Last fall, an article by the Economist praised the consolidation of railway companies in the former Yugoslavia as a development that will ease the movement of freight from Turkey to Central Europe. The Economist went on to argue that a future rail tunnel under the Bosporus and plans between Turkey and China to link Beijing with Istanbul will make it possible to move people and goods between Beijing and Berlin (through Turkey and the Balkans) with great ease. However, the Chinese are not willing to wait that long, nor do they feel safe with moving their goods through Central Asia, the Middle East and the Caucuses. This is why the Chinese government has made some substantial investment moves during the past couple of years to secure a foothold in Greece, and use that country as a conduit for its exports to Europe.
When it comes to international trade developments, Greece usually does not get much coverage. Greece does not have a significant manufacturing or agricultural production sectors to be considered a significant exporting nation. Overall, Greece is an importing nation, running a perennial merchandise trade deficit, which in 2009 was $43 billion (imports totaled $64 billion against exports of $21 billion), down from trade deficit of $52 billion in 2007, before the global financial crisis. More recently, everybody knows about Greece because of the massive government debt which almost caused the financial default of the country, undermined the legitimacy of the EU and the Euro currency, and send shockwaves to financial markets around Europe threatening similar collapsed in Ireland, Spain, and Portugal.
However, another development of the past two years will have an equally dramatic impact on the EU. What started in 2008, due to the Olympics in China, as a rekindling of ancient trade relations between Greece and China, culminated by the end of 2008 with an agreement between the two nations regarding trade and market access. On November, 2008, Chinese President Hu Jintao signed a €3.4 billion ($4.4 billion) deal with the Greek government to run part of the country’s largest port. According to the agreement, state-controlled China Ocean Shipping Company (Cosco) will operate the container port of Piraeus (Pier II) for 35 years, as well as build a third pier to enhance the ports capacity. Cosco took over operations of Pier II on October 1, 2009.
Piraeus is the biggest port in Greece and one of the most important ports in the Eastern Mediterranean region. Its handling capacity reached 1.37 million containers in 2007 (over 20 million tons of cargo). Cosco is promising to more than double container traffic to 3.7 million by 2015. This of course pales in comparison to the top 10 European ports by volume, all of which have capacity larger than 50 million tons of cargo, the majority of which are located in northern Europe. However, the Port of Piraeus is closer then the northern ports of the Netherlands and Germany for Chinese container ships transporting goods from China to Europe through the Suez Canal. Also, Greece is closer to emerging new markets in Turkey, the Balkans, Eastern Europe, and more interestingly Ukraine and Russia. Finally, it appears that the Chinese government considers the Greek government ‘easier’ to deal with, unlike other more assertive and independent national governments of Western Europe.
The Chinese government has been making all kind of business acquisitions throughout the world; from oil and mineral rights deals in Africa, to the purchase of car manufacturing companies in Europe and the U.S. Everything the Chinese government does commercially on the internationally stage is part of a larger strategy with a broader objective. Nothing is just for the pursuit of profit. China’s interest and acquisition of the Port of Piraeus is no different. China’s interest and acquisition of the container port of Piraeus deserves closer consideration.
In Greece, the decision to lease the port to the Chinese has not been without controversy. The local union was against the deal from the beginning, arguing that the conservative government of Nea Dimocratia ‘sold’ the port bellow its true value and profit potential (under ‘colonizing terms’ as they said), and that the Greek government could have gotten more money out of the Chinese if they negotiated harder. On the other hand, the union also feared that the new Chinese owners would fire them all and bring in Chinese workers to do the work. Since the current government of Pasok took over last year, no serious effort has been made to reverse course in this leasing agreement between Cosco and the Greek government.
It’s hard to tell whether their concerns are legitimate. Cosco was one of only two bidders to run the port. Could the Greek government have gotten more money from the Chinese? Probably. But they were probably happy just to get the Chinese interested in coming to Greece, as opposed to some other port. Even after the global financial crisis and the great recession that followed, China’s exports to the EU in 2009 alone were €214 billion ($283 billion). If China decides to redirect just a quarter of its exports to Europe through the port of Piraeus, that could be a great boost for the Greek economy. The Chinese have already decide to gradually stop using the ports of Napoli (Italy) and Istanbul (Turkey), and instead redirect their container ships to Greece and the port of Piraeus. It is obvious that they intend to use Piraeus as their main point of entry from southern Europe.
But the story does not end there. The Chinese government (through Cosco) is already interested in further investments in Greece, including the acquisition of ‘Thriasio’ (a large track of land close to the port) to be used both as an office park and as storage of containers for re-export to North Africa and the Middle East. The Chinese government is also interested in acquiring abandoned Olympic sites to use in ways that will accommodate exports to Greece and the transportation of goods to Europe through Greece. The Greek government is also looking for buyers of its other three main ports (Thessaloniki, Volos, Igoumenitsa) which are in the northern part of Greece and are even closer to the European markets that the Chinese are coveting. Cosco has already made a bid to manage the port of Thessaloniki, and so far is the only bidder. Although Athens is linked with Central Europe via rail, like Thessaloniki and Igoumenitsa, the port of Piraeus is not, thus making these other two Greek ports even more appealing to the Chinese government and Cosco.
China’s ambitions in Europe are undeniable. Europe is both a big market for Chinese exports with many great opportunities for ‘exploitation’, but also a type of ‘insurance’ in case the U.S. market collapses. China’s investments in Greece are in line with that strategy. On the other hand Chinese investments in Greece are very much in line with the economic needs of Greece. Greece, being geographically isolated from the rest of ‘western Europe’ never truly enjoyed the economic benefits of regional integration, the way Ireland, the Iberian Peninsula, and now Eastern Europe have. Now that the Balkans are politically stable, and the Black Sea countries (Turkey, Ukraine, Russia) are emerging as viable markets, Greece can benefit immensely as a transportation conduit and a base for providing service support to Chinese exports into Europe. Greece has a highly educated workforce, well versed in computers and the English language, a sophisticated legal system and (surprisingly) a stable and well financed banking sector.
Chinese investments in Greece might pose some long-term implications for the EU, but right now they can only have a positive impact on the Greek economy. Virgil tells us to “beware of Greeks bearing gifts.” Now the EU will have to also “beware of Chinese bearing gifts”!
See Part II, for a broader look into China’s investment activities in the whole Europe, and the role China is playing (and should be playing) in stabilizing the EU debt crisis.