China in Europe: Facing Up to the Threat

In the wake of the Wuhan virus pandemic, the West is finally waking up to the reality that, after decades of unfettered access to our technology, research, educational institutions and market, the People’s Republic of China has become a threat to the post-Cold War liberal democratic order. Thirty-plus years of blindly pursuing “globalisation” since 1989—arguably the most ill-conceived foreign- and national-security policy Gestalt the United States and its allies have pursued to date—has left our critical supply chains dependent on decisions taken by Beijing, an adversary intent not simply on revising the existing balance of power but on replacing the US as both the largest economic and military power and the normative hub of the modern world. The post-Cold War belief that “history ended” and that ideological battles that had racked the West since the rise of Marxist socialism were settled once and for all led us down the rabbit hole of effectively unlearning the lessons that helped us overcome the Soviet communist challenge. Instead, for three decades the elite policy consensus was that China’s “export-driven modernisation” would eventually bring about the opening-up of the country’s political system, for as the Chinese middle class rose it would demand greater political participation, bringing in the end a true convergence between the West and the East—a transnational connectivity when it came to norms, values and attitudes. The brave new Friedmanesque “flat world” was to be the end game.

The simplistic reductivity inherent in the ideology of globalisation aside, the sheer absence of historical and cultural grounding in our policy of the last 30 years has been breath-taking. Even a cursory review of what has historically happened when nations rapidly industrialise should have been enough to make us realise that the China likely to emerge from this “globalisation experiment” would be more nationalistic and geostrategically assertive. There were plenty of warning signs even before the current pandemic that the PRC was rapidly morphing into arguably the greatest foe the West has confronted in the past two centuries, and yet—whether through strategic myopia, naiveté or sheer greed—until the election of Donald Trump as the 45th president of the United States, our policy elites continued to adhere to the same paradigm when it came to relations with Beijing. If there is any silver lining to the tragedy that this pandemic has wrought on us all, it is that the era of “globalisation” is finally coming to an end. The US—and, increasingly, its allies in Europe—are waking up to the fact that what was touted as “free trade” was nothing of the kind. Beijing’s predatory mercantilist policies proceeded apace, America was deindustrialised and deficits in both America’s and Europe’s trade with China continued to escalate, while China succeeded in transferring vast amounts of intellectual property from Western companies and extorting for IP in exchange for market access.¹

Since 2008, the landscape of Chinese foreign direct investments in the EU has changed dramatically, with Beijing targeting not just the wreckage of the Greek real estate market and the increasingly cash-strapped governments of southern Europe, but also cutting deep into the most developed economies in Europe.

As accessing US research and technology has become more difficult on account of policies that the Trump administration has been putting in place over the past three years, communist China has turned its attention to Europe. Although some cases of China raiding European technology have been given special attention—the acquisition of Germany’s Kuka Robotics being arguably one of the best-known cases²—China has been ever more aggressively ploughing money into European companies and real estate since the 2008 financial crisis. Since then, the landscape of Chinese foreign direct investment in the EU has changed dramatically, with Beijing targeting not just the wreckage of the Greek real estate market and the increasingly cash-strapped governments of southern Europe, but also cutting deep into the most developed economies in Europe. Beijing’s acquisitions in Europe went from 840 million dollars invested in 2008 to annual Chinese FDI in Europe of 42 billion dollars in 2017. In the process, China has taken over some 360 European companies.³ This puts the economic crisis in Europe generated by the coronavirus pandemic in a new light for, unless governments take decisive action to limit Chinese FDI, the PRC will be able to scoop up a multitude of European companies wrecked by the crisis at a discount comparable to its real estate bonanza in Greece.

All of Europe is currently targeted by Beijing’s strategy to leverage its position in the European market. China’s investments have been hitting all of Europe’s principal economies, with the largest among them (the UK, Italy, Germany and France) attracting the lion’s share of Chinese FDI, with 70 billion dollars in cumulative Chinese investment in the UK, 31 billion dollars in Italy, 20 billion dollars in Germany and 13 billion dollars in France. While in Germany the debate over China’s purchase of Kuka became headline news, equally important has been Chinese investment in the flagships of German industry; for instance, China invested one billion dollars in Daimler AG, becoming the top shareholder in the company. Berlin has become even more aware of Beijing’s investment trajectory in Europe since the launch in 2015 of China’s “Made in China 2025” strategy, the ruling Communist Party’s (CPC) plan to dominate key high-tech industries, including aerospace, robotics, biotech and artificial intelligence. Arguably, the most spectacular Chinese investment in Europe has been the new Hinkley Point nuclear plant in southern England, with one-third of the project funded by China.⁴ The same pattern can be seen in the Chinese government’s penetration of European financial markets, with Beijing targeting the UK in particular as the hub of its European operations. Moreover, Chinese investment in Europe in the past decade has shifted from opportunistic FDI to strategically targeted purchases aimed at transforming Europe from the traditional transatlantic Rimland of Eurasia into the end point of the Chinese Belt and Road Initiative transcontinental supply chain, as Beijing seeks to reverse the centuries-old relationship between maritime and land domains that has historically favoured the West.⁵

As Beijing continues its push to transform Western economies into tributaries to its own market, the US and Europe are beginning to take stock of the damage already done and think of potential solutions. The most important and bitterly learned lesson during this pandemic crisis has been that three decades of “globalisation” has resulted in a radical centralisation of market networks that has effectively kneecapped Western governments when it comes to freedom of manoeuvre in a crisis. With a majority of antibiotics and other medicines needed by the US made in China and India, and a large proportion of PPE suits, gloves and goggles coming out of China, the US and Europe find themselves vulnerable to pressure from their adversary at a time of their greatest vulnerability. China’s heavy-handed propaganda campaign—demanding, for instance, that European media abstain from any criticism of CPC policies and edit out statements to meet Beijing’s preferences when it comes to the language used—have marked arguably the most humiliating moments in the West’s post-Cold War history. Symptomatic of this trend has been the EU’s willingness to revise its report on the pandemic to satisfy Beijing’s demands. The initial report blamed the PRC for spreading the disease internationally; however, concerned about the repercussions, European officials rewrote the document in ways that diluted the focus on China, ultimately bowing to the demands of the Chinese communist regime so as not to endanger Europe’s trade and investment partnerships.⁶ If anyone needed clearer evidence of how deeply Chinese nefarious influence has penetrated into Europe, the EU report is a case in point.

Time is running short for a comprehensive and coordinated response by the US and Europe to China’s hostile takeover of Western economic assets. As long as the CPC remains in control, China will not become a responsible stakeholder in the international system and should not be treated as such.

Today the PRC’s communist government is deeply embedded in European politics, making China a “power in Europe”. This influence translates not just into FDI and financial transactions, but also increasingly into debt-for-equity operations aimed at buying up assets among Europe’s weakest and most economically vulnerable countries. It also involves military operations, with vessels of the People’s Liberation Army Navy now moving in the Mediterranean and the Baltic, and increasingly eyeing the High North and the Arctic (in 2019 China issued tenders for 30,000-ton nuclear-powered ice-breakers).⁷ Increasingly, the PRC is moving into Europe with an eye towards exerting ever greater influence over its economy and ultimately vassalising the continent politically.

But it is not too late for Europe to push back. The West needs a comprehensive strategy that will severely restrict the areas in which Chinese FDI is allowed, putting strict limits on the degree of foreign ownership of European assets by China, restricting access to European universities and research laboratories, re-shoring companies from China to Europe (just as the US and Japan are currently gearing up to do), and cracking down on Chinese information operations in Europe—the imperative of shutting down Confucius Institutes being the first necessary step to stemming Chinese communist propaganda’s free access across Europe.⁸ Time is running short for a comprehensive and coordinated response by the US and Europe to China’s hostile takeover of Western economic assets. As long as the CPC remains in control, China will not become a responsible stakeholder in the international system and should not be treated as such. Today China remains a totalitarian state where a 90-million-strong communist party controls 1.4 billion people and whose regime’s principal objective is to preserve its power and squash any and all dissent. It is time to revisit the fundamentals when it comes to the incompatibility of liberal democracy and communism. It is time to set aside the “globalist” delusions of the past three decades. As the saying goes: “If you find yourself in a hole, stop digging”. Before it is too late.

The views presented are those of the author and do not necessarily reflect those of the George C. Marshall European Center for Security Studies, the Department of Defense or the United States government.

This article was published in the Lennart Meri Conference special edition May 2020 of ICDS Diplomaatia magazine.