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A few days after the EU approved a fresh rescue package for debt-stricken Greece on July 21-- and cajoled bondholders into footing part of the bill-- China's outgoing ambassador to the Mediterranean country deftly pointed out that the Chinese-managed Greek port of Piraeus was doing better than ever. Speaking to China's official newswire, Xinhua News Agency, Luo Linquan optimistically projected that cargo throughput will continue to increase steadily at the port, which was leased to Beijing-based state-owned Cosco as part of a bond-purchase deal with the beleaguered Greek government in 2009.

Piraeus's performance "goes to show that Greek companies conducive to international management can thrive even in a crisis," he stated. As Greece's long-overdue economic reforms take shape and state assets are sold to chip away at its massive 330 billion euro (US$472.7 billion) of public debt, Luo said he expected opportunities to open in key sectors, including utilities, transportation and green energy, and urged Chinese companies to "do your research and take control of this opportunity."

And Greece is not the only European country at the receiving end of Chinese investor attention. Throughout recent months, a parade of Chinese officials, including Premier Wen Jiabao, visited not only the big economies of Britain, Germany and France, but also those on the periphery, such as Spain, Portugal and Hungary. While affirming their country's support for its largest trading partner by buying big chunks of public debt, they also used these visits to announce millions of euro worth of investment agreements in new and old businesses across the region.

As EU leaders struggle to power the 27-nation bloc out of the debt crisis, some have also taken to proactively courting China. Spanish Prime Minister José Luis Rodríguez Zapatero, for example, headed to Beijing in the spring as his country teetered on a ratings downgrade and its savings banks wobbled, hoping to secure additional investment pledges to supplement the US$7.3 billion of deals covering 16 Spanish sectors signed at the beginning of the year.

But as Zapatero found out when he returned to Madrid empty handed, there are limits to China's largesse and declarations of friendship. With the world's largest stockpile of euro and other foreign exchange reserves -- at more than US$3 trillion -- China, in fact, "has a big problem," says Wharton finance professor Franklin Allen. "They have an incentive to help Europe survive, yet it's dangerous for them to do so," especially if the rescue plans being cobbled together in Greece, Ireland, Portugal and Spain fall apart and China gets stuck holding large amounts of their debt. "Their US$3 trillion in reserves can buy up a lot of debt as an investor. In the long run, they may do; but in the short term, there's a significant chance of the whole thing blowing up, resulting in a recession where everyone loses." he says.

Regardless of whether China at some point becomes the "savior" of Europe's troubled economies, the situation in Europe today is changing the interplay between Brussels and Beijing, say experts, such as Jonas Parello-Plesner, a senior policy fellow at the European Council on Foreign Relations (ECFR), a pan-European think tank. He contends that the immediate need of crisis-hit Europe for cash is now allowing Chinese companies -- including the many state-owned ones -- to strike "cut-price deals" across Europe in ailing sectors and big government procurement contracts, while also playing member states off each other, often to the detriment of their collective interests.

Eye for Opportunity

Much is different from just a few years ago, before the global financial crisis began unraveling European economies in 2008, note Parello-Plesner and his co-authors of a new ECFR paper about EU/China relations titled, "The Scramble for Europe."In those days, the EU, like the US, chided China for its dumping practices and slow adoption of free trade. Brussels was also critical of China's human rights record and stubbornly resisted lifting its arms embargo to China.

But unlike the US, says Allen, "Europe is not running a deficit overall, so there's no great incentive to give into Chinese cash. China wants something in return from Europe, which they haven't got yet" -- the EU's recognition that, under the World Trade Organization framework, China is "market economy status," making it more difficult for European government bodies to launch anti-dumping proceedings against it.

What's more, hopes that the EU could continue its pursuit of a unified China policy have been put on hold, argues Parello-Plesner.

Five years ago, "the big story" was the flow of direct investment heading from Europe to China, he says, pointing out that foreign direct investment (FDI) in China from the EU then was US$1.3 billion, with much less flowing in the opposite direction. By 2009, it had increased to US$5 billion, compared with total FDI from China into the EU of US$3.35 billion in EU. But now, individually affected by the downturn and euro crisis in one way or another, each EU country is looking at China in a different light, showing a greater willingness than before to forge bilateral deals with the world's second-largest economy, starting with the FDI they send and receive.

The trend, in fact, began a year ago -- involving, among other deals, Zhejiang Geely Holding Group's acquisition of Sweden's Volvo Cars for US$1.8 billion -- as Chinese M&A activity began shifting from Asia, Latin America and Africa to Europe, according to a new report from analysts at merchant bank Grisons Peak in London. Already this year, big-ticket European acquisition targets by Chinese firms have included the Brazilian holdings of Spanish oil firm Repsol for US$7 billion; Borsodchem, a Hungarian chemicals manufacturer for US$1.66 billion; and Elkem, a Norwegian silicon unit for US$2 billion.

This may mean that in the short to medium term, China will gain from the crisis even as it spreads to larger economies, like Italy, says Bala Ramasamy, an economics professor at China European International Business School (CEIBS) in Shanghai. "With economic woes comes the demand for cheaper alternatives, and who else would provide such cheaper alternatives but China? If the contagion spills over to larger countries, and the debt issue moves toward the productive capacity of the nations involved, China could actually gain from this. Certainly, China is the real winner in this present crisis."

Yet Europeans also stand to gain, counters Yufang Guo, founder of Jomec, a Netherlands-based firm advising Chinese companies wanting to expand in Europe, which also has a center in China to help sell distressed European assets. "We can help [Chinese firms] looking for European corporate assets to find a good [bargain]," he says, "which is also beneficial for the European companies, whose survival in Europe is seriously in question but may still find an unexpectedly large market in China."

Yet while heated debate over human rights and the other deal-breaking issues of the past between EU members and China seem to have largely taken a backseat, there are undercurrents of wariness and suspicions about China's motives in European circles. Are China's recent investments helping it exert its own political agenda? Also, some observers note that China has struck deals in numerous developing countries in Latin America and Africa to get access to vast new supplies of the natural resources its booming economy needs. It's no secret that European companies have another, equally valuable resource that could now serve it well -- advanced technology -- and that raises all kinds of intellectual property concerns, they say.

A Two-way Street?

That undercurrent is indeed not lost on China, says Allen, noting that it's one reason why Chinese firms have aimed to stay "off the radar" and pursue low-profile deals. "Most Chinese companies face massive resistance when they try to buy European companies," he adds. "There are not quite the same defense worries as in the US, but you don't see too much buying of whole companies. The Chinese would probably love to buy German or Swedish companies for their technology, but that's difficult. They face strong political opposition."

Guo says he hears such objections frequently. "Chinese companies have always experienced resistance in Europe," he notes, adding that he advises his Chinese clients to target smaller European companies to avoid drawing negative publicity. And despite the pockets of resistance, he says his Chinese clients have begun scaling up their European aspirations, whether that's in M&A or in other areas, such as setting up distribution centers for goods from China. "However, in my view Europe will, in the end, choose to keep an open door to China, and tighten the supervision measures so that Europe remains a level playing field."

One Chinese company that knows Europe's playing field even better now is Tianjin Xinmao S&T Investment Corporation. It set off a wave of outcry late last year when it tried to outbid European rivals for Netherlands-based Draka Holding. Viewed as a test case among lobbyists and others in Brussels for the EU's appetite for China acquiring European assets that are either strategic or rich in technology or intellectual capital, Tianjin's offer couldn't be halted legally, but the EU's industry commissioner, Antonio Tajani, did step up a campaign against the Chinese firm's plans, helped by the revelation that a Draka subsidiary is a contractor for the US military. Tianjin eventually withdrew its offer, clearing the way for Italy's Prysmian to buy its Dutch rival for 830 million euro, creating the world's biggest maker of telecom and power cables.

"It is often the case of two steps forward, one step backward in Europe," H.E. Fu Ying, China's vice minister of foreign affairs, told Bulgarian news agency Novinite.com during a visit to the country in March. "Whenever China does something, some media would say, 'Oh, there is a threat, there is danger, there is a plot.' So the Chinese think, 'Why should I go there? Is it safe? If people don't like us, why should I risk my money? I will go somewhere else.'" She also said China's interest in the region needs to be put into perspective since overall, Europe only accounts for a fraction of total Chinese investments abroad.

The Big Picture

But other experts say much more capital from China could be flowing into Europe than what official statistics suggest. According to the ECFR paper, for example, "Four-fifths of China's external capital flows take place via offshore centers, such as Hong Kong and the Cayman and Virgin Islands. Those centers not only serve non-Chinese firms investing in China, [but] they [also] are now used by Chinese firms to buy European assets."

That leads to the debate whether and how much of Europe's sovereign debt China has actually been buying lately. "China has been giving out public signals -- such as with Wen's visit -- that they want to shore up confidence in Europe and that they'd like to buy bonds," says Parello-Plesner. "The difficulty with China is that we don't know how much it is. We don't have a breakdown of what they buy in different countries, because Europe doesn't have the same [reporting] system as the US."

But many observers contend that it's not the sovereign debt of the EU's troubled countries that is of most interest to China. "There is no obvious sign that China would actually be willing to become a buyer of last resort of the debt of a country close to default," says Qinwei Wang, China economist at Capital Economics, a London-based macroeconomic research firm, and former monetary analyst at China's central bank. "Although China's leaders have stated support many times this year, they were typically issued in general terms without any specific commitments on eurozone debt purchases. Moreover, as China's officials emphasized many times, safety is their first priority for managing foreign exchange reserves and liquidity is the second. They will thus not want to be seen risking their peoples' capital on a lost cause."

Yet for a number of reasons, China's public pronouncements of its support for the euro are genuine. It would have much to lose if the euro were to collapse. Apart from the negative effects a breakup of the currency union would have on the world economy, the euro is China's best alternative to the vast amount of US dollars comprising most of its US$3 trillion foreign exchange reserves, says Ramasamy of CEIBS.

If nothing else, the prospect of China diversifying their foreign reserve portfolio away from dollars could become a powerful negotiating tool when dealing with any of its global rivals, not least the US, says Parello-Plesner. "In 2010, everyone thought China was diversifying as there was a drop in their purchases of US debt," he recalls. "But then in February 2011, London showed up as an unexpectedly big purchaser of US bonds, which turned out to be funds diverted from China. It was a political signal from China to the US that, 'We will stop buying [US] bonds at some point.' Even though the massive diversification to the euro didn't happen in 2010, it doesn't mean it can't happen now."

Ultimately, greater transparency on all these fronts could benefit the entire global economy, asserts Parello-Plesner. But there's currently little incentive for either China or EU member states to "put numbers on the table." One upshot, he concludes, is that Europe will have to forego any collective leverage it could have in pushing for more access to China's market and other trade and investment terms benefiting the EU as a whole.

Change is unlikely any time soon. The EU's Lisbon Treaty of 2009 "was supposed to produce a coordinated policy, but it seems to have had zero effect," says Allen. "I can't see the likes of French president, Nicolas] Sarkozy giving up their bilateral relations with China. The reality is that [each EU member] has different economic situations with regard to China."