China Hopes for Easy Pickings in Crisis-Stricken Europe

(3 of 3)

But there are big concerns about the downside of accepting China's financial help. "In the future, when the Dalai Lama comes to Europe, the European governments will think twice about making statements about China's human rights," says Nicola Casarini, research fellow at the E.U.'s Institute for Security Studies in Paris. "China will expect from Europe a so-called friendly behavior, and that means restraining from publicly accusing them."

Cozier ties could also give Chinese firms an unfair advantage in Europe's wide-open economy if, as China shops freely for European assets, many Chinese industries remain closed to foreign investors. The Chinese government's close relations with business add to the discomfort. Chinese delegations to Europe often mix government officials with executives, and the government has the power to block business deals. "Many see Chinese investment as having a political agenda, or that all investors are arms of the state," says Freeman. In exchange for offers to purchase more euro-zone debt, for instance, Chinese officials have been demanding that Europe lift the arms embargo it imposed after the 1989 Tiananmen Square massacre.

Official dealings like those are muddying the waters for private investors like Huang, who accused Icelandic officials of Cold War era prejudice for rejecting his resort proposal after initially welcoming it. Huang, who had worked as a minister in the Chinese Central Propaganda Department and the Ministry of Construction, said Western countries were demanding that China open its markets to the West while "closing their doors to Chinese investment."

Beijing has also pressed the E.U. to approve its "free-market economy status," a technical term within the World Trade Organization (WTO) under which E.U. countries would drop their antidumping legal cases against China, the country with the largest number outstanding. The new status would make it easier for China to export goods like leather shoes and bicycles to Europe. French and Italian officials, who once fiercely opposed the idea, have softened their stance as Europe's crisis has deepened. "In the last month, the mood has really changed," Casarini says.

Whether China can win these concessions depends in part on how bad the euro crisis gets and on whether Chinese diplomacy can allay European doubts. Tsang believes Beijing is fueling its bad image in the West by expressing little concern for Europe's crisis. "There's not enough recognition that helping the E.U. is in their common interest," he says. That attitude could intensify during the coming months as China braces for major changes with President Hu Jintao's retirement, scheduled for next year. Chinese politicians "will avoid taking any risks which backfire on individual leaders," says Tsang.

Chinese investors have their own qualms. At a Hong Kong investment summit in November, Gao Xiqing, general manager of China Investment Corp., complained about foreigners who expect China to "go and invest, leave our money there and just depart. We won't get seats on the board. We won't have any say in how a place is run. That's not how things are done." To avoid political haranguing, China has supported expanding Europe's bailout fund by working through the International Monetary Fund rather than dealing directly with European governments, a proposal backed by other emerging countries like Brazil. But European officials have balked at China's insistence on gaining greater say in the IMF as well as having its currency included in the IMF's basket currency, the Special Drawing Right.

With Europe's debt threatening to tip the world into another all-out recession, leaders of the once rich world can no longer afford excessive pride. China may be sidelined by Old World clubs like the IMF and WTO. But in one-on-one dealings, its economic largesse holds sway. Even if China's cash infusion to Europe falls through, it is sure to continue gobbling up other European treasures. For beleaguered countries like Greece and Spain, the deals out of China are looking better every day.

Time.com

Feasting On Europe