The “One Belt, One Road” initiative is China’s signature project for building international clout as it seeks to establish global trade routes and set up investments that benefit its interests.
Across Southeast Asia and some South Pacific islands, China-financed OBOR infrastructure projects have recently come under scrutiny for burdening countries with enormous debts.
And so, China has set its sights on Europe. But as some European countries and the European Union grow increasingly wary of Chinese acquisitions in critical industries such as tech and auto manufacturing, China is pushing for economic ties with countries with a smaller footprint, such as Portugal and Spain.
Chinese leader Xi Jinping will visit Spain on Nov. 27 to 29, and Portugal on Dec. 4 to 5, according to Chinese state-run media Xinhua.
In Spain, China will sign joint agreements aimed at exploring third-party markets, while in Portugal, China will “boost cooperation” in a variety of sectors such as science and tech, water conservancy, energy, infrastructure, and finance, Xinhua reported Nov. 24.
Observers anticipate that China will aggressively push for the two countries to sign onto OBOR. China’s investments are not only part of an agenda to target and gain access to sensitive technology developed by these countries’ private sectors, but also to use economic deals to win political support.
In Portugal, China has made great strides. Amid a financial crisis in 2008, Portugal was desperate for foreign capital, and China swooped in. Direct foreign investment from China grew from zero before 2010, to 5.7 billion euros ($6.45 billion) in 2016, according to a December 2017 report by the European think tank Network on China, a consortium of research institutes in different European countries.
Today, Chinese firms own 25 percent of Portugal’s national grid, 27 percent of its largest listed bank, and all of its largest insurer and private hospitals operator, according to Reuters.
A number of major deals related to renewable energy technology, including Chinese state-owned hydropower giant China Three Gorges Corporation’s (CTG) acquisition of Energias de Portugal (EDP) in 2011, “granted CTG access to state-of-the-art knowledge and expertise in the field,” the report said.
CTG’s purchase of one of Portugal’s largest energy operators enabled the former to expand into global markets in Africa, South America, and the United States. For example, through the partnership with EDP, CTG acquired eight hydropower stations in Brazil, making it the second-largest private energy producer in Brazil.
Another focus of Beijing’s investments is in the country’s ports. Xi himself said, “China supports Portugal’s participation in the Belt and Road Initiative and encourages both countries to cooperate in maritime research and port logistics.”
In particular, China is eyeing an opportunity to develop Portugal’s port of Sines as part of its OBOR initiative of creating new maritime trade routes. In a 2017 document, Beijing had called for developing three new sea passages to boost China’s trade.
But as Chinese firms have steadily acquired stakes in ports across Europe in recent years, European authorities are raising concerns that these companies may be allowing Chinese goods to illegally skirt import duties—as in the case of an ongoing investigation into the Chinese-owned port of Piraeus in Greece.
For now, the Portuguese government seems eager to welcome such investments. Prime Minister Antonio Costa told the country’s parliament in May that changes made to a Portuguese takeover law last year were meant to encourage Chinese investors.
“It was my initiative and aimed to ensure that Portugal would offer the same conditions to foreigners, namely Chinese, as Europeans,” Costa said.
According to the European think tank report, investments in Spain are still relatively small by volume. But they have grown exponentially as in Portugal, from less than 10 million euros (about $11.4 million) per year before 2012, to more than 1.6 billion euros in 2016, according to research by Rhodium Group.
But in 2016, Chinese firms—one of them state-owned—made two big acquisitions into Spanish engineering firms Aritex and Eptisa, indicating Beijing’s desire to acquire high-tech. Aritex focuses on aeronautics, autos, and renewable energy, while Eptisa has projects in IT and transportation infrastructure: all fields that Beijing has listed as a priority for development in the “Made in China 2025” blueprint for China to become a tech manufacturing powerhouse.
Also, in June 2017, China’s state-owned shipping company COSCO bought majority stakes in Noatum Port Holdings, the operator of two container terminals in the ports of Valencia and Bilbao, illustrating Beijing’s hopes to pull Spain into its OBOR paradigm. Noatum is Spain’s largest maritime terminal operator.
While the Spanish government is eager to receive such investment largess, citizens are warier. A 2015 poll conducted by the Elcano Royal Institute think tank found that most Spaniards perceived Chinese investment negatively. When respondents were asked, “Which countries would you like to see invest more or less?”, China received the worst assessment of all countries, with 24 percent wanting less investment. By comparison, 6 percent said they wanted less investment from Germany, with 48 percent saying they wanted more.
Last week, the European Union reached a consensus on investment screening rules that would apply to all EU member states if approved. The move was aimed at countering deals that would pose national security risks. The new rules could potentially hurt China’s investment plans in Europe.
Beijing’s monetary influence in European countries has another side effect: It can sway governments to comply with China’s political agenda. In Hungary, for example, China’s economic ties have led the country to stay silent on the Chinese regime’s wrongdoing.
In March 2017, Hungary reportedly pressured the EU bloc to not add its name to a joint letter by international embassies to denounce the reported torture of detained lawyers in China.
In April, Hungary was the sole EU country that didn’t sign its name to a report by EU ambassadors criticizing China’s OBOR for flouting norms of international transparency, while furthering the interests of the communist state.