THE IMPACT OF THE CURRENT ECONOMIC CRISIS
ON THE CHINESE POSITION IN EUROPE
It is commonly believed that the economic crisis has changed the balance
of power in the world. We can observe the relative deterioration of Europe’s in-
ternational position vis-a-vis large players, including the United States, China
and Russia. Losses may be seen in every area, whether it be ideological, politi-
cal, economic or military. The EU, forced to ask for investment assistance for in-
stance in China, has lost a lot of its prestige. The might of the United States is also
in relative decline. In economic and political terms this country lost much of its
former status of unrivalled superpower. China is perceived as one of the coun-
tries that benets the most from global disorder. We can already notice a growing
Chinese economic presence in Europe, and while some accept it with hope, oth-
ers worry. Many experts have expressed their anxiety about the rising political
inuence of China, and ordinary people from EU member states claim that they
are afraid of China. The main aim of this paper is to confront the hopes and wor-
ries with facts, and to answer the following questions:
1. Do the Chinese economic activities in Europe during this turbulent time
of crisis pose a real danger for the EU?
2. To what extent has China gained a better political position in Europe
and should we be afraid of a so-called “Chinese lobby” in the Council?
3. Could China really be an important part of the solution to the economic
crisis in Europe?
Chinese activities in Europe will be presented in the theoretical framework
of neorealism/defensive realism, which seems to be especially useful for the pur-
pose of this paper due to the fact that it is the dominant school of thought in Chi-
na. Neorealists may be sub-divided into ‘offensive’ and ‘defensive’ camps,
with the latter being particularly inuential. Although both are focused on se-
curing national interests, defensive realists do not seek security by intentionally
decreasing the security of others, and do not believe that conicts of interests
142 Tomasz Kamiński
are irreconcilable.1 Conicts of interests between actors do matter, but coopera-
tion is a possible option for their resolution.2 Tang persuasively proves that Chi-
na’s strategy is deeply rooted in defensive realism, which means that Beijing will
be focused on national interests, and rather reluctant to seek coercive ways of re-
solving conicts with other actors.3
As far as the denition of power is concerned, the Whalley concept of eco-
nomic power is particularly useful. This notion of power puts an emphasis
on market size (including retaliatory power), bargaining power in cooperative ar-
rangements between countries, and that power which stems from legitimacy (or
1. Growing economic power
The economic crisis that began in 2008 affected all major players
on the world stage. It has accelerated shifts in the global distribution of power
to such an extent that it has changed the global balance of power.5 The People’s
Republic of China (PRC) has in all probability beneted the most from the eco-
nomic turbulence and global disorder. Although China has also suffered
from the economic crisis, its government has managed rather efciently to cush-
ion the negative impact of the global slowdown.6 The slump in demand for Chi-
nese products in the US and Europe, which are the two most important markets
for China, affected its economic growth and exposed the structural problems
in its economy, such as growing unemployment or even deeper regional dis-
parities. The underdeveloped nancial sector,7 although not that much exposed
to international turbulence, was not able to quickly revive a slumping econo-
my. For the ruling Chinese Communist Party (CCP), the exponential wealth
of Chinese society is the major legitimization of its power and the government
1 S. Tang, From Offensive to Defensive Realism: A Social Evolutionary Interpretation of Chi-
na’s Security Strategy, [in:] China’s Ascent. Power, Security, and the Future of International Politics,
eds. R. Ross, F. Zhu, Cornell University Press, Ithaca, NY 2008.
2 Ch. Glasser, Realists as Optimists: Cooperation as Self-Help, “International Security” 1994,
no. 19, p. 50–90.
3 S. Tang, From Offensive to Defensive Realism: A Social Evolutionary Interpretation of Chi-
na’s Security Strategy, State of Security and International Studies, Rajaratnam School of Interna-
tional Studies, Singapore 2007.
4 J. Whalley, Shifting Economic Power, OECD September 2009, http://www.oecd.org/dev/
pgd/45337859.pdf, p. 43 [access: 29.09.2014].
5 Z. Brzezinski, Strategic Vision: America and the Crisis of Global Power, Basic Books, New
6 Y. Zheng, S.Y. Tong (eds.), China and the Global Crisis, World Scientic 2010; G. Chance,
China and the Credit Crisis. The Emergence of the World Order, Wiley, New York 2010.
7 C. Walter, F.J.T. Howie, Red Capitalism. The Fragile Foundation of China’s Extraordinary
Rise, Wiley, New York 2011.
The impact of the current economic crisis on the Chinese position in Europe 143
reacted forcefully at the rst signs of economic slowdown. A stimulus package,
as large as almost 586 billion USD (4 billion RMB), was perceived as a great
success. It reinvigorated bank loans, and in the rst quarter of 2009 banks lent
the equivalent of 10% of GDP.8 This resulted in a quick return to double-digit
GDP growth, of 10.4% in 2010, incomparably greater than that of any other
large economy in the world.
The Chinese economic success during the time of crisis led to a shift
in the economic power in the world. From 2008 to 2012 the GDP of China, count-
ed in USD, almost doubled (from 4,551,827 million to 8,226,885 million USD
(according to the National Statistical Bureau of China), improving its relative po-
sition versus the EU and the United States. While the Chinese economy, in terms
of GDP, is still only half as big as the economies of America or Europe; nonethe-
less the relative change is still impressive. That raises the question: to what extent
does such a shift in economic power inuence relations with partners and the po-
litical position of China?
2. Facts and Fears
The growing Chinese economic presence in Europe has already been noticed.
Many experts and journalists have expressed their anxiety regarding the rising po-
litical inuence of China and its growing potential to exploit and exacerbate Euro-
pean disunity. The vision of European nations competing with each other to attract
Chinese investment with all sorts of incentives is threatening for the EU.9 Ordi-
nary people are afraid of Chinese economy. In 2011 so many as 41% of citizens
from twelve EU member states claim that they are afraid of China while only 46%
see it as an opportunity.10
The most wide-spread fears can be summarized as follows:
• Rising Chinese competition costs Europe billions in lost jobs. However
consumers are the winners who enjoy cheaper products, the losers are the dis-
placed workers whose incomes suffer and the taxpayers who must support them.
• The crisis paved the way for a more protectionist EU trade policy that will
lead to trade wars with China. During economic turbulences the EU’s accusation
of Chinese companies beneting from unfair state aid allowing them to dump
goods in Europe, receive general recognition.
8 B. Naughton, China Response to the Global Crisis and Lessons Learned, [in:] The Global
Recession and China’s Political Economy, eds. D.L. Yang, Palgrave/Macmillan, Basingstoke 2012,
9 Eg. S. Meunier, China as Savior or Predator in Europe?, 2011, http://www.hufngtonpost.
com/sophie-meunier/china-as-savior-or-predat_b_1074282.html [access: 29.09.2014]; F. Gode-
ment, J. Parello-Plesner, Wyścig po Europę, Fundacja im. Stefana Batorego, Warszawa 2011.
10 Transatlantic Trends. Key Findings 2011, http://www.gmfus.org/publications_/TT/TT2011_
nal_web.pdf [access: 29.09.2014].
144 Tomasz Kamiński
• China is going to buy up strategic European assets, most of all in the energy
and infrastructure sectors, that are perceived as “politically sensitive”.
• China can exploit the vulnerability of some European countries by offer-
ing nancial aid in exchange for political support. That may result in the creation
of a so-called “Chinese lobby” of smaller member states within the EU.
Do the economic activities of China in Europe during this turbulent time
of crisis pose a real danger for the EU?
3. Does China steal or create jobs?
Since the start of the economic and nancial crisis in 2008, the number of jobs
lost in the EU has reached 5 million, of which 4 million were lost in the euro area.11
It is hard to measure the impact that China has had on these numbers. On one hand,
undoubtedly harsh competition from China inuences some sectors of the European
economy. On the other hand, some experts argue that rising competition from Chi-
na is in fact benecial to the EU economy.12 They argue that the effect of reduced
employment is signicant only for the low-tech sectors, and that Chinese import
competition has “led to increased technical change within rms and reallocated
employment between rms towards more technologically advanced rms. These
within and between effects were about equal in magnitude, and appear to account
for 15% of European technology upgrading over 2000–2007.”13
The positive impact of China on the European labour market in times of crisis
is visible in some sectors. One of them is the tourism industry. The number of Chi-
nese tourists arriving in Europe totalled 5.7 million in 2012.14 This is a small frac-
tion of the tourism market when compared to the number of American tourists
(82 million in 2012), but still the growth trend is impressive. Until 1994 Chinese
citizens were not permitted to leave the Asian continent for leisure, and until 2001
were only allowed to travel as part of organized tours. The recent inow of Chi-
nese tourists represents a radical change and opens new economic benets for Eu-
For the European luxury branches of business, Chinese clients have become
one of the most important groups. In some exclusive shops in London or Paris (the
most popular European destination for rich Chinese tourists), they account for 50%
of foreign visitors, and are responsible for 30% of the total turnover. According
11 Council of European Union, Joint Employment Report, 4 March 2013, No. 6799/13.
12 N. Bloom, M. Draca, J. van Reenen, Trade Induced Technical Change? The Impact of Chi-
nese Imports on Innovation, IT and Productivity, CEP Discussion Paper 2011, No. 1000.
13 This research was based on data covering the years before the crisis, there is no direct evi-
dence that such a phenomenon is still visible today.
14 European Travel Commission, European Tourism in 2013: Trends & Prospects. Quarterly
Report 1/2013, Brussels May 2013, http://www.etc-corporate.org/reports/tourism-trends
The impact of the current economic crisis on the Chinese position in Europe 145
to British estimates, Chinese visitors spend on average £1,618 on a trip to Britain,
which is three times more than the average spent by other international tourists.15
Chinese citizens travel to Europe not only for shopping, but also for medi-
cal procedures, attracted by the top-level technology and standards of care. Even
though eight thousand patients a year is still a relatively small number, it repre-
sents a 30% increase every year, and an average expenditure for each of those
trips estimated to be €100,000, it demonstrates a signicant potential for growth
for the medical sector.16
The large, fast growing economy of China, apart from “stealing European
jobs”, also creates new opportunities in some sectors. Chinese demand has gained
importance during the crisis, although its impact on European markets should
not be overestimated, at least with respect to the short term.
4. No trade war with China
European trade with China was not affected that much by the nancial crisis,
at least from the point of view of Brussels. The EU’s exports to China have been grow-
ing steadily and the import crash noted in 2009 led to the rst decrease of the trade
decit with China since it entered the WTO in 2001. Similarly to relations with other
big partners (USA, Russia), in 2010 trade came back on the growing track.
The European trade decit with China, a source of major political battles
before the crisis, still remains relatively large, but it is not a burning issue any
more. It is decreasing in absolute as well as in relative terms. In 2008 the decit
was equal to more than half of the EU-China trade. By comparison, in 2012 it was
only one third.
The crisis has eased the most important economic problem in bilateral rela-
tions: the deep trade imbalance in favour of China. However, the situation with re-
spect to access to the Chinese market is far from being acceptable for the EU.
Since the nancial crisis, European political pressure on China has become even
stronger, as trade barriers have become more bothersome for European companies
struggling with reduced demand. In June 2012, the EU Ambassador to the WTO,
Angelos Pangratis, presented a long list of accusations and demands, stressing
that China is not fullling its obligations.17 In truth however, there was noth-
ing new in the list; a similar one was published by the European Commission
15 H. Warrell, G. Parker, H. Kuchler, Plea to ease UK visas for Chinese tourists, “Financial
Times”, October 5, 2012.
16 Delegation of the European Union to China, Europe Attracts The Changing Face of Chinese
17 A. Pangratis, Statement by EU Ambassador to the World Trade Organisation, ‟Fourth Trade
Policy Review of China”, 12 and 14 June 2012, http://trade.ec.europa.eu/doclib/docs/2012/june/
146 Tomasz Kamiński
in 2006.18 It is worth noting that during the crisis China has not imposed any new
protectionist measures, although they have preserved the rather slow pace of abol-
ishing old ones.
Graph 1. European export and import to China in years 2007–2012 (in billions EUR)
Graph 2. The EU trade balance with China in the years 2007–12 (in billions of EUR)
18 European Commission, Competition and Partnership. A Policy paper on EU-China trade
and investment, Brussels, 24.10.2006, COM (2006) 632.
The impact of the current economic crisis on the Chinese position in Europe 147
During the turbulent times of economic slowdown many experts were afraid
of repeating the “Great Depression” scenario, when the crisis led to an outbreak
of protectionism. But these fears have not come true. Many new political initia-
tives have demonstrated the opposite – free trade is perceived as a solution rather
than a source of problems.
5. Are they buying us up?
Chinese investments in Europe have become a hot issue in recent years
and have attracted a lot of analysts’ attention.19 Starting from about 700 mil-
lion USD annually (2004-2008), Chinese investments in Europe tripled in 2010
and reached 12.6 billion USD in 2012. On one hand China is using the crisis
to snap up bargains, but on the other hand its investment activities are a natural
consequence of its companies developing and internationalizing.
Although growing rapidly, Chinese investments are still less than 5% of EU
foreign direct investment (FDI) inow.20 The biggest stake was invested in three
countries: Germany, France and Great Britain, although Hungary (5th place)
and Greece (8th) have also attracted a lot of Chinese money.21 However, even
in a small state such as Hungary the total Chinese investment in the last ten years
is a mere 3% of all FDI in the country, which is estimated to be 65 billion EUR.22
Even more importantly, there is no evident correlation between Chinese in-
vestments and the policy of a particular European state in relation to human rights
or embargo on weapons. It may be concluded that Chinese business activities
in Europe so far are driven mainly by commercial and not political motives. May-
be this is due to the fact that 2/3 of investors are private companies.23
The prole of a Chinese investor in Europe is completely different to one
investing in Africa, where the main role is played by state-owned enterprises,
which realize the political goals of their owner.24 Furthermore, in Africa the Chi-
nese are concentrated on the mining sector and raw materials, while in Europe
their investments are diversied between many sectors.
19 T. Hanemann, D. Rosen, China Invests in Europe. Patterns, Impacts and Policy Implica-
tions, Rhodium Group 2012; J. Clegg, H. Voss, Chinese Overseas Direct Investment In The Europe-
an Union, Europe China Research and Advice Network 2012.
20 T. Hanemann, D. Rosen, China Invests in Europe…
21 F. Hay, Ch. Milelli, Y.Shi, The Impact of the Global Financial Crisis on the Presence of Chi-
nese and Indian Firms in Europe, Sussex Academic Press, Eastbourne 2012.
22 Hungarian Investment and Trade Agency, http://www.hita.hu/en/Content.aspx?Conten-
tID=220482e5-5231-4d5f-bf8a-bbe11268d14a. [access: 01.06.2013].
23 T. Hanemann, D. Rosen, China Invests in Europe…, p. 4.
24 A. Amighini, R.Rabellotti, M. Sanlippo, Do Chinese SOEs and Private Companies Differ
in Their Foreign Location Strategies?, EUI Working Papers, RSCAS 2012, Vol. 27.
148 Tomasz Kamiński
Beijing owns more than 3 trillion USD in foreign currency reserves
and is an important player on the bond market. However, nobody knows how
much China has invested in EU bonds (there is no ofcial data published by ei-
ther China or the EU), though one can estimate that their engagement is far too
low to be crucial. Even if we optimistically assumed that 25% of their reserves
is denominated in euro, this amounts to 650 billion EUR, which is less than 10%
of the whole eurozone public debt.
During the darkest hour of the nancial crisis in the EU, China was perceived
as a potential lifesaver for some indebted eurozone states. For instance, in January
2011 Deputy Prime Minister Li Keqiang was cordially welcomed by Spaniards,
who were counting on Chinese generosity in buying bonds. Chinese diplomats
promised to spend 6 billion EUR on them.25 Even if this were to occur, it would
be rather a friendly gesture than a real solution to Spain’s problems. The afore-
mentioned sum equals just 1% of Spanish public debt and amounts to only 5%
of the international nancial support for Greece. The money promised by China
was only a fraction of the real needs at that time.
China was obviously interested in evading a disastrous breakdown in the eu-
rozone. However, it is quite incredulous to think that the Chinese, who manage
their reserves rather cautiously, would decide to invest heavily in the risky as-
sets of some European countries on the verge of bankruptcy. It should be noted
that the Chinese sovereign wealth fund, China Investment Corporation, declared
in 2012 that they had stopped buying European bonds.26 As Jacob Funk Kir-
kegaard noted “appropriately for a very wealthy region, the EU has relied on its
own resources to address the crisis, with […] China largely playing on the nan-
This is a rather typical political behaviour on of the part of China insofar far
as harsh world problems are concerned; that is, being engaged more rhetorically
than practically and limiting costs as much as possible. One can observe a similar
stance in climate change talks, where China does as much as possible to limit its
The cash-strapped governments of Southern Europe also strive for Chinese
investments on the real estate market. The sovereign-debt crisis in Europe has
also meant a depreciation of the euro; the currency fell about 17% against China’s
RMB from the beginning of 2010 to the end of July 2013. This made real estate
25 D. Pierson, H. Chu, China Moves to Prop Up Europe’s Economy, ‟Los Angeles Times”,
26 L. Wei, A. Browne, A. Latour, China CIC Chief Sees Rising Risk of Euro Breakup, „The
Wall Street Journal”, June 7, 2012.
27 J. Kirkegaard, Why the euro zone crisis will impact little on Europe’s relations with China,
“East Asia Forum”, April 3, 2012.
28 K. Ritter, U.N. climate talks impasse ends as China and India drop demands, “Washing-
ton Post”, November 24, 2013. See also: Analysis of Climate Policies of China, The United States
and The European Union, Social Science Academic Press 2010.
The impact of the current economic crisis on the Chinese position in Europe 149
in Europe more affordable for Chinese buyers, and many countries tried to attract
them to invest in properties. One of the most spectacular incentives is the offer-
ing of visas for those who purchase prime properties. Greece and Cyprus offer
fast-track permit processes for purchases of at least 250,000 euros and 300,000
euros, respectively. In Portugal, the program has a minimum price of 500,000
euros, which still far less than the minimum 1 million pounds that Great Britain
demands.29 Keeping in mind that a 200-square-meter villa in Spain costs the same
as a 68-square-meter apartment in central Shanghai, one can expect that the num-
ber of Chinese homeowners in Europe will grow. In 2012 the small state of Cyprus
alone attracted more than 1,000 Chinese citizens, so Spain or Portugal (much
bigger countries offering access to the Schengen zone) should be able to attract
Wealthy Chinese are also attracted by other countries. For example, Hungary
offers ve-year residency visas for investing 250,000 EUR in a special govern-
ment bond programme. In late 2013, Malta outbid everyone by offering full EU
citizenship for 650,000 EUR, which sparked security concerns among other mem-
Chinese investments in Europe have been growing rapidly since the beginning
of the nancial crisis. This was caused by a combination of factors – lower prices
in Europe, the rising purchasing power of China and an array of incentives aimed
at attracting foreign investors. Despite growing concerns among EU member states
over the rising Chinese presence in Europe, there is no evidence that it threatens
security in any way. Chinese investments activities are still limited in number
and value and have a rather positive inuence (if any at all) on the European econ-
omy and markets. Nevertheless, they should be monitored and each major transac-
tion should be examined for its impact on European security interests.
6. Chinese lobby in the Council?
However much one can debate over the size of Chinese investments in prac-
tice, the fact is that European politicians endeavour to obtain them, thus giv-
ing Beijing the chance to use them as a political tool. A good example of this
is the visit made by Klaus Regling to the PRC in October 2011. Regling was Head
of the European Financial Stability Facility (EFSF), a special fund set up to res-
cue endangered euro-zone states. He travelled to China for the sole purpose
29 H. Almeida, Needy EU Nations Woo Chinese Home Buyers to Ease Slump, “Bloomberg.
com”, August 22, 2013.
30 J. Chow, Cash-Strapped Nations Race to Attract Chinese Immigrants, “The Wall Street
Journal”, July 30, 2013.
31 H. Warrell, C. O’Murchu, ‘Passport for sale’ plan raises concern among EU members,
“Financial Times”, December 9, 2013
150 Tomasz Kamiński
of asking for China’s nancial engagement in the Fund. According to Chinese
ofcials, they imposed some political conditions, e.g. that the EU should rst
stop insisting on RMB depreciation, and only then could they count on Chinese
Chinese “bond diplomacy” is another example of it trying to use new eco-
nomic power as a foreign policy instrument during a nancial crisis. Chinese
leaders visited indebted countries such as Spain, Greece and Portugal, making
promises along the way. Although it is not clear how many of them have ma-
terialized into investments, they certainly did win political support. Godement
and Parello-Plesner believe that southern European countries were against putting
pressure on China when the Germans and the British demanded reciprocity in ac-
cess to the public procurement market.33 Beijing could have promised nancial
support in return for political support in the EU institutions.
It is worth noting, however, that such behaviour did not differ much
from the Chinese policy before the crisis. China has always tried to inuence
the European decision making process, exploiting differences between member
states. It traditionally combines economics with politics when negotiating big
contracts with European counterparts, for example the Airbus plane acquisition
or the Maglev train.
A few years ago access to the Chinese market was the only precious card they
could play. Now the Chinese foreign policy “toolbox” has increased and become
enriched by their ability to use investment promises. Such promises are not only
used as an argument in horse-trading negotiations, but also as an element of public
There is no evidence that China has managed to build a permanent “lobby”
in the EU, using countries that are dependent on Beijing in one way or anoth-
er. China nds different allies in Europe on a case-by-case basis. Surprisingly,
in the recent conict over solar-panel exports it was the German government
that was the biggest critic of confronting China on this issue. Berlin did not want
to jeopardize its economic relations with China for the sake of a few solar-panel
producers, even though many of them were German.35 Germany, which together
with France has been usually perceived as an advocate of a strong common Eu-
ropean bargaining position with China in order to protect its companies,36 played
the role of the deal-seeker in this conict.
32 China May Impose Conditions for Helping Euro Zone, “Spiegel Online”, October 28, 2011.
33 F. Godement, J. Parello-Plesner, Wyścig…
34 Ibidem, p. 16.
35 M. Dalton Solar-Panel Dispute Burns Hole in EU Strategy, “Wall Street Journal”, August
36 F. Godement, J. Parello-Plesner, Wyścig…
The impact of the current economic crisis on the Chinese position in Europe 151
7. Final remarks
Since the beginning of the nancial crisis relations between the EU and Chi-
na have fundamentally changed. Beijing used to be a recipient of European aid
and investments. Nowadays, China is perceived as a donor and investor, and thus
the status quo has changed. Coming back to Whalley’s37 concept of economic
power, Chinese “bargaining power in cooperative arrangements between coun-
tries” has denitely increased, and so has its retaliatory power. Beijing has a new
instrument that can be used in political relations with European partners: invest-
ment promises. For the time being its importance may be limited, but it could
become very valuable for China in the future.
There is no evidence that Chinese economic activities pose a danger to Euro-
pean interests in these times of the economic crisis – their scale is small and their
inuence could be local at the most. However, taking into account the rapid
growth observed in recent years, this situation is more than likely going to change.
Although China might be rather reluctant to seek coercive ways of dealing
with the EU, it is clearly focused on promotion of its national interests. Due to this
fact member states and the EU itself should monitor Chinese economic activities,
keeping in mind that they could be politically driven. In particular, Chinese state-
owned enterprises and sovereign wealth funds should be closely observed, if only
due to the fact that in other parts of the world they are widely used for political
37 J. Whalley, Shifting Economic…