The Chinese horse in Europe: Time for changing of the guard may not be far off

Hasnat Abdul Hye | Published: June 15, 2019 21:26:05 | Updated: July 11, 2019 15:54:09

The media in Europe and, not to be left behind, in America is abuzz with news about a Trojan Horse at large on the shores of the old continent. Since the spectre of the animal as a metaphor for surreptitious and cunning intrusion into a foreign territory refers to China this time around, it can be substituted by `Chinese Horse' and with the same import i.e covert entry under cover of `darkness'. The horse in the metaphor with Chinese character is being seen in different contexts but having the same goal of overrunning the continent that has erected `fortress European Union (EU)' to safeguard its political & economic interests. Jeremias in new incarnation are now warning in Cassandra-like voice that the fall of fortress EU is now imminent. This time around, the foreboding may turn out to be true.

The first sign and subsequent growing evidence of Chinese `invasion' of Europe has been seen in the form of Belt and Road Initiative (BRI) that envisages an ambitious infrastructure network connecting China and Asia with Europe, with middle-East and Africa straddling in the middle. Financially strapped EU countries like Portugal was the first to succumb to the lure of Chinese investment to strengthen its decaying infrastructure, particularly sea ports. Hot on the heels of Portugal came debt-riddled Greece. The latest to follow in their four steps is Italy, much to the chagrin of the mandarins in the EU headquarters in Brussels. Despite European Commission's (EC) concern and advice to member countries to be wary of Chinese investments that may burden them with egregious debt they find it increasingly difficult to resist the temptation of having their infrastructure developed and upgraded with easily available Chinese fund under BRI. Paucity of funds for badly needed infrastructure works locally or through European Central Bank (ECB) plus the long-term repayment of loans from China have made their high interest rates look less daunting to sovereign borrowers in Europe. The fact that politicians have short-term or at best medium-term goals has been influential in ignoring economic consequence in future. Moreover, as a sweetener to borrowers it has been pointed out, by way of assurance, that infrastructure projects implemented with Chinese funds will be income-generating and as such almost self-financing. Alarm bells have been ringing outside the political arena, nevertheless. The BRI has been the first spectacle of the Chinese horse trotting into Europe.

Alongside, or back to back of BRI's appearance in Europe has come the offer of Chinese tech giant Huawei to build the infrastructure for the next generation (5G) mobile operation in Europe. This time around the Trump Administration across the Atlantic raised hue and cry alerting Europe to be wary of the Chinese `trap' to make them dependent on Chinese technology. It has been explained by America that more than dependence on a near monopoly is involved here as Huawei is a Chinese government-backed entity and as such will make obeisance to its bidding, with a view to breaching the Western security system through digital espionage. So far, no firm reaction has been shown by EU countries and negotiations are afoot with Huawei for installation of 5G infrastructures. Only in the UK, a member country on its way out, a private sector company ARM, has announced its decision not to supply chips to Huawei for use in its mobile sets. This, together with Google's decision not to supply Android operating system to Huawei and the recent announcement by Facebook that it will cut off the Chinese tech giant from its popular social networking apps, seems to have thwarted Huawei's entry into Europe in a big way. Though not through its own action, EU seems to have been protected from the dominant role of the Chinese tech giant, at least for the time being. In the matter of cutting-edge communications technology, the Chinese horse may have been left high and dry.

A far more potent Chinese presence in EU has been taking place incrementally in the more sensitive and crucial sector of finance. EU members Hungary and Poland have started issuing `Panda' bonds denominated in Chinese national currency Renmenbi that is likely to raise China's profile on international financial markets. Austria and Italy are slated to join the bandwagon in the near future despite concerns and warning from the financial sector that China may be seeking a way to increase its influence in the continent. On May this year, Portugal became the first eurozone country to issue Renmenbi-denominated bonds worth US$ 280 million via a three-year instrument with 4.0 per cent interest rate. Before Portugal, Poland and Hungary issued bond on the Chinese market in 2016 and 2017 respectively. In the most crucial sector of finance China has made advances in a number of EU countries and this trickle is likely to become a flood, given the budget deficits threatening to go way above the limit fixed under the Lisbon Agreement.

Debt servicing through interest rate payment at 4.0 per cent, that the Panda bond entails, is not cheap. But the Renmenbi-denominated bond has other attractions. By helping China to become a bigger actor in the global financial stage, European governments can get into Beijing's good books and avail of investments in sectors like infrastructure, communications and transportation. There are also important political implications involved. An European country acting as a sovereign issuer of Chinese bonds could be seen as a strong political gesture and as such will promote economic ties with China.

The Chinese bonds have existed since 2005 but they became more widespread in use across EU in 2009 when the Chinese central bank, People's Bank of China (PBOC) decided to encourage their use coinciding with the launch of BRI. It is clear that little by little China is opening its market to foreign investors with a view to transforming renmenbi into a global reserve currency. In importance, penetration of the European financial market overrides any other Chinese involvement, including technology.

The three incarnations of the `Chinese horse' in Europe in the forms of infrastructures, communications high-tech and financial instruments look different but they have the same goal - to gain a foothold in fortress Europe. America, in its posture over global supremacy with China realises the threat but can do little to stem the tide of Chinese advances in various sectors in Europe and elsewhere. Its tech and financial power is not just enough to fulfil its ambition. The state capitalism of China is moving like an invincible juggernaut to overtake America by overwhelming its financial capitalism. It is a question of time that China, despite the pin pricks caused by America, will become world's leading economy. To use the historic metaphor, the Chinese horse at first trotting and now cantering will be galloping in Europe and before long all over the globe. For the economic, and by implication political, world order the time for changing of the guard may not be far off. 


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