China's Broadening Influence on Europe

Brittney Barrett |

For a decade at least, the world has been told to expect the rise of Chinese dominance. What began as whispers surrounding the rise of the Chinese economy has been reinforced by the slow decline of other developed nations who long ago began outsourcing much of their production overseas. Recent news reports confirm that years of U.S. and European importing has helped China become the second largest economy in the world. Today, much of Europe’s fate is in China’s hands, as the nation debates whether or not to use some of its $3 trillion in accessible cash to invest in a region whose economy resembles a late-stage Jenga tower.

China influences EU

China’s rise has prompted a level of discomfort among Euro nations, as crumbling economies in the likes of Greece, Italy, Spain and Portugal are left somewhat helpless to resist the cash influxes of China, even if it means making cultural sacrifices.  A recent TIME article, describes an ongoing conflict in Iceland’s Grimmsstadir involving the billionaire chairman of China’s Zkongkun investment group, Huang Nubo. Iceland officials have been fighting against Nubo’s suggestion  that a high-end hotel, nature reserve and golf course be built atop the natural wonder, valued for its serenity and isolation from industry, but even with their resistance, waves of Chinese tourists have begun visiting and eying the area’s massive real estate potential.

Iceland, for the past three years, has been laboring somewhat ineffectively to recover from an economic crash. Its failure to recuperate fully has left its economy vulnerable to the acquisitions and industry of a nation with pockets full of cash and the potential to create new jobs. In the coming months and years, other, more bustling corners of Europe will be in a similar predicament.

China has incentives to bailout the eurozone, a large majority of the goods it produces are sent to mature economies like the U.S. and developed Europe. Officials in these regions know this and have turned to China as a potential provider of tens of billions that would give one of the world's fastest growing markets even further interest in the region’s economies. With that additional cash influx, China’s presence in the nation could continue to grow and the tourism industry there, like Iceland, could be increasingly populated with Chinese vacationers.

As China considers the opportunity to invest in the European economy, it is taking advantage of the existing weakness there, preying on the nation’s assets from the big name companies to the real estate. Compared with most Europeans, Chinese investors are able to take larger risks and offer premiums on properties and businesses, expanding their influence.

The cash looks too good to turn down to many ailing European people and business owners, but some are wondering long-term how this will affect the recovery and whether the Chinese influence will begin to infiltrate the culture that is so deeply valued in Europe. The nation is exposed right now and some believe that China is taking advantage of the situation in a way that will be more managing partner than angel investor.

Thanks to China's current economic position, it has the clout to make these powerful demands. One example is the role the country can play in rebuilding the infrastructure across Europe that the EU cannot pay to repair unaided. Instead of lending directly to the government in order to facilitate improvements on infrastructure, it elected to take on the role of partner. As partner, not only will the country not have to rely on the plodding European government for a return on the investment, but it has the power to exert control over the situation and the profits. A recent TIME article points to a 2010 deal in which the Chinese shopping goliath COSCO (CICOY) signed a 35 year lease  on a massive pier in Athens. The agreement, valued at $5 billion, allowed China to restructure and modernize the facilities for maximum efficiency while being run by the Chinese themselves.

As Europeans slow their buying and the Chinese increase their own, they are slowly becoming the puppeteers behind historically European brands, Sweden’s Saab (SAABF) for instance, was purchased by two Chinese automakers earlier in the year. That trend can be expected to continue as Europeans avoid big ticket items during tight times. The Chinese manufacturing image has always been one that is able to produce goods more cheaply than other nations, possibly thanks to well-thought-out investments and partnerships with raw materials companies in South America and Africa. Conversely, Europe has historically been known for its high-quality creations in areas ranging from fashion to cars, but this is beginning to change. The preconceived notions we have about “what is European” and European made products are changing increasingly as China pulls the strings. The nations’ investments in 2009 in Europe were around 1.3 billion, but during 2011, that may have been the price of a single deal. This change is going to shift the manner in which people interpret what a European product is, an idea so tightly ingrained in the culture and everyday lives of the people that liver there.

Today, in spite of the large patches of impoverished people, there are more wealthy in China than there are in Europe. It could be assumed that in the coming years, the level of their wealth and the number across which it’s distributed, will both  rise exponentially, perhaps at the expense of European owned businesses.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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