Dec 15 2010
Mallory Factor: COMMON SENSE: Chinese Bearing Gifts (Forbes)
Remembering the famous story of the Trojan Horse, which appeared to be a gift to the city but was actually full of Greek soldiers waiting to seize Troy, the expression arose “beware of Greeks bearing gifts.” Several thousand years later, the tables have turned. Greece, now facing severe economic austerity, is accepting gifts, and it is the Chinese who are offering them. There are lessons in this story for America as well.
Recently, I was in Greece during the visit of Chinese Premier Wen Jiabao. In times past, the visit of a Communist leader to a NATO ally would have been important news, but the trip was virtually ignored in the U.S. and Greek general press. During Wen’s important yet low key visit, I saw firsthand how China conducts diplomacy quietly and effectively, in sharp contrast to our more strident and public approach.
Twenty years ago, Hedrick Smith opened his account of “how Washington works,” The Power Game, with a story about a visit by President Reagan to Senator Howard Baker’s farm in eastern Tennessee. The Secret Service demanded that a number of old trees be cut down on Baker’s farm, a massive security presence filled the country roads, and the President traveled in a large motorcade with press and numerous aides. Now, perhaps because of heightened security, our current President’s entourage is much larger, particularly when he travels abroad. Of course, the U.S. President must be able to work and communicate instantly with his advisors and other leaders wherever he is in the world. But to foreign eyes, the U.S. President’s footprint while traveling looks massive, overbearing, and wasteful.
Contrast this image with what I witnessed in Athens: Premier Wen’s presence in the capital city hardly disrupted business at all. Instead, the Premier’s motorcade was like the processions on ancient Greek vases: short and concise. Few streets were closed or guns displayed. Athenians were hardly aware that China’s head of government, the leader of the Communist world, was visiting their city – or that he was at the same time making deals that would strongly affect Greece’s future.
The Premier came primarily to do business and advance his country’s agenda in the region, rather than for photo-ops and glad-handing. His mission was to secure a series of important commercial agreements between China and Greece. The catch was that he agreed China would purchase future issuances of Greek debt as part of the deal, relieving some of the pressure on the Greek budget since this spring’s bailout of Greece.
As Greece had already wrested whatever economic concessions it could from the European Union, the troubled country needed to look further afield for new financial investment. Greek political leaders were very receptive to Chinese overtures because China addressed Greece’s immediate need to find purchasers for its debt. Greece’s minister of state, Haris Pamboukis, told the New York Times, “The support of our Chinese friends is fortunate for us.” But he seemed to be overlooking for the moment that China’s offer to aid Greece comes with a price. By increasing its investment in Greece and its infrastructure, the Chinese will gain significant influence over the country, its vital industries and its trade.
Some of the commercial arrangements China achieved during the Premier’s visit were designed to increase China’s involvement in Greek industries and to facilitate Chinese trade with Europe. For example, it was agreed that Chinese state-run banks will lend $267.8 million to three Greek shipping companies for purchase of Chinese-built ships, and China will launch a $5 billion fund to provide credit to Greek companies for future purchases. China’s state-owned firm Cosco also recently took control of the Piraeus port near Athens, the largest passenger port in Europe and the largest container port in the eastern Mediterranean. Cosco will run the port under a 35-year management contract and will be making substantial new investments there in the next few years.
With the Piraeus port, China now has an important beach head in the Mediterranean which could lead to eventual control of these vital sea routes. This is the latest in a series of moves by China to gain control over a network of ports, railways and distribution channels which it will use to carry its goods to European markets. During the current financial crisis, China has been strategically purchasing transportation hubs and infrastructure assets in the weaker Southern and Eastern European countries toward this goal. Yet China is open about this objective; as the Chinese press recently reported, “China will help upgrade Greece’s largest port, Piraeus, to a distributing center for Chinese Exports to Europe.”
China’s involvement with Greece will also affect the whole Euro-zone. By buying Greek bonds, China is also helping to stabilize the euro. Greece’s financial crisis earlier this year led to a severe crisis in the euro, including a $750 billion fund available to support flagging economies. A series of such crises would seriously weaken the monetary union. The continuation of the euro thus depends in part on the cooperation of Chinese lenders, as China is keenly aware.
America, too, needs to pay attention to these developments. Our excessive government spending, too, is increasingly financed by Chinese purchasers of our government debt. And China has already sent us signals that their patience with our economic downturn is not unlimited. America, too, should beware of Chinese bearing gifts while we still have some options open to us.