The dragon's head roars in Athens
It was a visit worthy of a plethora of superlatives. The arrival of China’s President Xi Jinping in Athens (November 10-12) was termed a “vote of confidence” for Greece.
Prime Minister Kyriakos Mitsotakis underlined that Greece and China are bound together by their cultural heritages, linking ancient civilizations of the West and East. President Xi described China’s multi-decade anchor investment in the Port of Piraeus as the “biggest project of the One Belt, One Road Initiative” (OBOR, the official Chinese term for the ‘Belt and Road Initiative’ (BRI)). Beijing and Athens spoke of transforming Piraeus into the “biggest” port in Europe. Chinese investment into the port will further expand. The presence of state-owned China Ocean Shipping Company (COSCO), the majority owner of the Piraeus Port Authority (OLP) was termed “the dragon’s head” by President Xi.
Greece and China issued a 17-point joint statement on “Strengthening the Comprehensive Strategic Partnership,” which exists since 2006. In addition, both sides signed a total of 16 protocols and Memorandum of Understandings (MoUs) to expand bilateral cooperation. Inter alia, they include Greek agricultural exports (e.g. saffron and kiwis) to China. The establishment of a China Research Centre in Greece was agreed between the Aikaterini Laskaridis Foundation and the Chinese Academy of Social Sciences (CASS). One of the most significant MoUs concerns joint ventures in the energy sector, e.g. facilitating the Attica-Crete electricity interconnector and constructing a 50-megawatt solar power station on the island of Crete with technical assistance from the China Energy Engineering Group. These initiatives underline the political will in Sino-Greek relations to diversify the agenda of cooperation across established and new sectors. It is an ambitious agenda and it will take hard work to translate this political will into tangible economic benefits for both Beijing and Athens.
The flagship project of Chinese–Greek cooperation remains the Port of Piraeus and the expansion plans which COSCO first tabled more than 18 months ago. The Chinese ministerial delegation made it abundantly clear to their Greek counterparts that the full adoption and immediate implementation of COSCO’s “master plan” (investments of roughly 900 million euros) remains the top political priority for Beijing. This position implies that any administrative obstacles or political roadblocks to the construction of the fourth container terminal project must be overcome quickly and primarily through the intervention of the Greek authorities. The Chinese are prepared to adopt so-called “off-setting” measures for the local population in Piraeus and municipalities in proximity of the port. But it is the Greek side which was reminded to avoid any further delays on China’s signature investment.
In other areas, the implementation of COSCO’s master plan can start immediately, e.g. regarding the construction of a new cruise passenger handling facility and the development of a new port logistics center. The concession process and funding arrangements for both parts have been secured, including – and this was a first - with the participation of EU loan financing. More specifically, the European Investment Bank (EIB) signed an agreement with the Piraeus Port Authority (OLP) concerning the partial financing of the master plan. The initial loan arrangement for the expansion and modernization of the port is set at 100 million euros and can increase by a further 40 million euros as project construction progresses. The loan has a maturity of 20 years and is being guaranteed by the Export-Import Bank of China (CEXIM).
For a number of reasons, the inclusion of the EIB into the financing architecture of COSCO’s master plan is smart politics on the part of the Chinese. Firstly, even though COSCO can secure favorable financing terms from one of China’s numerous state-owned policy banks, it opted to cooperate with a European lending institution. Secondly, this financing arrangement underlines Greece’s growing role in promoting the EU-China partnership. Repeatedly, government representatives in Athens underlined the importance of serving as a bridge builder in Sino-EU relations. Finally, the 140-million-euro loan is the largest funding agreement which the EIB has ever made available for a maritime project in Greece. With the EIB now on board, both Athens and Beijing can counter the occasional criticism (e.g. from Brussels, Paris and Berlin) that such investments could drive a wedge into or serve as a ‘Trojan Horse’ against a common approach of EU member states vis-à-vis China. By making the EIB a (lending) stakeholder in a major Chinese infrastructure project in Greece the EU now has skin in the game. Meanwhile, the Chinese side can expand its reputational capital in Luxemburg.
The financing arrangement for COSCO’s master plan is also significant for another reason. Its execution will now facilitate the arrival of two Chinese state-owned policy banks in the Greek banking sector. After having secured part of the funds from the EIB, COSCO is structuring the additional financing needs with the assistance of two Chinese lenders. The Bank of China (Europe) Luxembourg is opening a branch in Athens while the Luxembourg-based subsidiary of Industrial & Commercial Bank of China (ICBC) is opening a representative office in Greece. It is telling that the emerging financing architecture of COSCO’s master plan includes the EIB and various Chinese lenders, but does not (yet) include a domestic lending institution from Greece.
Instead, two of China’s biggest banks are establishing a foothold in the Greek banking sector. We can assume that both banks will not focus their business strategy on attracting deposits or providing consumer loans for Greek citizens. Rather, the primary focus should rest on infrastructure lending (e.g. for the energy projects on the island of Crete) and maritime finance. They can also be expected to cater to Chinese citizens that invest in the Greek ‘Golden Visa’ real estate programme. Furthermore, Bank of China and ICBC can offer their digital services to the growing number of Chinese tourists arriving in Greece through direct flights from Beijing and soon also from Shanghai.
It remains to be seen if Bank of China and ICBC expand their activities beyond these traditional bread and butter areas of banking services. After an initial consolidation process, they could explore other areas of the Greek financial sector. A game changer would be sovereign or corporate bond purchases or their underwriting. They could even start to explore opportunities in the expanding market for non-performing loan management under the auspices of the newly-created asset protection scheme, known as Hercules. In a word, the direct entry of two Chinese banking behemoths into the Greek financial sector should be interpreted as a statement of strategic intent with a long-term time horizon.
Following the visit of President Xi, the expanding nature of Sino-Greek cooperation will be closely monitored by Greece’s European partners, the European Commission in Brussels and the US Embassy in Athens. It will not have escaped these observers that both Beijing and Athens sought to underline the progress made in deepening Sino-Greek relations while simultaneously emphasising that this bilateral engagement can serve as a vibrant example of cooperation between the EU and China. This is not sheer rhetoric of diplomatic communiques. The new government in Athens is acutely aware that it still needs to build political trust for its policy agenda; as much in Brussels, as in Berlin, Paris and Washington. Its status vis-à-vis Beijing has been reassured and elevated with the visit of President Xi. But the efforts in bridge-building between the EU and China through Greek connectivity channels remain a work in progress.
*Jens Bastian is an independent economic analyst and financial sector consultant, based in Athens, Greece