China invests in Greece, a gateway to Europe

In 2011, China held an estimated $3,2 trillion foreign currency reserves, of which 70% were US treasury bonds. In Europe though, after six consecutive years of recession, Athens, which is currently benefiting from the biggest bailout in western history, is under great pressure to privatize and sell its assets to try and curb a debt load  projected to reach 185% of GDP in 2013. China’s state-owned CIC (China Investment Corporation), which invests China’s monetary reserves abroad, has mostly invested in low-risk German euros and not in risky Portuguese and Greek bonds. However this opportunity to get a foothold inside the European Union is unprecedented and bilateral trade has risen to $3,38 billion in 2012. China is now a major investor in Greece, and is both seen as saviour and a menace throughout the EU.

As Europe’s biggest passenger harbour and one of its top 10 container terminals (20 million passengers and 1.7 million containers in 2011), Piraeus harbour is clearly the most strategic shipping gateway to southern Europe and the Balkans. In 2008, COSCO (China Ocean Shipping Company) acquired the rights to operate Piraeus for 35 years (with an extra 5 year option). This state-owned company,  the world’s fourth-biggest container shipping company by volume, administrates pier II since 2010 and is building pier III (due in 2015), pier I still being operated by a Greek firm. COSCO initially spent €4,3 billion on its deal with OLP (Piraeus Port Authorities – owned at 75% by the Greek government). It has also invested $400 million to modernise pier II in 2012 and is currently looking to invest a further €1 billion in OLP (acquiring up to 60%) during the Greek privatization plans. This massive investment is paying off as cargo volume has more than tripled since the dragon has settled in Greek’s historic harbour in 2010. From this point of view, the chinese takeover is well regarded in Greece, as the increased activity generates more taxes and COSCO pays €100 million each year to the Greek government for the lease. The drawback is that with its money, the chinese firm has brought what Greek Unions call “Chinese working conditions” to Europe. COSCO has managed to bring down the costs to 40% of what they are in the Greek Pier I. It has reduced Union power and wages, hiring unskilled cheaper workers. It has also reduced the number of workers: of the 1000 Greek workers in Piraeus, only 200 work for the Chinese and whereas the Greek Unions workers require 9 workers to operate a gantry crane, COSCO only requires 4. The Unions argues that too many risks are taken for the workers but COSCO insists Pireaus benefits not only the government but also the people by creating new jobs.

Pireaus also benefits the Chinese government which is thus gaining a foothold in the EU and expanding its control over maritime transport. For example in November 2012, COSCO signed a deal with Hewlett Packard, the world’s largest PC manufacturer, to transport its goods to Europe and the middle-east through Piraeus. This includes an average of 20 000 containers per year of computers and electronics made in China shipped directly from Chongqing to Athens. Other companies such as IKEA, Dell, LG and Sony are also interested in similar deals to shorten the shipping time from Asia to Europe (4 to 6 days less compared to Rotterdam). Through COSCO, China is establishing a new transport hub in the EU to compete with Europe’s first container harbour. To strengthen Piraeus’ position, train and plane infrastructure is being built around the port to dispatch the goods in the region and in the EU: China has bought a Ship-to-Rail transshipment facility and a packaging centre near Piraeus, but Greek companies are also flourishing to respond to the demand. Finally, Piraeus is also important on a political level: although not a military naval base, it asserts Chinese presence in the Mediterranean. It was for example able during the Lybian civil war in 2011 to evacuate 4600 Chinese citizens quickly and independently. This shows that besides stimulating the economy locally, China’s main incentive is to establish itself in the Mediterranean and in the EU.

Benefiting from the privatisation program set by the EU-IMF bailout, China is also seeking to secure other assets in Greece and its islands. It has expressed interest in other ports in Crete and Thessaloniki (Greek’s second port mainly serving the Balkans) and no less than 37 regional airports. Especially, it has the highest bid for Athens International Airport in which Hochtief (a German construction company) holds 40% up until 2026. Indeed China is negotiating a €500 million 20-year concession contract  to take over from 2026 to 2046. Furthermore, the global economic downturn means that EU and US investment is not as readily available, a void eagerly filled by the dragon. China and Greece have set up in 2011 a joint $10 billion fund offering Greek ship-owners low-interest loans (who are struggling on the international market) under the conditions that new ships be built in Chinese ports ; a “tied-loan” technique already seen in Venezuela. HuaWei (a Chinese telecom company) has also invested in HTO (Hellenic Telecommunication Organisation), supplying telecom equipment and replacing traditional European partners. The bailout is having another unexpected effect on sino-hellenic relations as Athens seeks higher income from tourism, one of the pillars of its ailing economy. Like the other sectors, tourism in Greece has decreased in 2012 due to a lower number of European tourists and high-spending Chinese (around $1000 per trip, one of the greatest spenders in the world) are longed for to fill the gap. The government has eased visa procedures in an attempt to attract rich Chinese tourists resulting in an increasing number by 15-20% each year. Thus in most Greek economical sectors, China seems to be stepping in where the western partners are failing, on one hand helping the Greek to sustain their economy and earning their praise and on the other establishing themselves as an essential power in the country and inducing wariness.

solar panelBeyond infrastructure, another inovative sector interests China in Greece: solar power. The dry and sunny climate is ideal to harvest solar energy and China’s state-subsidised firms have invested heavily in the industry since 2011. Sky Solar Plants (Chinese) invested €250 million to acquire licence and construction permits to produce 70 MegaWatts and SinoSolar secured a €35 million deal with FylloEnergy to produce another 110 MegaWatts of electricity. Furthermore, the state-owned energy group Dongfang (from Chengdu) signed a €2,5 billion deal with Greek DTS (Digital Tracking Systems) to produce solar panels and wind turbines in two projects of 750 and 250 MegaWatts. DTS supplies patented technology that optimizes panel orientation, however, as in all the other deals, the solar panels must be Chinese manufactured, the shipment being facilitated by COSCO. The obvious drawback is the destruction of Greek production which cannot keep up with the Chinese competition. Beijing argues that it is sustaining and promoting Greek green energy during the economic crisis, helping to reach the EU low-carbon objectives and providing cheaper electricity in Greece. Also, being part of the EU electricity grid, exported solar power increases the Greek government’s income. This once again shows the ambivalence of sino-hellenic relations.

China is opening a new Silk road through the Suez canal to Piraeus thus gaining access to the EU trading bloc. By investing in the Greek infrastructure (ports, airports and rail) and reducing the shipping time by a week from Asia to Europe it hopes to control the transport and distribution of its goods to the EU and middle-East. This is emphasized by the transformation of Piraeus into a new major hub for transport from Asia to the EU. Making the most of the economic crisis and mass privatization, China is moving in where the EU and the US are moving out. Although this directly benefits the Greek government by sustaining growth, China cannot be portrayed as a saviour but as a country moving its pawns on a global scale to penetrate the EU market and position itself in the Mediterranean by conducting business in a vulnerable country with aggressive investment and tied-loans policies. Although Greece certainly needs strong partners and immediate cash-flow, it must especially, with the EU, promote its own production capacity.