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China Makes Big Forays in Europe Amid Doubts

Map illustrating China's "One Belt, One Road" megaproject at the Asian Financial Forum in Hong Kong, Jan. 18, 2016.
Map illustrating China's "One Belt, One Road" megaproject at the Asian Financial Forum in Hong Kong, Jan. 18, 2016.

China’s economic footprint is spreading across Europe at an intense pace, sparking concerns about Beijing’s reach on the continent.

In recent months, Chinese companies have inked deals for building a nuclear plant in the United Kingdom, buying majority shares in a Greek port, and joining the European Bank for Reconstruction and Development (EBRD).

A controversial move involves a sponsorship deal signed by a Chinese company with the Portuguese Football League on Monday. It obligates the league to field a Chinese player in each of its 10 teams, which has drawn protest from some of the league’s officials and players.

Connected vision

The best reflection of Chinese ambitions in Europe is extending the ambitious One Belt, One Road (OBOR) program across the continent.

Some elements of the grandiose vision have already become a reality, as several Chinese cities are now connected with parts of Europe by rail. China’s Suzhou is linked by rail to Warsaw, Lianyugang to Rotterdam, Chengdu to Lodz, Chongqing to Duisburg, Yiwu to Madrid and Zhengzhou to Hamburg.

Foreign investment experts are asking what is motivating China, and if geopolitical ambitions are bigger than its business needs. Another question is whether Chinese companies would be able to challenge North American businesses already entrenched in Europe.

“We need to look at the nature of investments. Some of the big ones are in strategic assets like nuclear plants, water and port projects,” Graham D. Robinson, head of London based consulting firm, Global Construction Perspectives, said.

“At the same time, China has its own domestic compulsions. It needs to find business for its construction companies and those dealing in equipment, steel and cement,” he said.

Real impact

Critics point out the real impact of the Silk Road program is still very limited. Work on most of the transcontinental railway tracks began long before China articulated the One Belt, One Road (OBOR) program three years ago.

“OBOR is a political vision that still lacks projects," said Joerg Wuttke, chairman of the EU Chamber in China. “Signed deals so far seem to be business as usual that can attribute to OBOR.”

He said he hoped to see some new projects fulfilling all the promises of the vision in 2016.

The network of cargo trains connecting China to Europe may seem awesome but most of these trains run only once a week or once every two weeks. The trains go from China filled with goods, but return empty from Europe because China buys very little from European firms, observers said.

European concerns

Several government leaders in Europe, including British Prime Minister David Cameron and German Chancellor Angela Merkel, have publicly lauded the Silk Road program and expressed their enthusiasm to participate in it. Their enthusiasm was also evident when several European countries joined the China-sponsored Asian Infrastructure Investment Bank (AIIB), and welcomed China into European Bank for Reconstruction and Development in recent months.

But there are many who express doubts about the success of the One Belt, One Road program. Though China has succeeded in building banking infrastructure, which includes the creation of the New Development Bank by BRICS countries last year, it has not been able to launch any significant construction projects as part of OBOR over the past couple of years, analysts said.

“There is a serious discussion on whether One Belt, One Road program would be a reality in Europe in a five-year time frame,” said Mathieu Duchatel, Deputy Director of the Asia and China Program at the European Council of Foreign Relations. “Europeans are watching at the implementation in Pakistan, which is really the only country where major OBOR projects are coming up. There are some serious problems with the Pakistan program.”

Pakistan program

Chinese President Xi Jinping unveiled an ambitious China Pakistan Economic Corridor plan costing $46 billion during his visit to Islamabad in April. Once completed, the CPEC would be a 2,400-kilometer-long road connecting Kashgar on the Chinese border to Gwadar port on the Arabian Sea, which is in Pakistan’s Baluchistan province.

But the road will pass through some politically unstable areas, subjecting it to grave security risks.

“The security factor is particularly important. There is a question about whether the Baluchistan area of Pakistan will be safe for Chinese investors. I am not convinced the corridor will result in enhanced trade between the two countries in 10 years,” Duchatel said.

Some analysts are asking whether China would really be able to bankroll major projects in Europe at a time when it is facing an economic slowdown at home.

"The most urgent issue here is the financial volatility and economic weakness in various emerging market economies," European Central Bank policymaker Ewald Nowotny recently told a conference in Budapest. "Recent developments in China since last year — the world's largest economy in terms of GDP based on purchasing power parity — are of particular concern."

On the whole, OBOR has received a mixed reception in Europe, with some countries like the U.K. and Greece being very enthusiastic about it, and some, like France, very reluctant to join. This is partly, according to Robinson, because some European countries like France have a strong construction industry, and do not want to encourage competition from Chinese companies.