Chinese drive into Southeastern Europe

By Ioannis Michaletos | The Chinese multinational companies are increasingly expanding their presence in Southeastern Europe in order to set up further export bases into the EU and at the same time exploit opportunities for investments in the local economies, which are in need of imported capital due to the economic and debt crisis.

The importation of Chinese capital comes through bilateral loans, investments and share placements through a long-term strategy of Beijing to gain a considerable foothold in one of the most strategic placements of the European Continent. Special attention is given to logistic, transport and industrial facilities.

In a recent Financial Times report, it was relayed that China, aims to establish a $10bn credit line for central and Eastern Europe. The state-owned Export-Import (Exim) Bank of China is already financing the upgrade of units at Kostolac power station in Serbia, whilst Chinese construction companies have agreed with Belgrade in 2010 a 200 million USD contract to build a bridge in Danube, a deal that was further strengthen under a 150 million USD, loan from China to Serbia with an incredibly low interest rate of 3% and repayment period of 15 years. That is one third of what Serbia currently pays as an interest when borrowing from European or American banks and for a significant less period of time. In total since 2009, around 1.3 billion USD of deals have been signed between the two countries including a modernization of the local railway system. What is also of interest is that according to a Xinhua report, there is significant rise in the number of Serbian students wanting to learn Chinese as a second language, which is attributed in the increasing economic role of China over the past few years. Lastly, in 2011 a memorandum was reached that called for an n additional 2.5 billion USD long-term investments for the construction of new power plants in a joint venture with Serbia’s power utility Company EPS.

 According to a Serbian businessman, the relations between the two states “Becomes stronger day by day in the economic field and Belgrade is seriously considering of requesting for greater amounts of loans from China, something that is feasible judging by the fact that bilateral agreements go ahead as envisaged”. Moreover, “There is increased interest by Chinese companies relating to land and real estate ventures and tourism projects”. In 2009 the Serbian government announced that its foreign policy has four main pillars “EU, USA, Russia and China”, certainly a statement that reveals the dynamic entrance of China into the heart of the Balkans.

Greece is another country that has recently experienced a significant entrance of Chinese capital. Piraeus port, the Country’s main sea gateway and the top container port in the Eastern Mediterranean, has formed in 2009 a strategic partnership with the Chinese commercial-shipping giant COSCO that took the management of a significant portion of the port and has agreed to invest 400 million Euros as well as pay 2.5 billion Euros as a lease for the next 30 years. Over the past two years high-level Chinese delegations came to Greece and expressed their interest into investing also in the Thessaloniki port which mainly serves the Balkan neighbors, as well as, acquiring the management of the national railways and investing around 800 million Euros in the “Thriason” region close to Athens in order to make it a preferential hub for Asian imports into the EU. Towards the end of 2012 the American Hewlett Packard Company which assembles the majority of its equipment in China agreed to use COSCO and the port of Piraeus as a main entrance point of its products to Europe, after being transported via Sea routes there.

Tourism, which is considered as one of the pillars of the ailing Greek economy is witnessing a steady increase by 15-20% of Chinese tourists each year and has started lifting visa restraints for them, under an official policy of the government, hoping that the masses of affluent upper-middle class Chinese holiday makers will provide a much needed boost in economic terms. In parallel telecom brands such as Huawei have made a dynamic entrance in the telecommunication market and supply with equipment major Greek companies in that sector by outpacing European brands.

In addition a vibrant Chinese community has been established in Athens that has opened more than 1,500 commercial outlets and Chinese merchants invest heavily in real estate in tourist regions of the city. In a space of a few years downtown Athens in the area of Koumoundourou and Metaxourgio, acquired its own Chinatown with smaller ones being established in other urban centers. The Chinese drive in Greece is complemented by the establishment of joint venture research centers such as the “Confucius” one together with the Athens economics university and through strengthening of ties by cultural NGO’s that mostly promote Chinese language and history to locals. Greek ship owners association also revealed that it relies heavily for the construction of its vessels in Chinese shipyards and Greek-owned fleet transports around 50% of the Chinese imported crude oil each year. Moreover, as the global banking crisis takes its toll in the merchant maritime sector, Chinese banks seem more than willing to fill the vacuum left by Americans and Europeans financial institutions, and in late 2011 offered a 10 billion USD fund to be used for cheap loans to Greek ship-owners, under the condition of further shipbuilding in Chinese industries.

In Moldavia, China lent 1 billion Euros in 2009, almost a sixth of the country’s GDP that will be used in order to create infrastructure programs. This is by far the largest investment this small country has ever received from abroad and came at a crucial period when the country was at the brink of economic collapse due to the harsh recession the same period, in neighboring Ukraine and Romania, which constituted its major economic and trade partners.

In Bulgaria, Albania, and Montenegro, Chinese officials have held talks and signed lesser deals regarding shipping and industrial projects, whilst in Turkey, Chinese commercial businesses have grown especially strong and the bilateral trade between China and Turkey is booming. A major development that encompasses also a long-term geo-economic culmination is the negotiations between Turkey and China of constructing a 35 billion USD transcontinental railway system to be used to facilitate mass trade between Europe-Middle East and Asia.

Under an agreement signed between China and Turkey in October 2010, China agreed to extend loans of $30 billion for the planned rail network, whilst Turkish Zaman daily paper refers also to official talks been held for most of 2012 regarding a future construction of a nuclear plant in Turkey, funded by Chinese companies. In total Turkish-Chinese bilateral trade surpassed 25 billion USD in 2012 and Turkish Ministry of trade statements in previous months relayed around the intention of both governments to reach 100 billion USD by 2020, thus replacing in effect Turkey’s biggest trade partner, the EU, with that of China.

In all of Southeastern Europe, it is becoming clearer that Chinese capital is readily available and most countries have begun sending and setting-up trade missions to Hong-Kong and Shanghai in order to hold negotiations with their Chinese counterparts. In an average working week there is at least one conference or trade meeting taking place between Chinese managers and officials and their local counterparts either in Istanbul, Athens or Belgrade, revealing a pace of activity much higher than with any other trade partner.

Further, it can be said that the decrease of the value of most companies in the region due to the low stock market performance and depreciation of capital value as a consequent of the economic crisis, has raised the interest of the Chinese that seek to maximize returns on investments by placing their capital in a high-potential and strategically located region of Europe, in between the hinterland of the Continent, Middle East and Russia. Greece in particular has enacted a multibillion Dollars privatization scheme that aims to sell the majority of its state-controlled assets, prompting immediate interests by a variety of Chinese Companies.

The Chinese expansion drive is moving on as EU’s posture in the region is declining, in a period where economic crisis and dissolution with the “European integration project” is losing ground. A December 2012 opinion poll in Greece revealed that more than a third of Greeks want out of the Euro currency and the vast majority is greatly disappointed by the EU. In parallel the Turkish Ministry of foreign affairs affirmed that Turkey is not really interesting in joining the club. Serbia which witnessed a political change of guards last year, has backtracked from its EU path and the Western Balkan states are in a waiting line and with waning hopes for an economic stimulation by their accession process into the EU.

In the whole of Europe, it has been noted by the Financial Times; Chinese appetite for investments is growing and tripled in 2011 to 10 billion USD for that year. A study by Rhodium Group, an economic consultancy predicted an eventual 500 billion USD shopping spree in the coming decade by Chinese companies in Europe out of a total 2 trillion USD worldwide, in a massive effort of China to diversify its corporate portfolio and make use of its 3.5 trillion Dollars foreign exchange reserves by venturing into hard asset acquisition.

In short a reconstructing of the established European economic order is taking place, and the developments in Southeastern Europe are just a manifestation of a wider global trend, that will certainly result in political upturns as well.