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Greece and Chinese FDI

Greece and Chinese FDI

By Plamen Tonchev

27 December 2017

In early December 2017, the Athens-based Institute of International Economic Relations (IIER) released a report, titled “Chinese Investment in Greece and the Big Picture of Sino-Greek Relations” (http://idos.gr/wp-content/uploads/2017/12/Chinese-Investment-in-Greece_4-12-2017.pdf). The study, co-authored by myself and Ms Polyxeni Davarinou, attempts to shed light on what is seen by many as an emerging Sino-Greek tandem on the southeastern flank of the EU. Two key issues addressed in the study in question are:

- Whether Athens has a clear idea of what it wants to gain from China in terms of socio-economic benefits and political dividends?

- If so, whether it has figured out how to attain these outcomes and to maximise the benefits to be drawn from the rapprochement with Beijing?

 

In our report we argue that the growing footprint of Chinese investors in Greece is geared primarily towards the construction of a cross-border transport corridor from the Mediterranean to Central Europe. This would then allow China to achieve the reduction of transportation cost of Chinese commodities and thus improve access to the European market, but also to the south of the Mediterranean.  No wonder, to date Chinese investors have targeted primarily transport infrastructure, energy and telecommunications, the common denominator of these sectors being the ambitious Belt and Road Initiative (BRI). China’s flagship project in Greece, the investment made by COSCO in the Piraeus seaport, is a case in point.

 

At the same time, while China’s presence in Greece is becoming increasingly visible, this is largely conditioned by Greece’s severe fiscal predicament and protracted economic slump. Being in need of financial aid, Greece has had to accept a number of ‘unpalatable’ reforms, e.g. the privatisation of its state-owned loss-makers, in return for being bailed out by the country’s international creditors. This is where foreign investors, including Chinese corporations, step in and take advantage of the belated liberalisation of Greece’s economy.

 

A noteworthy aspect duly highlighted in the report is the close cooperation between Chinese companies present in Greece. The vast majority of Chinese investors are subsidiaries of big state-owned enterprises (SOEs), i.e. entities with a ‘common parent’. It is clear that an informal web of Chinese SOEs centred around Piraeus is taking shape, with a considerable potential turnover which is not easy to record, let alone analyse.

 

One of the key arguments put forward in the report is that, while China seems to have a long-term vision, the determination to meet its objectives and the ‘chain of command’ to streamline its efforts, Greece’s strategy vis-à-vis Chinese investment is half-baked at present. Greek governments certainly have high expectations with regard to stock sale, fees, taxation and contributions to the national social security system. Furthermore, in promoting Sino-Greek relations, Athens seems to count on political dividends in its tense relations with the international creditors. However, to what extent potential benefits are fully utilised by the Greek side is a different matter.

 

To begin with, since mid-2016 we have witnessed a spectacular U-turn in the government’s attitude towards Beijing, which is now seen as a strategic partner of Greece, on a par with the EU. This assumption can easily be called into question. While China is indeed a major source of investment capital and a leading global power in many ways, it is the EU that has a say on the rules of the game in member states, not Beijing. It is the EU, together with the IMF, that spearheads the process of liberalisation of the Greek market, often against vehement opposition from vested local interests, and thus offers opportunities to foreign investors, including Chinese corporations. And it is a long list of EU regulations that Chinese companies need to abide by, as COSCO realised in 2015, when the European Commission forced the Greek state to strip the Chinese conglomerate of some undue privileges.

 

In addition, there seems to be a bit of a misconception about what China can do for Greece. The Greek economy needs significant volumes of investment capital in a number of sectors and not only in those prioritised by Chinese corporations. Above all, while the volume of Chinese investment capital will continue to grow in the years to come, it will still be a tiny fraction of the overall investment gap the Greek economy is facing. Hence the question we raise in our report: to what extent can Chinese investment alone help Greece crawl out of its current fiscal and socio-economic quagmire? Given the enormous needs of the Greek economy, China’s assistance is definitely much-needed, but alongside any other legitimate source of foreign investment capital.

 

For all the reasons mentioned above, exactly how the asymmetrical Sino-Greek relationship and the ‘strategic partnership’ catchphrase mix remains to be seen. Ideally, Chinese investment should be attracted, assessed and put in use after some necessary questions are raised and answered in a meaningful way. And, hopefully, Sino-Greek relations will continue to develop in a way that allows Athens to strike a delicate balance between China’s priorities and Greece's core interests, in the true spirit of ‘win-win cooperation’, as is persistently reiterated by Beijing.

 

* Head of Asia Unit at the Institute of International Economic relations (IIER), Athens, Greece