December 21st, 2015
By Sarah de Geest – Junior Fellow
As the Chinese government looks to kick economic cooperation with the European Union (EU) in high gear, it is crucial to weigh pros and cons and get a clear image of what EU may come to expect from closer cooperation with the rising giant. As China becomes bigger and more powerful it is harder to ignore and while it is absolutely crucial to engage with China’s government and economic expansion it should be done from an informed point of view. The article hopes to shed light on what one can expect from Chinese investment other than financial benefits and cooperation and to address possible approaches that would serve both short and long term EU interests in the best possible way.
With regards to previous cooperation between EU and China, there appears to be a notable difference since the changing of the leadership in 2013. Suffices to say China slowly build up its importance in relation to EU markets both as a growing market for European export but Eurostat figures show in 2012 only 2.6% of total foreign direct investment (FDI) flows into EU are from China. As cooperation focuses to increase cooperation and investment the importance of China as a strategic market can only increase.
“Chinese investments in Europe doubled in 2014, to a record $18 billion. Six million people travelled between the EU countries and China. Bilateral cooperation moved to a new level when President XI Jinping proposed building a “China-EU partnership.” Already over 70 percent of the initiatives of the 2020 Strategic Agenda for Cooperation discussed between Beijing and Brussels have been launched.”
China-EU summit marks 40 years of cooperation
At the most recent EU-China summit in June 2015, Prime Minister Li Keqiang called for more cooperation in areas such as connectivity, digital cooperation and legal affairs such as law enforcement cooperation. On this same tour he met with several European leaders separately, likewise calling for closer cooperation in many areas. The Chinese hope to marry the Belt and Road initiative with the Junker plan to improve relations as well as infrastructure along new economic project. One could also consider the move related to EU willingness to invest in the Asian Infrastructure Investment Bank (AIIB) and the response as a gesture in kind. Whatever the reason may be, the plans to invest in the plan make China, with one swoop, the largest (non-EU) contributor to the plan that currently faces especially low level of investment despite its lofty €315bn goalpost, currently the plan only boasts €63bn in total investment.
The summit marks an important transition in EU-China relations. China, on the one hand – is hungry for more economic evolvement to stabilise and solidify its GDP growth. The EU however, is struggling to find its footing as it stands up from the worst financial crisis and still feels somewhat shaky as it tries to juggle Greek recovery – overall EU lacking economic performance and a potential Brexit accompanied by a nervous and oversensitive reaction by the stock market. As demonstrated by the Chinese experiment in July 2015 when European and US markets were hit hard despite the Chinese governments fast and coordinated response. While both markets suffered, the US market and overall stock market performance did bounce back a lot faster than most eurozone countries which continue to struggle. As such there are most certainly incentives for EU policy makers to coordinate with China’s outward direct investment (ODI) plans in a bid to attract more Chinese investment.
Lessons from Chinese Investment in Africa
It is also evident from recent ECB measures (or lack thereof) that the quantitive easing has not made significant progress. Meanwhile the governments major European countries gear up to fight ISIS and the hundreds of thousands of refugees flooding into Europe pose what may well become the biggest most important economic challenge of the coming decade. With all this in mind – it is perfectly realistic and understandable that any interest from the Chinese government at this point is likely to be applauded and welcomed with open arms. As a matter of fact, since the June summit 70% of projects that This will no doubt provide many short term as well as long term benefits and may very well help pull Europe out of the tail of its financial crisis. We have seen and experienced the incredible capabilities of the Chinese to build infrastructure in Africa, we are seeing some of this beginning in Central Europe and the Middle East (Afghanistan). In 2014 China’s outward direct investment (ODI) grew by numbers as well as sectors, it reached record highs with a total ODI of $102bn in non-financial sectors. The sectors Chinese firms have been investing in lately are real estate, high technology, agribusiness and food and of course infrastructure. China recently announced another mind-blowing investment plan for Africa of $60bn – claiming this is meant to help develop the continent – part of which could be put to good use as it moves carbon heavy industries that currently puts a strain on pollution on the Chinese mainland to Africa. Such a move obviously portrays a huge win-win for China as it continues to exercise control through the management. Research has shown that while Chinese companies in Africa do tend to employ locals outside of the oil-rich nations (like Sudan, Algeria and Angola), management and senior technical positions firmly stay in Chinese hands. On Saturday China says it aims to reduce emission after 2030. On the other hand there are countless examples of the damage China’s involvement in Africa both on environmental and their disinterest in human right abuses related issues. Scholars argue that China’s interests and disinterest reflect in its casual treatment of both the African people and its lands. While thus far China abstains from significant land acquisitions and land grabs (while these remain significant risk as China expands influence) currently over a million Chinese migrants live and work in Africa. It is pertinent for the EU to get a clearer image of Chinese investment in Africa and its interests and how it pursues them in the region.
‘China has been a major driver in the growth of regional and global merger and acquisition (M&A) activity. From energy and natural resources to infrastructure and now technology-intensive sectors, Chinese companies are making great strides in establishing a global footprint and building Brand China. This “Go Out/Go Global” policy is supported by the PRC government.’ 
China has perfected the concept of engaging in financial and structural cooperation without any value-related strings attached, unlike most projects sponsored by Western governments and organisations. However we have also seen the speed with which the Chinese pull out of areas where they no longer perceive any strategic interest, empty mines left unattended – highways left unfinished, environmental damage etc. While they do not request long term commitments they do not provide them either, all appears to be fair in the Chinese game of business and success.
All roads lead to economic growth: China’s new Silk Road initiative and impact on the region
As of a couple of months ago, China is actively taking steps to bridge hurdles and turn the Chinese Belt and Road (OBOR) policy into practice. The CEEC or 16+1 talks between China and the Eastern European nations have led to major concrete investment plans to secure a warm welcome in key-trade spots on the OBOR. On the national level China and Pakistan plan a de-facto overhaul of the country’s infrastructure aiming to make Pakistan an economic hub in the centre of East-Asia, Central-Europe and South-East Asia. With all these plans ready to go and with the Western European countries focused on keeping their own economic system from a vicious circle of stagnation and decline. A mixture of social and economical issues like refugee related costs, integration problems and stagnation rearing its ugly head periodically since Europe first emerged from the depths of the financial crisis.
For example, the president of the China Institute for Reforms and development Chi Fulin says: “If we combine the Juncker Plan and One Belt One Road, then I think a free trade zone could come into effect in 2020,” adding “I think it’s doable if we cooperate carefully. The next five years are a crucial time.”
Reuters reports China’s investment is “likely to come with a request for return investment in China’s westward infrastructure drive – the “One Belt, One Road” initiative – constructing major energy and communications links across Central, West and South Asia to as far as Greece.”
We should consider consequences, we see China involvement in Central Asia for example leads from financial involvement to political and security involvement. EU should realistically consider how far it wants to take cooperation. In reality the €5-€10bn investment pledge is a rather minor sum in the larger sphere of China’s growing ODI. One only needs to look at examples such as the $46bn pledged to Pakistan in a bid to transform the country’s economy or the charm offensive it embarks on to create long term relationship with Afghanistan. In order to create relations and show their interest is not purely selfish China offers to undertake the construction of 10,000 apartment units in Kabul for which it will assume full financial responsibility. These are examples of a Chinese govt that looks to create an lasting economic sphere of influence. Both Afghanistan and Pakistan are crucial in the Belt and Road. Another example of Chinese investment numbers is the €55bn it invested in greater Europe during 2015. When it comes to China and our relationship with the Chinese, there is a severe lack and underestimation of Chinese strategy, interests and long term goals partly due to lack of transparency. This could be one of the topics the EU can push and request urgent improvement on as it further engages with Chinese companies and Chinese investments.
Chinese economic foreign policy and soft power expansionism
China looks to move towards a service oriented economy, to achieve this it needs two things – support by the Western nations in its bid for WTO market economy status and a way enhance bilateral trade with Europe and European countries. In a parallel move China is moving its mature industries off shore – unsurprisingly – to Africa. The development of the continent on China’s own terms plays a huge role in China’s future as a service economy and growing influences as it becomes the most important global actor within the next 50 years.
One important consequence that already reaches our Central European colleagues is the ideological influence China’s rise and investment has on countries as its rise clearly defies the commonsensical notion that democracy and western values are intrinsically related to economic growth. While it it crucial to look at China and to analyse its economically driven foreign policy strategy, it is important to go a step beyond this and see how countries such as Hungary already shape their model of governance as inspiration on regimes like China. Hungary’s Prime Minister Orban is a prime example of a politician taking up the political attitudes he sees from countries such as China ’s Xi and Russia’s Putin, comparing them to the European Union and finding the authoritarian pragmatic approach distinctly more appealing. 
China and Europe – Quo Vadis?
That said, in many ways the Africa model is not a good model of comparison with Europe, as the interests of China in Europe vs. their interests in Africa largely differ: as a matter of fact China does appear to look to foster a long term bond with the Western European continent. They also approach the relationship as more equal than those with developing economies of Africa and Asia. Moreover China has many problems it looks to Europe for – to solve such as environmental and food safety standards. To put it frankly, there is the distinct danger of Chinese classic narratives along the lines of ‘we are still a developing nation an need help’ to be used once again in a relationship with their ‘richer’ neighbour. In this case the European Union. This narrative appears in stark contrast as China continues to invest billions in Eastern Europe and Africa. Another area of interest for the Chinese, according to the EU-Asia Centre is support on issues such as the reform of the IMF and the World Bank, China could also be looking for large-scale projects to invest in that represent good business opportunities, in particular, high-speed trains and nuclear power plants. China makes note of a potential Free Trade zone by 2020 and significantly steps up bid for Market Economy Status (MES) with 2016 deadline looming.
China’s economic strategy appears driven by a bid to extend its soft power on the Eurasian continent, however takes a vastly different and aggressive approach as it puts down a firm military foot in its own backyard the South China Sea. While it is clear that investment in Europe would be quite different from investment in other regions such as Africa, when it comes to learning from the negative experiences with Chinese investment in those regions one of the most important consideration is to look beyond the propaganda of win-win and to understand that this does not guarantee any long term commitment or is anything more than pragmatism and business sense. In addition, China looks to speed up cooperation, explicitly stating the coming 5 years (“ get on board before it is too late”) are crucial for EU-China relationship. The two most urgent projects from the Chinese point of view appear to be cooperation on the Belt and Road initiative and the implementation of this through the proposed connectivity platform.
Improve policy towards China through creating a better understanding of the full picture – while it is perfectly fine to want better business relations we must not turn a blind eye and understand that our relations to China are more than just purely economical and business related – we have the responsibility to promote our interests in China as well. For example on human rights, labour rights, etc.
 China’s One Belt,One Road (OBOR) or Silk Road Economic Belt (land route) and the Maritime Silk Road (sea route) plan aims to redirect domestic overcapacity by creating regional infrastructure and improve trade with Asian, Central Asian and European countries. The plan is inspired by the historical Silk Road establish during the Han Dynasty. The initiate is backed by the Silk Road Fund and the AIIB as well as different levels of state funding. For more info and a comprehensive map see: http://www.elexica.com/en/legal-topics/commercial/18-one-belt-one-road.
 China Invests in Europe: A Strategic Buying Spree, http://www.europeaninstitute.org/index.php/270-european-affairs/ea-november-2015/2105-china-invests-in-europe-a-strategic-buying-spree.
 For example, in France he met with president Hollande with whom he talked about closer parliamentary
 As they both are major infrastructure investment plans.
 UK largest EU contributor with €8.5bn.
 China’s interest in the Juncker plan: not so strange after all, 7 October 2015, http://bruegel.org/2015/10/chinas-interest-in-the-juncker-plan-not-so-strange-after-all/.
 Possibly with the exception of countries like Ireland that boast an impressive growth curve and which appeared largely unaffected.
 ECB disappoints with bare-minimum easing package, 4 December 2015, http://www.reuters.com/article/us-ecb-policy-idUSKBN0TM1IW20151204.
 KPMG China Outlook 2015, http://www.kpmg.com/ES/es/Internacionalizacion-KPMG/Documents/China-Outlook-2015.pdf.
 It has been noted as early as 2009 that China started to move its textile industry to Africa, see The Dragon’s Gift, 2009 and more recently http://blog.stepchange-innovations.com/2015/04/textile-industry-move-out-of-china/.
  5 myths about Chinese investment in Africa, 4 December 2015, http://foreignpolicy.com/2015/12/04/5-myths-about-chinese-investment-in-africa/.
 Chinese Infrastructure Investment goes global, 6 August 2015, http://thediplomat.com/2015/08/chinese-infrastructure-investment-goes-abroad/.
For an example of such a comparison see ‘China to unveil $46bn investment in Pakistan during visit by Xi Jinping’, The Guardian, 20 April 2015, http://www.theguardian.com/world/2015/apr/20/china-to-unveil-46bn-investment-in-pakistan-during-visit-by-xi-jingping.
 Investment Plan by EC president Jean-Claude Juncker, aiming to gather €315bn to invest in long-term projects , much scepticism about who will be willing to provide the funding. See more: http://bruegel.org/2015/10/chinas-interest-in-the-juncker-plan-not-so-strange-after-all/.
 CEEC includes Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia and Slovenia.
 Average GDP growth EU is at . Ireland is the exception with 7% GDP growth, UK forecast at 2.4%.
 Europe China Forum, Looking forward – looking back, http://www.friendsofeurope.org/event/europe-china-forum-looking-forward-looking-back/.
 5 myths about Chinese investment in Africa, 4 December 2015, http://foreignpolicy.com/2015/12/04/5-myths-about-chinese-investment-in-africa/.
 Viktor Orban, PM of Hungary, http://www.politico.eu/list/politico-28/viktor-orban/.
 China’s massive pollution challenge: EU to help achieve low carbon future, http://euranetplus-inside.eu/chinas-massive-pollution-challenge/; Report calls to help China on environment see EU Observer issue 2014, College of Europe, Issue 3, https://www.coleurope.eu/page-ref/eu-china-observer; China gets loan from ADB, http://www.ft.com/cms/s/0/9c7e5606-9f11-11e5-8613-08e211ea5317.html#axzz3u7n9ZJ11.
 China invests in Europe, a strategic buying spree, November 2015, http://www.europeaninstitute.org/index.php/270-european-affairs/ea-november-2015/2105-china-invests-in-europe-a-strategic-buying-spree.
 Sichuan Wu, president of National Institute for South China Sea studies claims China considers 1947 nine dash line is real status quo and China’s considers this part of legitimate sovereign territory. Source http://www.friendsofeurope.org/event/asian-paradox-rising-wealth-lingering-tensions/.
 Europe China Forum, Looking forward – looking back, http://www.friendsofeurope.org/event/europe-china-forum-looking-forward-looking-back/.
 Connectivity platform is meant to enhance information, promote and develop synergies between relevant projects, helping – for more info see: http://www.friendsofeurope.org/global-europe/eu-china-connectivity-thinking-big-acting-small/.