Rasmussen: The EU cannot be naive to Chinese strategic investment

In an op ed for the Suddeutsche Zeitung, Anders Fogh Rasmussen argues that China will use the Corona crisis to expand its power, especially through strategic investment. He warns the EU not to be naive to this epoch-making challenge, and to strengthen its own internal screening mechanism. Read the op ed in German here. An […]

In an op ed for the Suddeutsche Zeitung, Anders Fogh Rasmussen argues that China will use the Corona crisis to expand its power, especially through strategic investment. He warns the EU not to be naive to this epoch-making challenge, and to strengthen its own internal screening mechanism.

Read the op ed in German here.

An English translation is provided below:

There’s no doubt that China is playing the Covid crisis to its geopolitical advantage. While President Trump retreats within his borders, and Europe splutters to translate words of solidarity into actions, China has been preparing for the future.

We are witnessing the first stage of that future now. A combination of positive PR measures such as deploying experts and materials, paired with disinformation out of the St Petersburg playbook to sow doubt about the source of the virus.

Help from all countries is welcome; we need more global cooperation. But Europe must not be naïve to Beijing’s resolve to extend coercive power and chip away at the Western Alliance. Its weapon of choice is strategic investment, and the EU must prepare for the inevitable onslaught.

China has first mover advantage by coming out the other side of this crisis long before The West. It could become a temporary haven for foreign capital and its factories will soon ramp up production, potentially dumping products on our markets to further undermine our stalled manufacturers.

But, while most European leaders are focused on the coming hours, Beijing has the comfort to think years ahead. In our short-term crisis mode, and with a depressed stock market, we risk a paradigm-shifting blunder by selling our strategic crown jewels to China, for a bargain price.

China showed its hand during the last financial crisis. Chinese investment in Europe jumped 10-fold from around €2 billion in 2009 to almost €20 billion in 2015. It focused on strategic investments and privatisations in the distressed economies of the Eurozone’s periphery – not least in Greece itselfwhere China’s shipping giant COSCO bought Greece’s port of Piraeus. But this investment has come with strings attached for all of Europe – for example, Greece has blocked or watered down EU condemnation of China on several occasions, including over its antagonism in the South China Sea, and its human rights record.

It has extended its ambition to include more high-tech businesses in Northern Europe, which enable technological transfer to China. These included German robot manufacturer KUKA, and network operator 50Hertz. In the longer term, we can expect this zeal to extend further into sectors such as 5G, artificial intelligence and the industrial internet, where the debate over China’s ability to proliferate our information systems is well rehearsed.

In response to this risk, in 2018 the European Union built a platform for investment screening that would sound the alarm on more risky investments. It was a good first step, but fell short of other countries’ screening mechanisms such as CIFIUS in the United States which has powers to kill foreign takeovers and mergers. The EU can only step in if public order or EU funds are threatened.

The EU measures urgently need sharper teeth before its Member States begin to restore the public/private balance in their economies. Politically, this must be led by the EU governments themselves and some are already taking unilateral steps. Spain has suspended Foreign DirectInvestment from outside the EU and EFTA in ‘main strategic sectors’ in cases where the investment could lead to tranfer of control, or if it originates from a state-owned or controlled entity. Germany is also discussing similar measures. They should urge all EU states to take similar shielding action.

Greece has illustrated how state capture of just one EU Member State has implications on all of us – not least when EU foreign policy decisions are made by unanimity. But Greece is far from alone; China continues to court central and eastern Europe through its 17+1 initiative. So far it has produced little tangible investment, but this could easily change if Beijing is the only player offering cash-strapped countries a lifeline. Already in some Balkan states and Ukraine we see China moving in with strategic investments. This includes a Chinese firm upgrading a port near Ukraine’s Odessa and a Chinese state-owned firm seeking to purchase aerospace company Motor Sich. In the Western Balkans, Chinese firms are engaged in major infrastructure projects such as an important bridge in Croatia and a highway in Montenegro which increased that country’s debt by 17 percent.

As a Nordic free trader, government action to protect against investment and acquisitions does not sit easily with me. However, this is not a question of free trade, but fairness. China acts like a benevolent global actor but denies Western businesses and investors reciprocal equal access to its markets. In 2016 alone, China’s foreign direct investment in Europe increase 77 % compared to 2015, yet European investments in China decreased by 25 percent, with investors complaining of increased obfuscation. And Chinese businesses are often state-backed and financed – tilting the playing field in a way that would never be accepted in the rest of the free world.

Autocrats and dictatorships are skilled at turning our open, liberal societies into our achilees heel. I know how, in the middle of a crisis situation, leaders lack the bandwidth to think past the immediate. The earth is being reshaped by the hour and we will all have to live with the long-term consequences. That is why it is imperative that Europe takes steps now to prevent the West from sleepwalking into the economic yolk of a Communist dictatorship.

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