Has the EU been compromised by strategic dependency on China?
The European Union’s response to the human rights crisis in Hong Kong has been muted at best.
While the Five Eyes have taken substantial steps to sanction or offer safe harbour to Hong Kongers, early EU Council consensus on a package of measures to respond the National Security Law has given way to obstinance and lethargy when it comes to implementation, with the circular and familiar blame game from the Commission and Member States for the cause of the inaction. To make matters worse, the EU has rewarded China with an investment treaty ignoring calls by the European Parliament for the inclusion of strong human rights provisions.
Some speculate that the EU’s lacklustre response to the crisis in Hong Kong may simply be down to the fact that Hong Kong’s pro-democracy movement has not captured the imagination of Europeans in the same way it has the English-speaking world. But a more compelling explanation points to something far more endemic: namely that when it comes to dealing with China, the political and economic union is heavily compromised.
How did this happen? And what does it mean for policymakers? To answer these questions, we have to go back a decade to the start of the Eurozone debt crisis, the scars of which still divide Europe from south to north and east to west.
In the early 2000s a number of Southern European countries increased their government borrowing and spending ahead of joining the Euro. As many governments anticipated that joining the single currency would lead to huge levels of economic growth.
It didn’t. Instead, Portugal, Italy, Greece, and Spain amassed a substantial amount of public debt which was then exacerbated by the 2008 Financial Crisis. With excessive public debt to GDP ratios, many countries in Southern Europe were unable to refinance or repay their debts or bail out their beleaguered banks without the assistance of the European Central Bank, the IMF, and the European Commission (the Troika). In exchange for loans to help them repay their debts, the Troika demanded not only that the countries introduce austerity and rapidly cut public spending but also required them to sell off key infrastructure and assets.
As the Troika forced countries into a fire-sale of state assets, Chinese state-owned enterprises pounced on the opportunity to buy substantial stakes in key European infrastructure. In Portugal, they purchased the country’s largest insurance company, nearly a third of its formerly run state energy grid company, 27 percent of the country’s largest bank, and 30 percent of the country’s largest media conglomerate. The Greek Government under pressure from the Troika to restructure its debt, found Chinese State-owned enterprises eager investors buying a minority stake in the country’s power grid operator ADMIE and buying a majority stake in the Piraeus Port Authority to make it a central part of China’s Belt and Road Initiative.
In Italy, Chinese companies have quietly amassed a substantial portfolio buying the Italian Formula 1 tyre manufacturer Pirelli, 35 percent of CDP Reti, a subsidiary of Italy’s state financing agency that controls the country’s electricity grid operator and gas distribution, and the People’s Bank of China has steadily stakes above 2 percent in a slew of Italy’s largest companies, including FCA, Telecom Italia, and Generali Group.
Across Europe more broadly, the EU Commission has recorded a growing number of EU companies being bought out and taken over by Chinese companies, increasing from just 5,000 in 2007 to 28,000 in 2017. It also found a rising percentage of European assets under Chinese management, with just 0.2 percent of the assets of all EU based companies in 2007 managed by Chinese companies compared to 1.6 percent in 2017.
What does this surge in investment in vital infrastructure mean for the bloc’s policy towards the Chinese Communist Party state? Pre-pandemic it meant preferential access with both Portugal and Greece introducing golden visa schemes which fast-tracked EU citizenship for Chinese investors. It also led to Italy, Portugal, and Greece all becoming signatories and enthusiastic supporters of China’s Belt and Road Initiative, which seeks to reopen the old silk road trade routes and redirect global trade.
In the last year the Chinese Government has effectively leveraged this investment to muffle European criticism of its handling of COVID, its treatment of the Uyghurs, and its dismantling of Hong Kong’s autonomy. It has rightly recognised that by controlling large stakes in key infrastructure across Europe it can hamstring any movement towards a joined up European/American reset in relations, while ironically pushing support for Europe to pursue ‘strategic autonomy’.
As EU leaders continue to pat themselves on the back for finally adopting an EU Magnitsky Act, they do so in the full knowledge that when it comes to the perpetrators of gross human rights abuses in China they will likely never be used, as a Chinese clientele Member State will always be on hand to offer a veto.
The signing of the EU-China Investment Treaty as Europe struggles to deal with the economic fallout of COVID-19, risks even more strategic industries and infrastructure falling into the hands of Chinese state-owned enterprises. It’s clear by the speed, pressure, and ferocity at which the Commission and certain EU Member States pushed for the investment talks conclusion over concerns of European and member state parliamentarians, that when it comes to China, the EU is already heavily compromised.
Sam Goodman, Senior Policy Adviser at Hong Kong Watch
Prior to joining Hong Kong Watch, Sam Goodman worked as a political adviser for the Labour Party, a parliamentary aide to several Labour Members of Parliament, and worked in the US House of Representatives for Congressman Bobby L Rush. He has a background in British foreign policy as an associate of the British Foreign Policy Group and is the author of 'The Imperial Premiership: the role of the modern prime minister in foreign policymaking 1964-2015'.