way, as expressly requested by Xi Jinping during his first visit in Europe and to the European institutions last year, to a free-trade agreement that would introduce a new dynamic in the Sino-European relations. It would create an equally significant Euro-Asiatic axis, both economically and commercially, to the Atlantic and Pacific one.

An earlier version of this article was published in Italy24

Mar 2015

China and Europe boost monetary connections

Europe’s four-largest economies – Germany, France, the United Kingdom and Italy – have decided to join the Asian Infrastructure Investment Bank (AIIB), a China-led regional bank designed to finance infrastructure projects in areas such as energy, transportation and communication in Asia. China is set to provide up to 50% of the bank’s $50 billion initial capital. Initiated in October 2014, the AIIB is seen as a potential rival to the US-based World Bank and this partly explains why Washington put pressure on the European allies to stay out from the China-led bank.

Yet, the US appears to have overlooked the extent of the monetary connections established between Europe and China in recent times. The two have, in fact, boosted monetary relations through currency-swap agreements, yuan bank clearing, and support for each other’s currency – the euro and the renminbi.

Today, the renminbi is the world’s second most used trade finance currency and the seventh-ranked global payments currency. The People’s Bank of China (PBOC) has in the past few years signed bilateral currency swap agreements worth more than 3 trillion yuan ($480 billion) with 28 central banks and monetary authorities.

More than 50 central banks have so far added the Chinese currency to their portfolios as growing trade ties and a growing number of reforms by Beijing are leading reserve managers to view it as a viable reserve currency. Most of Europe’s major central banks have added – or are considering adding – the Chinese currency to their portfolio, often at the expense of the dollar. In October 2014, for instance, the United Kingdom raised 3 billion yuan via a landmark offshore sovereign yuan bond and kept the proceeds into its foreign exchange reserves rather than converting them into dollars.

In October 2013, the PBOC and the European Central Bank (ECB) signed a bilateral currency swap agreement for a sum of €45billion (RMB350 billion), the largest ever signed by Beijing outside the region. In November 2014, the ECB decided to add the Chinese yuan to its foreign-currency reserves.



The PBOC has also designated a number of yuan clearing banks, known as RMB Qualified Foreign Institutional Investor (RQFII). Half of these ‘renminbi hubs’ are in Europe, in places like London, Frankfurt, Paris, Luxemburg and Prague. In January 2015, China’s and Switzerland’s central banks signed a RQFII agreement, making Zurich the newest hub for renminbi trading.

China’s ultimate goal is to make the yuan one of the main currencies for global trade and to place limits on the role of the dollar in the international monetary system. Since 2008, Chinese officials and scholars have maintained that the US is abusing its position as controller of the main reserve currency by pursuing irresponsible economic policies. An op-ed by Xinhua agency on 13 October 2013 did not hesitate to call for a ‘de-Americanized’ world.

The euro is seen in Beijing as a counterbalance to the dollar and instrumental for creating a multipolar currency order where the renminbi would also have its place. Consequently, China has divested away from the dollar in recent years and into the euro. Today, euro-denominated assets represent around one-third of China’s total foreign currency reserves which, at more than US$4 trillion, are the world’s largest.

Eurozone governments and institutions have actively courted Chinese purchases of euro-denominated assets. Since its establishment in May 2010, the European Financial Stability Facility (EFSF) – replaced in October 2012 by the European Stability Mechanism (ESM) – has actively sought Beijing’s support, obtaining concrete pledges for the purchase of Portuguese, Irish and Greek bailout bonds auctioned by the EFSF/ESM €440 billion rescue fund.

Monetary relations between China and Europe are expected to intensify in the future, challenging the dominant position of the dollar. If the issue is not handled with attention, there is risk of a serious transatlantic rift.

Jan 2015

China’s investment spree in Europe

China’s investment outflows are growing fast and Europe is one of the main beneficiaries of this trend. By the end of 2014, China had invested $54 billion in the stocks of European companies, becoming the fifth largest investor in the Old Continent – after the United States ($3,23 trillion), Canada ($155 billion), Bermuda ($77 billion) and Japan ($56,5 billion).

China’s financial rebalancing towards Europe is part of Beijing’s broader strategy to export capital and political influence. In 2014, China became a net exporter of capital for the first time as the country is implementing legislation that reduces restrictions on outbound investment and encourages companies to look overseas for mergers and acquisitions. In 2013, Chinese outbound investments were at a high of $108 billion, up 23% from a year earlier, bringing total direct offshore investment to $660 billion.

In November 2014, China’s President Xi Jinping announced that Chinese offshore investment will reach $1.25 trillion over the next decade, nearly tripling current Chinese outbound direct investment. This sum includes a $40 billion contribution to the Chinese-led ‘Silk Road Fund’ aimed to invest in infrastructure to support Xi’s vision of a ‘new silk road and maritime silk road’ to link China with Europe and the Mediterranean. Chinese officials have repeatedly declared that Europe is one of the primary destinations of capital outflows, a trend which became evident in the second half of 2014.



While Germany, France and the United Kingdom have long been the preferred destinations of Chinese investments, in 2014 interest for Eastern and Southern Europe has soared, in what has been dubbed as the dawn of a second Marshall Plan for the continent’s troubled periphery. Since Spring 2014, the People’s Bank of China (PBOC) – through its investment arm, the State Administration of Foreign Exchange (SAFE) – has invested more than €3.2 billion on stakes of about 2% each in eight of Italy’s largest companies: Fiat Chrysler Automobiles, Telecom Italia, Prysmian (world’s top cable maker), Generali, Mediobanca, Saipem and state-controlled Eni (oil and gas operator) and Enel (utility). This has made the PBOC the 12th largest investor in Italy’s stock exchange. On top of it, in May 2014 Shanghai Electric Group bought a 40% stake in power engineering company Ansaldo Energia for €400 million and in July, China’s State Grid acquired a 35% stake in energy grid holding company CDP Reti for €2.1 billion.

By the end of January 2015, Beijing had invested more than €5.8 billion in Italy, a sum which represents around 7% of China’s total investments in Europe. The Italian government has supported unwaveringly Chinese investments, a move mirrored by other austerity-hit peripheral countries of the eurozone. In June 2014, Greece and China signed a ship-building deal worth €2 billion, financed by China Development Bank. In Portugal, Chinese investors swept up 45% of the total assets – mainly infrastructure – put up for privatisation under the Economic Adjustment Programme inspired by the EU and the IMF.

Project financing has emerged as one of the most promising areas for Chinese involvement in Southern and Eastern Europe. At the Third Meeting of heads of government of China and the 16 Central and Eastern European Countries (CEECs) held in Belgrade in mid-December 2104, Li Keqiang, the Chinese Premier, pledged to inject more investment to boost infrastructure and sea and land connections between China and the region, in addition to the 69 cooperation projects between China and the CEECs implemented after the second meeting in Romania in November 2013.

The Balkans have become China’s new frontier for investment. On 17 December 2014, China, Hungary, Serbia and Macedonia agreed to build a land-sea express route by expanding the Budapest-Belgrade rail line to Skopje, Athens and the port of Piraeus in Greece – one of the largest container ports in Europe – where Chinese shipping giant COSCO has a 35-year concession for two piers. Needless to say that the corridor will be built and financed by Chinese companies.

A more friendly investment environment – compared with other developed economies such as the US and Japan– and the slower than expected recovery from the debt crisis has made Europe – in particular the periphery – a valuable destination for China as it constantly looks for global opportunities to preserve and increase the value of its reserves.

A longer version of this article is published by ISN Security Watch with the title: China’s financial footprint in Europe

Dec 2014

China in space: Europe and the United States have different views

In the last decade, the EU and China have expanded their bilateral cooperation to include satellite navigation, earth observation, space exploration and space technology development – in stark contrast with the US which increasingly views Chinas as a space competitor. This has significant implications for Europe’s aerospace sector.

In the late 1990s, some European governments and aerospace companies began collaboration with China on space technology. On 30 October 2003, the EU invited Beijing to jointly develop Galileo, Europe’s global navigation satellite system meant to rival the US Global Positioning System. According to the EU-China agreement, the cooperation is limited to civilian applications.



This form of cooperation facilitates European companies’ entry into the Chinese aerospace market while allowing Beijing to acquire European technology and know-how to be used concurrently to develop China’s own satellite system, the Beidou. Since December 2011, the Chinese system is operational in the Asia-Pacific region and Beijing plans to establish it as a global system with 35 satellites by 2020, challenging not only the US GPS, but also Galileo.

Due to a number of issues, the EU decided to officially put a halt to its satellite navigation cooperation with Beijing in July 2008. Their collaboration resumed, however, in 2012 – expanding to cover issues such as earth observation and space exploration.

The US has been reluctant to cooperate with Beijing because of technology transfer concerns and regulations as well as political pressure from those who want to take a tougher line. Under the Clinton administration, the US attempted to cooperate with China on space transportation. The administration of George W. Bush curtailed cooperation in space activities that Clinton had initiated. The 2001 report by the Rumsfeld Commission warned of a potential “space Pearl Harbor” if adversaries attacked US satellites. In January 2007, the People’s Liberation Army (PLA) destroyed an old Chinese weather satellite using an anti-satellite weapon prompting General Michael Moseley, US Air Force (USAF) Chief of Staff, to declare the test a “strategically dislocating” event – as significant as the Russian launch of Sputnik in 1957.

China views US dependence on space as an asymmetric vulnerability that could be exploited and, like the US, it has made considerable investments in developing counter-space capabilities. The US wants to prevent the transfer of any technology with military applications that might assist China in countering US space assets. In 2011, the US Congress passed an exclusionary law prohibiting NASA from using its funds to host Chinese visitors and from working bilaterally with Chinese nationals affiliated with a government entity or enterprise.

The EU and the US do not have the same responsibilities in Asia and tend to look at China and the use of space differently. The US is the main guarantor of Asia’s security and increasingly views China as a space competitor. Washington believes that space technology should not be disseminated, as it provides the US and its allies with an asymmetric military advantage.

The EU is mainly a civilian power with a negligible security presence in Asia, but significant economic interests. The EU views space-related activities and technology as a medium for international cooperation. For Brussels, space cooperation with Beijing – limited to civilian applications – is meant to build trust with China.

Europe’s aerospace sector, increasingly dependent on exports, finds a promising market in China. It would be in the long-term interest of aerospace companies to devote the necessary attention to the dynamics outlined above, including an assessment of the impact that transatlantic difference over China in space could have on future business.

A longer version of this article is published as a Wilson Brief with the title: China in Space: How Europe and the United States Can Align Their Views and Boost Cooperation.

Nov 2014

Western competition for Asian markets is heating up

President Obama used his recent trip to Asia to push through the Trans-Pacific Partnership (TPP), a massive trade agreement that includes twelve nations total, but excludes China. The TPP is the economic centerpiece of the U.S. rebalance to Asia, and China is responding to it by promoting the Regional Comprehensive Economic Partnership (RCEP), a mega-regional trade agreement that includes ASEAN, Japan, South Korea, India, Australia and New Zealand, but excludes the United States. Beijing is also pressing forward a free-trade agreement for the whole Asia-Pacific—the FTAAP—as a way to dilute the TPP and ensure that Beijing continues to get preferential access to some of its most important trading partners.

Yet, China is not the only one trying to create an alternative to the TPP. The European Union (EU) is pushing forward its own economic rebalance toward Asia—a move that challenges U.S. initiatives and provides Asian countries, including China, with more leverage over trade negotiations with the United States.



Europe’s economic presence in Asia is felt particularly in the areas of trade and monetary policy. For instance, Brussels is Beijing’s most important commercial partner—the two trade more than one billion euros a day. The EU is ASEAN’s third-largest trading partner, after China and Japan, but ahead of the United States. Overall, Asian markets are the destination for almost one third of EU exports and offer rapidly expanding market opportunities for European firms, which are also among the biggest contributors of FDIs in the region. In the case of ASEAN, Europe is by far the largest investor. EU companies have invested an average of 13.6 billion euros annually in the region in the last decade.

Following the surge of trade relations, Asia has become the largest buyer of euro-denominated assets. The share of euros in the foreign exchange portfolio of Asia’s major central banks’ accounts is, on average, for around 25-27 percent of the holdings of Asia’s major economies, reaching 30 percent and above in China (the world’s largest holder). This makes the euro the second-most-important reserve currency in Asia—after the dollar, but ahead of the yen.

Europe’s economic rebalance toward Asia is rooted—as in the case of the United States—in the realization that Asia has become central to global prosperity and to the Western powers’ own growth prospects. Since 2011, the EU has signed free-trade agreements with South Korea and Singapore; it is negotiating one with Japan, Vietnam, Malaysia and Thailand; and has opened discussion on a trade and investment agreement with the whole of ASEAN.

China and the EU are currently negotiating a bilateral investment treaty that, if successful, could pave the way for a bilateral free-trade agreement. At the last summit of the Asia-Europe Meeting (ASEM)—an inter-regional dialogue forum between European and Asian leaders—held in Milan in October, Matteo Renzi, Italy’s prime minister, expressed support for the opening of negotiations on an FTA with China. While some European leaders such as David Cameron, the British prime minister, have already declared their support for an EU-China FTA, the position of Italy—currently holding the presidency of the EU Council—is somehow surprising, given that the country’s small and medium enterprises have been particularly hit by Chinese competition in the last decade. Yet, sluggish growth in many Eurozone countries and growing Chinese investments in Europe are playing in favor of an early adoption of an EU-China deal.

The EU does not have troops or binding military alliances in Asia, making it easier for Brussels to engage the region without the security and strategic considerations that beleaguer the United States. While politically the EU’s presence in Asia is broadly complementary to that of the United States, economically the transatlantic allies are competitors. As Western competition for Asian markets is heating up, companies should devote the right amount of time and resources to understand the implications of these dynamics for their business.

A longer version of this article was originally published in The National Interest.