Category Archives: EU

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

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

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.

Oct 2014

Prepare for a EU-East Asia trade and investment agreement

The 10th summit of the Asia-Europe Meeting (ASEM) took place in Milan, Italy, on 16-17 October 2014. Amid concerns for the Eurozone’s economy and China’s sluggish growth, the summit provided an opportunity for the two sides to explore the prospect for a trade and investment agreement, something that would complement the US-led Trans-Pacific Partnership (TPP) on the one hand, and the Transatlantic Trade and Investment Partnership (TTIP) on the other.

Today, the ASEM process brings together 53 participants: 31 from Europe, and 22 from Asia. On the European side, there are the 28 EU member states, 2 European countries (Switzerland and Norway), and the European Commission. On the Asian side, there are the 10 members of the Association of South-East Asian Nations, the ASEAN Secretariat, three North East Asian countries (China, Japan and South Korea), three South Asian countries (India, Pakistan and Bangladesh), plus Kazakhstan, Russia, Australia and New Zealand. The ASEM countries account today for around 60% of the world’s population, half of global GDP and more than 60% of international trade.

world map

Image source: Wikipedia

This success in terms of membership is also ASEM’s major limitation. It appears, in fact, more and more difficult to reconcile the priorities, including the national agendas, of so many and diverse countries. Thus, off the record some of the founding members of ASEM – the EU and the ASEAN grouping plus China, Japan and South Korea – have aired plans for a trade and investment agreement that would complement the TPP and TTIP. In so doing, the ASEM process would renew with the spirit of its founding principles.

When the ASEM summit was first inaugurated in 1996 in Bangkok, Thailand, 26 participants took part: on the European side, the 15 member states of the EU and the European Commission; on the Asian side, the 7 members of ASEAN plus China, Japan and South Korea – the so-called ASEAN+3. The first Asia-Europe meeting achieved two objectives: it created a counterbalance to the Asia-Pacific Economic Cooperation (APEC); and gave impetus to integration dynamics in East Asia. It was, in fact, in the context of ASEM that consultations between ASEAN and the region’s three largest economies (China, Japan and South Korea) led to the subsequent creation of the ASEAN+3. This ‘only-for-Asians’ grouping had been vigorously opposed by the US for fear of losing influence over regional dynamics.

Today, East Asian nations have the possibility to gain leverage over TPP negotiations by opening up to European business interests. At the same time, a trade and investment accord with the ASEAN+3 grouping would allow the EU to bring under a single framework those FTAs that it has already signed with South Korea and Singapore; those under negotiation with Japan, Vietnam, Malaysia and Thailand; and the bilateral investment agreements currently under discussion with China and ASEAN – which are meant to lay the ground for a comprehensive FTA. It may take some time before official negotiations for a comprehensive EU-East Asia trade and investment agreement are launched. Yet, companies should start preparing now to reap the benefits of such a grand initiative.