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China-Greece: One belt, one road?
As negotiations between the Greek authorities and the renamed “institutions” labour on, Greek media outlets reported in recent days that the government in Athens was close to receiving substantial liquidity injections from Russian and Chinese sources.
More specifically, Greece was said to have reached final agreements with Russia and China on pipeline construction contracts and investment deals that would provide upfront liquidity injections north of 15 billion euros.
The astonishment at the good news in Athens quickly gave way to public denials by the Russian Finance Minister, Anton Siluanov, and a “no comment” attitude in Beijing.
Given their track record of international financial deal making in the past decade, both countries are not known to be selfless lenders to sovereign states in dire need of liquidity provisions.
A look towards Africa and Latin America, in the Chinese case, or former Soviet republics dependent on Russian gas deliveries quickly makes it clear to any observer the political price and financial implications of entering into lending agreements with Beijing or Moscow.
The official denial from Russian representatives of the energy and pipeline agreements with Greece underlines that the management of success stories is a political art that still needs further refinement in Athens.
But the Chinese connection is an entirely different matter. In September 2013 Chinese President Xi Jinping first introduced the so-called “One Belt, One Road” strategy. Its focus is on a massive domestic and foreign investment programme, in particular concerning infrastructure projects. Jinping seeks to re-establish a modernised version of the historic Silk Road through which Chinese businesses will have access to new export markets in Europe and beyond.
The key financial institutions supporting such a strategic export orientation are the China Development Bank (CDB) and the Export-Import Bank. Both state-owned institutions focus on providing the financing arrangements for China’s infrastructure investments abroad. The two lenders have ample state-supplied foreign currency liquidity from China’s massive reserve trove of approximately 3.7 trillion US dollars.
Greece constitutes a central piece within this strategic “One Belt – One Road” investment puzzle. From Beijing’s point of view, Greece is to become a logistics hub for connecting China with European markets and the Middle East.
The objective to establish a large Eurasian market via a European bridgehead makes strategic sense, particularly in order to enable Chinese manufacturing industries to export their way out of existing domestic over-capacity.
The travel diplomacy of Greek government representatives to Beijing and Shanghai under Prime Minister Alexis Tsipras and his processor Antonis Samaras underscores the policy continuity in this regard and allows for new avenues for mutual cooperation to be explored.
The Tsipras government’s recent invitation to Chinese firms to tender for deep-sea oil and gas exploration licences reinforces this determination. The tender, for test drilling in 20 offshore blocks in the Ionian Sea and off southern Crete, has been extended until July 2015.
Moreover, during his recent visit to China, Deputy Prime Minister Yannis Dragasakis proposed a three-year cooperation framework agreement to the Chinese authorities. His roadmap seeks to expand from existing port investment projects to also include ship building and repair, loan arrangements, supply chain management and cultural exchanges.
Beijing’s representatives will test the capacity to broaden bilateral trade and investment projects against the Greek government’s willingness to complete the tender for the sale of the majority stake (67.7 percent) in Piraeus Port Authority (OLP).
Any manifest delay in closing the proposed OLP deal or rewriting the terms of reference on the part of the Greek authorities would adversely impact on China’s predisposition to further commit sizeable financial resources to Greece.
In recent weeks China has underlined its investment commitment towards Greece by taking the rather unusual step of buying T-Bills of a eurozone member state.
The initial financial commitment, reportedly over 250 million euros, is small change for Beijing. But the investment constitutes an urgently needed third party liquidity injection for the Greek government.
Despite this investment, one should not read too much into Beijing’s move. Its volume does not (yet) represent an example of sustained Chinese support for Athens’ urgent and massively higher liquidity needs. The Chinese authorities do not see themselves as the white horse coming to the financial rescue of a eurozone member.
It is rather in Beijing’s strategic interest to cooperate with European countries that are financially stable and on a firm economic footing. Greece hardly meets these criteria at present.
Thus, any Chinese investment in the country will be targeted at specific sectors and niche projects that are secure enough to commit resources in the medium term and are characterised by a significant underutilisation of its commercial potential.
This was China Ocean Shipping Company’s (COSCO) initial strategic calculus when it invested in the container terminal handling concession at OLP in 2008 for a duration of 35 years. Despite initial conflicts, the commercial turnaround in Piraeus is an unprecedented success story, mutually beneficial for both sides of the bargain.
In some respect, Hong Kong now has a “brother” port in Piraeus, an island of economic success illustrating how a semi-privatised Greek company can turn the corner even in times of sustained crisis.
COSCO’s subsidiary Piraeus Container Terminal (PCT) currently manages Piers II and III. In 2014 it was awarded an expansion of the terminal concession contract. This agreement has not been called into question by the SYRIZA-led government.
For the Chinese operator, the objective is now to expand this activity and turn Piraeus into a Mediterranean transhipment hub with a distribution centre. This logistics roadmap puts the focus on transport interconnectivity through follow-up investment in parts of Greek Railways (OSE).
But for the first time, COSCO is facing competition from another foreign bidder, namely Denmark’s Maersk subsidiary APM Terminals. When and how the contract for the 67.7 percent stake will be awarded is already a contentious issue among the bidders and regulatory authorities. APM has expressed concern that OLP may be granted to COSCO through a Sino–Greek government agreement.
This could prompt competition authorities in Brussels to look into the matter. Whatever the outcome, it will be a test case for the Greek government in terms of its privatisation policy and awarding concession rights. More importantly, the process could become a signature move for the future potential of Greek–Chinese economic relations.
*This analysis appeared in Friday's e-newsletter. Subscribers can receive the newsletter via our free mobile apps or by logging in to our website.
Follow Jens on Twitter: @Jens_Bastian