Italian Horse

Italy May Split With Allies and Open Its Ports to China’s Building Push

By Jason Horowitz and Jack Ewing

The port at Gioia Tauro, Italy. Italian officials are poised to take a first step toward accepting Chinese infrastructure investment as part of Beijing’s One Belt, One Road initiative.

ROME — In a move certain to cause consternation among American officials and leaders of the European Union, Italy appears poised to help China extend its vast global infrastructure push deeper into Western Europe, part of Beijing’s sweeping plan to advance its economic interests and influence around the world.
A first step toward Italy’s cooperation on the Chinese initiative, One Belt, One Road, would be the signing of a memorandum of understanding when Xi Jinping visits Rome this month, Michele Geraci, Italy’s under secretary in the economic development ministry, said in an interview on Wednesday.
“We are not yet as of today 100 percent sure,” said Geraci, one of the lead negotiators on the agreement. 

“But I think there is a likely, good probability.”
If Italy takes such a step toward encouraging Chinese investment, it will be the first member of the Group of 7, the world’s richest economies, to actively participate in Beijing’s effort to build cargo hubs around the world to fuel its own economic growth.
In recent months, top American diplomats in Italy have expressed concerns to leaders of Italy’s new government about the prospect of such a deal. 

Geraci said he and other Italian officials had considered those concerns carefully before deciding to proceed.
Asked on Wednesday about the potential agreement, an official at the United States Embassy in Rome referred to comments by Garrett Marquis, a National Security Council spokesman, in the Financial Times. 

In those remarks, Mr. Marquis said, “We are skeptical that the Italian government’s endorsement will bring any sustained economic benefits to the Italian people, and it may end up harming Italy’s global reputation in the long run.”
Geraci noted that there was currently very little Chinese investment in Italy compared with in the United States, and he sought to allay any concerns about predatory intentions by China.
“I know China very well, and we are more able than others to spot any risks,” he said.
He also said the estimated investments, a few hundred million euros in Italy’s ports, were essentially minuscule.
“We are in no way tilting the geopolitical axis,” Geraci said, emphasizing that nothing in the deal would shift Italy away from its alliance with the North Atlantic Treaty Organization or the European Union.
He argued that cooperating with China on the infrastructure push would allow Italy, which is saddled with enormous debts and stuck at about zero growth, to export fashion, machinery, food, chemical and other goods to China in greater numbers. 

He said Italy’s current exports to China paled next to those of Germany and France. 

France, he said, sells seven times as much wine to China, and even Ireland exports more food and beverages there.
Those countries have been aggressive in pursuing trade with China, but they have also been wary of One Belt, One Road investment in their nations.
Germany and other countries have erected obstacles to foreign investment after Chinese companies, with close ties to Beijing, bought big stakes in the carmaker Daimler, Deutsche Bank and Kuka, a German maker of industrial robots.
Italy abstained this month when the European Union voted to approve a regulation giving countries more power to scrutinize and block foreign investment, especially when it is supported by a foreign government. 

But the regulation, clearly written with China in mind, allows countries to let foreign money in if they choose.
Michele Geraci, Italy’s under secretary in the economic development ministry. “It is a very fertile area for investment,” he said of the potential influx of money from China.

European leaders’ resistance to Chinese investment may have slowed, but it has not stopped. 

Direct investment by Chinese companies in the 28 countries of the European Union plunged 40 percent in 2018 to €17.3 billion, or $19.6 billion, according to a study published this week by the Rhodium Group, a consulting firm, and the Mercator Institute for China Studies in Berlin.
Much of the decline reflected the reduced buying power of Chinese companies because of slower economic growth. 

And Chinese investments in Germany still rose €400 million, to €2.1 billion, last year with the acquisitions of a pharmaceutical company and an auto industry supplier, the study found.
Money from China is still welcome in the poorer countries of Eastern Europe that are eager for investment. 

Chinese money is helping to finance improvements to the rail line between Budapest and Belgrade and Black Sea port facilities in Bulgaria.
Chinese investments in the relatively small economies of Eastern Europe fell last year to €2 billion from €3 billion, according to the study. 

Since 2000, Chinese investment in the region has been about €7 billion, or about a third of what has gone to Germany. 

Hungary attracted about €2.4 billion of that sum, much more than any other Eastern European country.
Italy has ports that are attractive to China in Trieste in the country’s northeastern region, in Genoa on the Ligurian coast and in Palermo, a Sicilian city close to Africa, where China has invested deeply.
“All of these ports have the benefit of being closest to Africa,” Geraci said. 

“Without being in Africa,”
For now, China’s most important port in Europe is the Piraeus port outside Athens, where the state-backed shipping conglomerate Cosco had taken control.
Italy wants in on the action.
Already this week, with the framework agreement pending, the port authority of Genoa is proceeding with a deal to create a new company with the China Communications Construction Company, Geraci said.
“One way for us to increase trade values is to first increase investment” from China, he said.
“This is done by these memorandums, One Belt and One Road. It is a very fertile area for investment.”
The office of President Sergio Mattarella confirmed on Wednesday that Xi Jinping will meet with him in Rome on March 22 and be honored with a state dinner that evening.
Xi is also scheduled to meet with Prime Minister Giuseppe Conte.
Geraci said China’s leader had also expressed a desire to visit Palermo.
Geraci spent a decade in China teaching economics and writing financial columns before being called back to Italy in 2018 by Deputy Prime Minister Matteo Salvini, the populist leader, to work in the government with a concentration on China.
During his time there, other Italian officials seemed to warm up to the country.
In May 2017, the Italian prime minister at the time, Paolo Gentiloni of the Democratic Party, was one of the few Western leaders to attend the One Belt, One Road conference in Beijing.
“Italy can be a protagonist in this great operation that China cares about so much,” Gentiloni said at the time.
“It is a great opportunity for us, and my presence here speaks to how important we consider it.”
But Gentiloni, a supporter of the European Union who believed in keeping a united European front, did not ultimately sign on for Italy to cooperate in the infrastructure initiative.
The populists now in control of Italy’s government ran against Brussels and seem less interested in maintaining such unity.
“The big change,” Geraci said, “is wanting to do things.”

Chinese Peril

Coming soon to a military base near us: China
BY DOV S. ZAKHEIM

With China very much in mind, Congress has passed the Foreign Investment Risk Review Modernization Act, or FIRRMA, mandating the Committee on Foreign Investment in the U.S. (CFIUS) to review and, if necessary, block both foreign attempts to acquire real estate in sensitive areas and joint ventures that could involve the transfer of American technology to foreign companies.
At the same time, however, China has established its footprint in key logistical hubs worldwide and is seeking to expand it even further.
Its growing global logistical reach could pose serious national security challenges for the United States and its allies.
China has built a naval base in Djibouti, on the Horn of Africa, from which its ships have been operating since 2017. 

It financed the construction of the Sri Lankan port of Hambantota; when Sri Lanka could not repay its debts to China, Beijing obtained a 99-year lease on the port. 

At the end of June 2018, the Sri Lankan government announced that it would move the headquarters of its southern fleet to the Chinese-operated port. 

Whether this move will result in Chinese constraints upon Sri Lanka’s freedom of action remains to be seen, but it cannot be ruled out.
Yet, it is China’s increasing presence in Europe and its environs that may well be the cause of greatest concern for Washington, and should be for its allies. 

China has obtained a significant presence on the territory of four NATO allies — Greece, the Netherlands, Belgium and Germany — and almost managed to do so in a fifth. 

China capitalized on Greece’s financial crisis in 2008 to begin operating a container facility in Piraeus, the port of Athens; it since has acquired a 35 percent stake in Rotterdam’s Euromax container terminal, which can take the world’s largest container ships, as well as a 20 percent holding in Antwerp’s container terminal, one of the fastest-growing terminals in Europe. 

In July 2017, the Hamburg Port Authority awarded the construction of a new container terminal to a Chinese conglomerate.
Rotterdam, Antwerp and Hamburg are Europe’s three biggest ports.
The fifth attempt at a NATO incursion — a near-miss for China — was its attempt through the China Communications Construction Company, a state-owned enterprise, to expand and modernize three disused airfields in Greenland. 

The company asserted its intention was merely to expand tourism in the sparsely populated island. But Greenland hosts an American base in Thule, which operates systems related to missile warning and space-related missions. 

Moreover, should China deploy aircraft to these bases, its reach would extend to at least part of Western Europe. 

Not surprisingly, the Chinese bid was extremely worrying to Danish defense officials, especially since China already had sought to acquire a former American facility in Greenland, only to have the deal vetoed by the Danish government.
In fact, the Chinese attempt to win the construction contract for the three airports posed a much more difficult challenge for the government in Copenhagen. 

Denmark is responsible for Greenland’s foreign policy and national security, but Greenlanders manage their internal affairs — and the government in Nuuk considered the decision regarding the airfields to be a domestic matter. 

It was only at the eleventh hour that a Danish company was able to edge out the Chinese and come up with the winning bid.
Most recently, China has expanded its presence in the eastern Mediterranean, along NATO’s southern flank. 

In addition to operating the port of Piraeus, China now has won the right to build two facilities in Israel’s ports of Haifa and Ashdod. 

Haifa is the headquarters of the Israeli Navy while Ashdod also hosts an Israeli naval base. 

Moreover, American warships, including aircraft carriers, dock at both ports. 

China’s presence in the two Israeli ports thus would enable China to monitor not only Israeli operations and communications but, whenever the U.S. Navy is on a port visit, those of the United States as well.
Retired Israeli and American naval commanders have expressed their concerns about the awarding of these port contracts to the Chinese. 

Israel should take a lesson from the Danes and become far more active in blocking Chinese attempts to penetrate its infrastructure. 

Israel has no equivalent of CFIUS but, clearly, it needs to establish one posthaste, and do so in a manner that, like FIRRMA, has few loopholes. 

Indeed, our other NATO allies should do the same; they must close any loopholes that exist in their foreign investment laws.
Finally, Israel should reconsider the award of the contracts to China or, at a minimum, demonstrate to Washington that China will not be able to monitor American naval operations. 

Should it be unable to do so, Washington should cancel any planned port visits to Israel. 

China’s efforts to gain access to American operations and tactics is troubling enough; our allies and friends should not make it easier for Beijing.

China's 16 European Horses

Beijing is lending billions to Hungary and Serbia for a faster rail link. The project has been called insane. But for China, at least, there’s method in the madness.
By Nick Miller

The nine-hour rail trip from Budapest to Belgrade gives new meaning to a slow Europe experience.

At 11.25am a whistle blows and our spray paint-smeared train pulls out of Belgrade’s 130-year-old central station, over weeds and crumbling concrete, past decades of neglect.
For the next half-hour we move at barely walking pace, crawling past old signal boxes, creaking over a narrow, rusty bridge.
Gradually we pick up speed. 

Not much, though. 

The single-track Belgrade-Budapest line was built in 1883 and last renovated in the 1960s. 

It’s not in a good way.
Children stare glumly out the windows at endless flat fields of unripe wheat, rippling green under the Central European sun.
There will be nine hours of this. 

Testing for even the biggest wheatfield fans.
At 8.24pm: stop number 25, Budapest. 

We’ve travelled roughly the distance of Sydney to Canberra, or Melbourne to Warrnambool, at an average speed of 30km/h, sometimes much slower. 

At one point we pause for half an hour then spend the rest of the trip going backwards.
“This is a catastrophe,” laughed passenger Gabriella, 43, who takes this train for a portion of its journey several times a week for work. 

“It smells like wet dog shit and it’s slow.”
One winter day she spent her journey counting deer in the snow out the window. 

She got to 72 before she gave up.
Some of Europe’s famous train trips promise old-fashioned romance, others high-tech speed.
The Belgrade to Budapest line delivers new, almost inconceivable levels of dullness.
But here’s the good news: China has promised to fix this. 

To help fund and build a modern, high-speed connection that will cut the journey time by a factor of three (making it just about faster than driving).
Gabriella has heard. 

She’s excited at the prospect.
“The only question is, why are they giving us the money?” she says.
It’s a very good question.

The train creaks along at 30km/hr.

All aboard?
In February, Germany’s then foreign minister Sigmar Gabriel gave a surprisingly frank assessment of what he believed China is up to in Europe right now.
“The initiative for a new Silk Road is not what some people in Germany believe it to be – it is not a sentimental nod to Marco Polo,” he told the Munich Security Conference.
“Rather (it) stands for an attempt to establish a comprehensive system to shape the world according to China’s interests.”
He didn’t blame China for trying it on, he said. 

But that didn’t mean Europe should let it happen.
“Powers such as China and Russia are constantly trying to test and undermine the unity of the European Union. Individual states or groups are tested with sticks and carrots to see whether they want to remain in the community that is the European Union.”
He, and other politicians in Berlin and Brussels, want to push back. 

There have been talks of a counter-Belt and Road fund, a way to export liberal European values counter to China’s vision of a new world order.
Others believe this is an overreaction.

But if what Gabriel fears is true, nowhere is it more true than in that most recalcitrant EU member state Hungary, which hosts the second half of our interminable train trip.
“We in this region have looked at China’s leading role in the new world order as an opportunity rather than a threat,” Hungary’s foreign minister, Peter Szijjarto, said last November – as his prime minister, Viktor Orban, prepared to sign 11 bilateral agreements with China and announced the opening of tenders for the Hungarian section of the train link to Belgrade, at the 16+1 summit in Budapest.
The 1 is China and the 16 are 11 eastern EU nations and five other European countries on the Balkan peninsula. 

The 16+1 format was born in 2012, with a permanent secretariat and yearly meetings.
The Belgrade-Budapest railway is intended to be a breakthrough project for 16+1.
But here’s a funny thing: no-one really asked for it.

Passengers are few and far between on the route. 

Mystery train
“Most Western and Hungarian experts say it’s insane to build the Belgrade-Budapest railway line,” says Tamas Matura, founder of the Central and Eastern European Center for Asian studies and assistant professor at the University of Budapest.
The government’s official justification for the project is literally a state secret. 

But academics have reverse-engineered the proposed $3.6-billion Hungarian leg, 152 kilometres of double-track railway over mostly flat ground, engineered to a 160km/h top speed and designed to take passenger trains and 750-metre-long freight trains.
There’s currently almost no commerce on this route, and less passenger traffic. 

Eastern Europe’s traditional connections go east-west, not north-south. 

Hungary’s biggest trade partners are in western Europe, and to a lesser extent Ukraine and Russia. Serbia is almost not on the chart.

It will take 2500 years to make a profit on the Belgrade-Budapest line.

And the link doesn’t come cheap. 

The Hungarian section will cost 750 billion forints ($3.6bn), 85 per cent financed by Chinese loans. 

Plus interest, the whole project will cost an extra $1 billion – and according to reports, the interest rate will be higher if Chinese companies don’t win the construction tenders (a matter of some contention, as EU rules insist on transparent, competitive public procurement).
On current figures, even given a generous multiplication factor for new trade opportunities, it will take 2500 years to make a profit on the Belgrade-Budapest line, says Matura. 

And that’s assuming it doesn’t need maintenance.
This is “building pyramids” kind of thinking, says another Hungarian expert, Adam Bartha, director at EpiCenter, the European Policy Information Center. 

And he points out that Hungary is the second-largest net recipient of EU funds per capita after Poland, so it was never about the money anyway.
Matura agrees: “Central Europe is not in need of liquidity, we have money,” he says. 

“And even if we want to build certain infrastructure projects, we get non-refundable European money.”
Says Bartha: “There are a lot of unanswered questions about this project.”

China's then vice-premier Zhang Dejiang addresses workers in Piraeus in 2010.

From Beijing’s perspective, the railway makes more sense.
China’s biggest shipping company, COSCO, bought a majority stake in the big Piraeus port in Greece in 2009.
The Belt Road Initiative (BRI) plan is to link China’s maritime routes from Asia, around Africa and into the heart of Europe via Piraeus – which is being aggressively expanded, with a plan to double its container volume in the next couple of years.
Hungary’s foreign minister Szijjarto says the train line from Belgrade to Hungary will be part of the main transport route for Chinese goods that arrive at Piraeus and head into Europe.
But Matura suspects that China has based its plans on a misunderstanding of the region – they just “looked at a map” rather than doing the sums, he says.
“To be fair, the Chinese way of thinking is very different from the Western,” he says. 

“We have a demand-based way of thinking: if there is a demand for something, we supply. In China it’s completely the other way around... there is even an ancient Chinese saying, ‘let’s build a road and they shall come’.”

Piraeus, flush with Chinese investment, is a portal to and from Europe. 

It’s a win-win proposition for China, anyway. 

They have insisted on guarantees so they will get their money back, plus interest, no matter what happens with the railway. 

Of course, they would prefer that it stimulates trade but it’s not essential.
And, once complete, it will be a demonstration project for Chinese companies keen to tap into the European market.
But that doesn’t explain why Hungary wants this train line, where there are many other infrastructure projects that would provide a bigger economic boost for the country -- nor why it wants China to fund and build it.
“Big question mark. Pretty big question mark,” says Matura.
Eva Balogh, a historian and publisher who blogs on Hungarian current affairs, wrote in November that the very unprofitability of the project explains the decision to go to China.
“The lure of the project, if it ever becomes reality, is that China might use Hungary as a distribution hub,” she said. 

“For that elusive prospect, the Orban government is ready to get involved in this risky venture.”
Matura says there is also some limited political value for Orban in having big non-EU investors: Hungary is one of the EU’s most perverse members, an “illiberal democracy” that often zags when Brussels zigs. 

Big allies outside Europe help Orban flaunt his independence.

The trip is long but the timeline on the tender was short – very short. 

But other knowledgeable observers, who spoke to The Age-SMH asking not to be identified, say there’s a more obvious reason the Hungarian government loves a big public project funded by a big pot of money: the opportunity to parcel it out to their mates.
Systemic corruption in Hungary’s public procurement system adds more than 20 per cent to the cost of government contracts, according to Transparency International. 

“In many cases the private sector trust in public procurement processes is so low that they don’t even bother to bid,” it said in a recent report.
The timeline on the tender process for the new train line was remarkably short – often an indicator that a tender has an invisible inside track.
Neither tender bidders nor the winner have yet been made public, but it’s very likely the money will end up, in part, in the pockets of oligarchs closest to the government, many of whom have become remarkably rich in recent years.
In 2016, a researcher from the Central European University in Budapest, Anita Koncsik, wrote that public procurement has become Hungary’s “most important payout channel enabling the allocation of state funds to government-friendly economic players”.
So much for Hungary. 

But is China getting more than a nice rate of return?
“For the first few years of 16+1 relations I really believed the Chinese intentions were mainly focused on economics,” says Matura.
“But it seems that in the past few years it turned towards political influence. I don’t know whether it was intentional from the very beginning or they changed their minds because they realised that the economic cooperation wasn’t going well.”

16+1 members have acted against the EU, including on issues to do with the Belt Road. 

How 16+1 is adding up
To the 16 members of the 16+1’s dismay, the economic flow from China has been much bigger in Europe’s west than east. 

Chinese foreign direct investments in the EU reached 35 billion euros in 2016, a 77 per cent increase over the previous year. 

Bloomberg has calculated that around 360 European companies have been taken over by China, from Italian tyre-maker Pirelli to Irish aircraft leasing company Avolon Holdings Ltd. 

It has gobbled up office towers in the City of London, a German robot maker, a Scandinavian carmaker and a Swiss pesticide maker.
Germany has tightened its investment rules in response. 

It is concerned about “technology flow” from Germany to China as well as security questions, its economy minister said in February.
France and Italy have joined in a push for a tighter screening regime for outside investments allowing the European Commission the right to supervise investments.
But while the west pushes back, there are some signs in Europe’s east of more favorable China policies.
In 2016, Hungary and Greece blocked the common position of the EU Council on China’s activities in the South China Sea. 

They were joined by Croatia and Slovenia. 

And in 2017, Hungary and the Czech Republic signed a joint declaration on the principles of financing BRI, against the recommendation of the European Commission.
The EU is increasingly suspicious that BRI is a part of the inspiration for this dissent. 

And it objects to the way China does business.
In April, Handelsblatt reported that 27 of the 28 national EU ambassadors to Beijing had compiled a report sharply criticising the Silk Road project because it “runs counter to the EU agenda for liberalising trade and pushes the balance of power in favour of subsidised Chinese companies”.
Only Hungary’s ambassador refused to sign the report, which was part of preparations for an EU-China summit in July.
The report said China was seeking to shape globalisation to suit its own interests, and should be pushed to adhere to European principles of transparency in public procurement, as well as environmental and social standards.
Whenever European politicians travel to China they are put under pressure to sign bilateral agreements to expand the Silk Road, the ambassadors said – deals that “lead to an unequal distribution of power which China exploits”.

China's influence might not be so great in Europe after all. 

Are we there yet?
Not everyone is panicking over China’s presence in Europe’s east, though.
A paper by Polish think tank OSW last September found that “Beijing has not succeeded in making an attractive offer to the region’s EU member states, who make up the majority of the participants in the 16+1 format”.
If China has a “strategy of divide et impera, aimed at breaking up the unity of the European Union” it was not having much effect, the paper said.
“The much-discussed infrastructure cooperation has not even started,” authors Jakub Jakobowski and Marcin Kaczmarski wrote. 

“Consequently, Beijing has failed to obtain the political tools which could have weakened policy coherence at the European level, or even divided the EU.”
China has two big problems driving the BRI into the EU, the authors wrote.
Their funding model linking loans to the appointment of the contractor without an open tender is incompatible with EU law.
And the EU just isn’t short of money at the moment.
“Allegations appearing in the public debate that the countries of the 16+1 have been fostering divisions within the EU seem to be substantially incorrect,” the OSW paper said. 

“As long as Central and Eastern Europe remains capable of pursuing its economic and developmental interests within the architecture of the European Union, the political risks coming from China’s capital inflow will remain limited.”
Much like that train from Belgrade, it’s proving a slow, sometimes frustrating journey for the Chinese as they try to push their influence north and west.

Just a handful of tourists opt for this rail experience. 

China’s Maritime Expansion Raises Security Concerns

State-backed holding companies have been aggressively investing around the world, and the political leverage they afford Beijing should worry American policymakers.
By CHRISTOPHER R. O'DEA
Li Keqiang visits the port of Piraeus, Greece, in 2014. 

While the world’s attention was focused on the People’s Republic of China’s construction of artificial islands in the South China Sea, another Chinese building project went largely unnoticed.
Supported by state capital, enabled by state regulators, and motivated by a historical desire to secure critical sea lanes, China’s state-owned shipping and port-management companies have ventured far beyond the South China Sea to build a global network of ports and logistics terminals in strategic locations across the E.U., Latin America, Africa, and the Indian Ocean.
China’s commercial maritime strategy complements a naval expansion by the People’s Liberation Army Navy (PLAN) that has been under way since at least the 1980s. 

China’s navy is expected to defend major sea lines of communication against disruption at critical chokepoints, a mission that requires the ability to sustain a maritime presence in distant locations, under hostile conditions, for extended periods. 

By the mid 2000s, the focus of Chinese naval policy shifted to what China calls the “far seas” — that is, the waters beyond the “first island chain” that bounds the South China Sea. 

Recognizing that port facilities are the foundation of sea-lane security, China set out to establish a port network under its control, either by building or leasing facilities.
Key trends in global shipping and logistics have given rise to conditions suitable for China’s acquisition campaign.

The logistics industry is becoming an integrated global system in which automated, land-based terminals play an increasingly important role in the rapid transfer of goods between ships and the rail and road networks that feed retail distribution networks. 

Excess capacity in container shipping and increasing competition among ports for business from ever-larger container ships mean that companies must control both vessels on key routes and terminals at suitably located ports. 

Much of China’s maritime buildout has been undertaken through private-market acquisitions of ports and related critical logistics assets from pension funds, shipping and terminal companies, and governments, many of which have been unable or unwilling to make the investments required for ports and terminals to remain competitive.
In the past year, the result of all this Chinese maritime buildup has become clear: a 21st-century version of the Dutch East India Company, a notionally commercial enterprise operating globally with the full financial and military backing of its home state. 

In this approach, massive investments in ports and related logistics, land transport, energy, and telecommunications infrastructure are the centerpiece of China’s strategy for achieving global maritime power and commensurate political influence while avoiding, or at least mitigating the risk of, a direct confrontation with the U.S. or other nations with global maritime interests.
The vessels that connect Chinese-controlled ports into an integrated network of commercial power are in effect “ships of state.” 

While sailing as commercial carriers of manufactured goods and commodities for a wide range of customers, the containerships of Chinese and Chinese-allied shipping firms now function as instruments of Chinese national strategy.
China COSCO Shipping Corporation Limited has been at the forefront of state-backed efforts to radically expand the country’s outbound investments in overseas infrastructure. 

Countless photos of COSCO’s mammoth ships stacked with freight containers have made the company a generic symbol of seaborne commerce. 

But it was China’s state-owned Assets Supervision and Administration Commission (SASAC) that created COSCO in 2016 by merging two state-owned Chinese shipping companies into an integrated shipping, logistics, and port company with the scale to compete globally, in effect commissioning a state entity to carry out China’s maritime expansion. 

While shares of COSCO operating units are listed on public stock exchanges, the holding company that controls COSCO units is solely owned by SASAC.
COSCO’s commercial expansion has created leverage for Beijing — leverage that has already resulted in countries that host COSCO ports adopting China’s position on key international issues. 

The crown jewel of COSCO’s expansion — and a template for China’s broader maritime-expansion strategy — is the port of Piraeus in Greece. 

News coverage of COSCO’s acquisition of a majority stake in the port last summer obscured the sustained, deliberate, and comprehensive effort China has undertaken in Greece since 2008, when COSCO first obtained the right to operate two piers at Piraeus, at the time a backwater port struggling with labor issues.
In 2016, COSCO acquired control of the Piraeus Port Authority S.A., the publicly listed company created by the Greek state to oversee the port, winning a bid to operate and develop the port for 40 years in exchange for an annual fee of 2 percent of the port’s gross revenue and more than $550 million in new investments in port facilities. 

Under severe financial stress, Greece opted for a broad form of privatization typically used in developing nations, which enables the private investor — in this case COSCO — to act as owner, regulator, operator, and developer of the entire port, in effect transferring governmental powers granted by an EU nation to an entity now under the supervision of the Communist Party of China.
COSCO did not hesitate to exert its control. 

At the first annual meeting of the Port Authority board since it became Piraeus’s majority owner last summer, COSCO proposed allowing board meetings to be held in China as well as Greece; when the Greek State objected that the proposal would amount to changing the domicile of the port company to China, COSCO adjourned the meeting for a few days to allow Greece to present its legal argument, then re-convened the meeting and adopted the proposal. 

For its part, China reaped diplomatic support last June when Greece blocked an EU statement at the United Nations Human Rights Council that was critical of China’s human-rights record, calling it “unconstructive criticism of China.”
China’s naval presence has bolstered Sino–Greek diplomatic alignment. 

A PLAN task force made a four-day “goodwill” visit to Piraeus last July that included joint exercises in the Mediterranean, and returned to the port last October after a cruise to Saudi Arabia. 

China has used commercial operations as a rationale for developing the military capabilities of its maritime network since 2008, when the Chinese navy first took part in multilateral anti-piracy operations to protect commercial shipping in the Gulf of Aden and along Somalia’s Indian Ocean coast. 

To secure a site on the Gulf that the Chinese navy could use for replenishment, China Merchants Port Holdings — another company controlled by SASAC — acquired 23.5 percent of the port of Djibouti in 2013. 

In 2015, China began to build a naval support base there.
Government officials claimed that the Djibouti operation was purely logistical — until Chinese troops were deployed troops to the site last July. 

The military aspect of Chinese maritime expansion now overshadows the development of Djibouti’s commercial port. 

The top American military commander in Africa told a House Armed Services Committee hearing in March that the U.S. would face “significant consequences” if the Chinese restricted the use of the Djibouti port, which provides access to Camp Lemonnier, the only American base in Africa. Concerns about access increased early this year after Djibouti’s president terminated the contract of DP World, a company based in the United Arab Emirates, to manage a container terminal it had built at the Djibouti port in 2006. 

The abrupt move sparked reports that Djibouti intended to turn over the terminal to Chinese operators and bring in other port companies to build new terminals.
China’s maritime frontier has reached South America as well: China Merchants Port Holdings has acquired a key terminal in Brazil’s second-largest port, another Chinese SOE is building a new port in Brazil’s northeast, and Brazilian carrier pilots have helped train Chinese pilots in carrier aviation.
Resistance to China’s maritime expansion has been scant. 

In April, the EU and Italy alleged that Chinese criminal gangs are committing tax fraud by not reporting imports through Piraeus. 

In July, a German business newspaper reported that EU diplomats in Beijing had prepared a briefing for an EU–China summit that sharply criticized Chinese investments in ports and other strategic assets for seeking to further Chinese interests and aid Chinese companies. 

But China has rebuffed previous EU efforts to level the playing field and increase transparency, and despite the tax-fraud allegations, COSCO is ramping up major new investments in Piraeus, including a ship-repair dock and a telecommunications system from Huawei.
There are, however, signs that the U.S. is beginning to recognize the strategic implications of China’s maritime expansion. 

In late April, the Committee on Foreign Investment in the U.S. (CFIUS) raised national-security concerns about COSCO’s taking control of a heavily automated container terminal in Long Beach, Calif., the largest port in the U.S. 

The terminal is part of COSCO’s pending purchase of Orient Overseas International Ltd., another member of COSCO’s shipping alliance, which now operates the facility.
While it’s likely that COSCO will have to agree to divest the terminal to win U.S. approval of the purchase, CFIUS has an opportunity to raise the bar by making such approval contingent upon COSCO’s selling the Long Beach terminal to a company that is not financed by Chinese sources, or one allied with any Chinese shipping or port SOEs through the opaque holding-company structures that China has used to build its commercial maritime network.
But in the long term, most of China’s port and shipping acquisitions won’t be subject to CFIUS reviews. 

From 2007 to 2017, China’s annual seaborne imports soared by more than 160 percent, accounting for 49 percent of the growth in world trade, and global shipping lanes are likely to become increasingly contested as China works to secure its supply lines. 

By creating a global port network, China will project power through increased physical presence and use the oceans that have historically protected the U.S. from foreign threats to challenge U.S. maritime supremacy. 

Economic challenges and backlash from disgruntled host countries could slow China’s port-buying spree. 

But the U.S. can no longer assume that its maritime supremacy will remain unquestioned forever.

China Threat

Siemens and Alstom Form European Train Giant to Beat Chinese Competition

By JACK EWING and LIZ ALDERMAN

Siemens Alstom would make systems and equipment for two of Europe’s high-speed rail lines, Germany’s ICE and France’s TGV, which can zip between cities at about 185 m.p.h.

FRANKFURT — Once, the merger of two iconic European companies might well have been derailed by regional political rivalries. 

But in the case of a deal between Siemens and Alstom, those concerns have receded in the face of a larger threat: China.
The proposed merger of Europe’s two largest train makers, one German and one French, demonstrated on Wednesday that economic imperatives are pushing the Continent together even as populist politicians try to pull it apart.
Siemens, a German electronics and engineering giant, and France’s Alstom, a maker of the high-speed TGV, said late Tuesday that they will merge their units that make trains, streetcars and signaling systems. 

The deal is backed by the French government, and the two companies provided details of the deal the following day.
The new company, to be called Siemens Alstom, is a response to intensifying competition from China Railway Rolling Stock Corporation, the state-backed train maker that has been winning contracts in the United States and emerging markets where mass transit is a fast-growing business.
The company’s success is emblematic of China’s increasing economic power, which, combined with a more isolationist American foreign policy, is forcing European leaders to violate old taboos in order to improve the functioning of the European Union and its economy.

“The message of this merger is that the European spirit is alive,” Joe Kaeser, the chief executive of Siemens, said at a news conference in Paris on Wednesday. 

“That’s a powerful message in times that are marked by populism and nationalism and social and political divides.”
The announcement comes just days after a far right party won seats in the German Parliament for the first time since World War II. 

On Tuesday, Emmanuel Macron, the French president, called for “the rebuilding of a sovereign, united and democratic Europe” that would include stronger border controls but also a European budget large enough to help countries in economic trouble.
Competition from China has already been a factor in other big European mergers. 

Last week, the German steel giant ThyssenKrupp said it would merge its European steel operations into a joint venture with Tata Steel. 

And last year, Nokia of Finland acquired Alcatel-Lucent, a French maker of telecommunications equipment, in part to address intense competition from China’s Huawei.
Other sectors, like shipbuilding or semiconductors, could also be ripe for mergers.
Mr. Macron has made competition from China a central focus of his European policy drive. 

This year, he proposed Europe-wide scrutiny of any new major stakes by Chinese companies in European industrial jewels, but was met with resistance by small countries like Greece and Hungary, which are eager for new investment.
The French president and other European leaders have grown increasingly alarmed that the E.U. is ceding control of advanced technology to China. 

In a recent speech in Athens, Mr. Macron called for strengthening the bloc into a “power that can face the U.S. and China.”
Those concerns deepened after a state-owned Chinese chemical company, ChemChina, bought the Swiss pesticides and seeds group Syngenta this summer for $43 billion. 

The Chinese state-backed shipping conglomerate Cosco recently took a majority stake in Greece’s Piraeus port to anchor China’s New Silk Road through Europe. 

Germany itself has been no stranger to takeover bids by Chinese state-backed firms.
Just weeks ago, Chancellor Angela Merkel of Germany tightened rules to limit takeovers of German strategic assets, a move aimed at Beijing.
Chinese competition was a driving factor in Mr. Macron’s backing to seal a deal between Alstom and Siemens, despite outcries from political opponents in France that he was handing over a French icon to the Germans.
“The big story here is the French willingness to let this happen,” said Mikko Huotari, director of the international relations program at the Mercator Institute for China Studies in Berlin. 

“Alstom is one of the crown jewels of French industry.”
The Siemens-Alstom deal is in part a bid that being bigger may be a better way to counter China Railway Rolling Stock, known as CRRC, which has grown into the world’s largest and most competitive maker of railway equipment. 

The European company could yet grow further: Ahead of Tuesday’s announcement, there had been speculation that Siemens could link up with Bombardier of Canada. 

On Wednesday, Mr. Kaeser of Siemens did not rule out that Bombardier could later become part of the combined company.
Still, with sales of over $33 billion last year and 180,000 employees worldwide, CRRC is bigger than the train businesses of Siemens, Alstom and Bombardier combined.
Last year, the Chinese company secured contracts to build 64 subway cars for the city of São Paulo, and sold more than 800 railway cars to Chicago for $1.3 billion, winning the deal by submitting a cheap bid with good technology.
“Of course CRRC is extremely strong, and has changed a little bit the picture of the market,” Henri Poupart-Lafarge, the chief executive of Alstom, told reporters Wednesday.
Mr. Poupart-Lafarge will be chief executive of the new company, which will have its headquarters in Paris. 

The Mobility Solutions unit of Siemens Alstom, which provides systems to control rail traffic and is more profitable than the unit that makes trains and streetcars, will be based in Berlin.
The new company will have annual revenue of €15.3 billion, an order backlog valued at €61.2 billion and more than 62,000 employees worldwide.
Alstom in particular is a symbol of national technological might for the French, with high-speed TGV trains racing across the countryside, and Eurostar trains connecting Paris to London in just over two hours through the Eurotunnel.
While populist parties such as the National Front are hostile to closer political ties in the European Union, they are less likely to oppose corporate mergers that protect European companies from foreign competition.
Pro-European political leaders like Mr. Macron have themselves not been averse to government intervention to protect jobs at home.
Despite pledges to be less protectionist than his predecessors, Mr. Macron has shown a willingness to involve the state in industrial policy by getting involved in big deals. 

Last month, he temporarily nationalized one of France’s biggest shipyards, STX France, to prevent it from being taken over by an Italian competitor.
As France’s economy minister, he pushed through a government plan last year to order €630 million worth of new TGV trains — most of which were not calibrated to run on faster tracks — from an Alstom factory in the eastern town of Belfort to prevent hundreds of jobs there from moving to another plant.
The Alstom deal with Siemens also reflects, however, a willingness to be flexible to protect broader French interests.
On Tuesday, the country’s finance minister, Bruno Le Maire, said the French government welcomed the deal with Siemens, characterizing it as one that protected French jobs at Alstom.

European Union's Yellow Sheep

In Greece, China Finds an Ally Against Human Rights Criticism
By NICK CUMMING-BRUCE and SOMINI SENGUPTA

Uighur men praying at a grave in China’s Xinjiang Province. Greece blocked a European Union statement that would have condemned China’s violations of human rights, including those of Uighurs and Tibetans.

GENEVA — China has long won diplomatic allies in the world’s poor countries by helping them build expensive roads and ports. 

Now, it appears to have similarly won over a needy country in Europe.
At a meeting of the United Nations Human Rights Council this month in Geneva, the European Union sought to draw renewed attention to human rights abuses in China — only to be blocked by one of its member countries, Greece. 

A spokesman for the Greek Foreign Ministry in Athens called it “unproductive criticism.”
It was the first time that the European Union did not make a statement in the Human Rights Council regarding rights violations in specific countries, including China, which has a seat on the council. That silence was an embarrassing reversal for the 28-country bloc, which has prided itself on taking progressive positions on human rights on a council where some nations with poor human rights records habitually resist country-specific resolutions and examinations of their conduct.
Greece is increasingly courting Chinese trade and investment as it faces pressure from international creditors and a cold shoulder from its traditional rich allies in Europe. 

China’s largest shipping company, known as China COSCO Shipping, bought a majority stake last year in the Greek port of Piraeus. 

The Greek prime minister, Alexis Tsipras, has visited China twice in two years. 

And China will be the “country of honor” at Greece’s annual international business fair in September in the port of Thessaloniki.

Greek ports are critical to China’s “One Belt, One Road” initiative, a huge infrastructure project across Asia, Africa and Europe. 

Just last week, at a concert of the Shanghai Chinese Orchestra in Piraeus, the Chinese ambassador to Greece hailed the cooperation between the two countries. 

“Greece and China will remain good friends in good and bad times, good partners for mutual progress,” said the envoy, Zou Xiaoli, according to Xinhua, the Chinese news agency.
China is seeking to expand its diplomatic influence worldwide, projecting itself as the chief proponent of international trade and cooperation as Trump stakes out an increasingly nationalist position for the United States. 

In the past month, the Chinese premier has made high-profile visits to Brussels, the European Union’s headquarters, and Berlin, the German capital.
After Trump pulled out of the Paris climate accord this month, the European Union said it would work with China, the world’s largest polluter, to achieve the accord’s chief target: keeping global warming to “well below” 2 degrees Celsius. 

China could well take advantage of the European Union’s silence in Geneva.
In the last Human Rights Council session in March, the European Union statement pointed to China’s detention of lawyers and human rights defenders. 

The statement also criticized Russia for its crackdown on civil liberties and the Philippines for its targeted drug-related killings.

The trial of Xie Yang, a human rights lawyer, was streamed online last month by the Changsha Intermediate People’s Court.

At the current Human Rights Council session, which ends this week, the European Union made no such statement on China because of Greek objections, European Union diplomats said.
“When the stability of a country is at stake, we need to be more constructive in the way we express our criticism,” a spokesman for the Greek Foreign Ministry said in a telephone interview, “because if the country collapses, there will be no human rights to protect.”
The spokesman, who requested anonymity because of diplomatic protocol in the country, added that was better to raise human rights issues in private meetings between diplomats from Brussels and Beijing.
It was an odd explanation, considering that China’s stability does not appear to be at risk. 

But in the face of the Greek objection, the European Union’s statement died on the vine.
“The global human rights agenda is best served when the E.U. speaks with one voice,” Maja Kocijancic, a spokeswoman for the European Union’s executive body, wrote Monday in an email.
“We will continue our work to bring all 28 together and hope it will, as we normally do, be possible to align positions” for the next session of the Human Rights Council later this year, she added.
Greece’s move to block the statement was first reported in The Guardian.
Human Rights Watch said it was “shameful that Greece sought to hold the E.U. hostage to prevent much-needed attention to China’s human rights crackdown.”
But it also said this was one of three occasions in the past three weeks when the bloc had “demonstrated no intention, compassion or strategic vision to stem the tide of human rights abuses in China.” 

It cited a summit meeting with Li Keqiang at the start of June and the anniversary of the Tiananmen Square crackdown as other recent occasions on which Europe had failed to forcefully condemn human rights abuses in China.
Diplomats in Geneva noted that Greece was not alone in arguing against the European Union’s statement to the council. 

Lengthy discussions in Brussels on the text of the statement failed to overcome Hungary’s objection to mentioning human rights concerns in Egypt.
After a tense emergency meeting of European ambassadors in Geneva just two hours before the Human Rights Council debate, Hungary relented and withdrew its objection, leaving Greece as the sole obstacle to consensus.