China has been taking over crucial infrastructure in Europe, but the EU and its member states didn’t heed warnings of potential security risks this entails.
The Greek port of Piraeus is bustling with the activity. Giant cranes remove from cargo ships metal shipping containers emblazoned with the logos of multinational shipping companies and add them to the stacks on the quay beside. A pilot ship guides a huge vessel to open waters, where ships flying the flags of the world await their turns to offload and collect goods for their next destination. Concrete apartment blocks and poorly built shacks in the hills look down on an enormous car terminal, where shiny new vehicles await their owners.
But one country reigns supreme over Piraeus: The flag hanging between the port’s dry docks and brick warehouses bears the five golden stars of the People’s Republic of China.
The state-owned company China Ocean Shipping Company – better known as Cosco – first leased a transshipment terminal at the Greek port in 2008. It has gradually and strategically expanded its influence over Piraeus ever since, and now owns a controlling stake.
The Greek port – the European Union’s fourth-largest for shipping containers, ahead of Barcelona and Genoa – is just one of 24 in Europe in which Cosco, together with another state-owned company, China Merchant Group (CMG), which is ostensibly one of Cosco’s competitors, acquired a major stake between 2004 and 2021. Most recently, in 2022, Cosco acquired 24.9 per cent of a major terminal in the port of Hamburg – the EU’s third-busiest for all merchandise – following approval by Chancellor Olaf Scholz over strenuous objections from some within his own government.
Concerns about China’s government gaining insight into the operations of foreign governments, segments of the economy, or citizens have been sufficient to cause the US House of Representatives to pass legislation requiring the sale of a social media platform or face a ban from US app stores. And a few experts have warned the European Commission of the risks entailed by Chinese state-owned companies owning infrastructure in the 27 member states. But oversight mechanisms the EU has put in place to guard against outside influence have not been enough to keep Cosco and CMG out of major European ports.
Alarm bells
When Jacob Gunter, an economic analyst at the Berlin-based Mercator Institute for China Studies (Merics) heard about the 67 per cent controlling stake Cosco had managed to amass in Piraeus by late 2021, it set alarm bells ringing. “It seems bizarre to me that Cosco has managed to take complete control of a strategically located European port,” Gunter said. “Being dependent on a foreign power is always risky – we learned that after the Russian invasion of Ukraine,” when Moscow threatened to cut off its outsize share of the European energy supply in response to sanctions.
Shanghai-based Cosco owns 496 container ships and has 17,000 employees worldwide (including subsidiaries), which makes the state-owned company the fourth largest shipping company after Mediterranean Shipping Company S.A (Switzerland), A.P. Møller-Maersk A/S (Denmark) and CMA CGM (France).
Together with the Vienna Institute for International Economics, Merics was commissioned by the European Parliament to analyse Cosco and CMG’s acquisition strategies for critical infrastructure in Europe. Gunter found that state-owned companies’ interest in the Union is not limited to Greece. The 2023 report he co-authored determined that Cosco and CMG together have invested more than 9 billion euros just in the maritime infrastructure of member states, including the Netherlands, Belgium, France, Spain, and Greece.
These aren’t companies structured like European ones typically are, Gunter said: Both are fully owned by the state-owned Assets Supervision and Administration Commission (SASAC), a giant holding company that controls 97 per cent of all of the People’s Republic of China’s state-owned enterprises.
“The problem is that Europe does not quite understand what Cosco actually is,” Gunter said. “It resembles a shipping company, but is in fact the final link in a much larger, centrally-controlled production chain. As a state-owned company, Cosco is not accountable to stakeholders. As a result, it is able to operate more strategically than its competitors.”
SASAC’s growing role in European ports presents a security risk for the Union, Gunter believes. The takeover of Piraeus isn’t necessarily a concern in isolation, he said, but the problem lies in the potential influence of the Chinese acquisitions together: supply chains can become vulnerable and member states grow increasingly dependent on foreign money, making them more susceptible to political influence.
“At any given time, the Chinese government could tell Cosco’s management to forget about making a profit for a while, and instead do as they are told.”
Gunter also warned of the dangers of cyber attacks and Chinese state-owned companies’ potential access to both civilian and military information, since China’s security laws require data to be shared with the government on demand.
“At any given time, the Chinese government could tell Cosco’s management to forget about making a profit for a while, and instead do as they are told. The free market principle that governs the EU economy is totally unequipped to deal with such risks,” he said.
Fighting the tide
Such a geopolitical perspective has only recently reached Brussels.
In 2016, the German government blocked the sale of chip manufacturer Aixtron to Fujian Grand Chip Investment Fund, a private company based in China, after it had already been approved by shareholders. Aixtron technology is used in weapons systems, and regulators were concerned that, owing to its influence over even ostensibly independent companies, the Chinese state could gain access to the software behind the sophisticated systems. Berlin tried and failed to prevent the takeover of “strategically important” robot manufacturer Kuka by a Chinese refrigerator manufacturer in 2016, and state-owned company ChemChina bought Swiss agrichemical company Syngenta for a record 43 billion euros in 2017.
The series of takeover attempts prompted the European Commission to develop legislation that came into effect in October 2020: the Foreign Direct Investment (FDI) screening mechanism now allows member states to assess investments in EU companies by overseas entities for public security risks.
The privatisation fund has sold 9 billion euros worth of Greek state-owned property to foreign companies, including the national railway administrator and the gas pipeline network
The FDI screening was not in effect when Cosco began its gradual takeover of Greece’s largest port, which dates to the financial crisis of 2008. That year, Cosco leased two deep-sea terminals in Piraeus from Piraeus Port Authority (PPA), which was at that time owned by the Greek state. After the crisis hit Greece hard, the country soon needed to borrow tens of billions from the European Financial Stability Facility, now the European Stability Mechanism, to avoid defaulting on its debt.
In exchange, the European Commission, the European Central Bank and the International Monetary Fund – known collectively as the “Troika” – demanded that Greece take severe austerity measures, economic reforms, and an extensive privatisation programme.
To manage privatisation, in 2011 Greece set up the Hellenic Republic Asset Development Fund (HRADF), with the Ministry of Finance as its sole shareholder. Since then, the privatisation fund has sold 9 billion euros worth of Greek state-owned property to foreign companies, including the national railway administrator, the gas pipeline network, the concessions rights at 14 airports, the state lottery licence, and large plots of land on a number of islands.
In 2016, the fund sold 51 per cent of Piraeus Port Authority to Cosco for 280.5 million euros.
By 2021, though, the FDI screening mechanism was in effect. That was when it was agreed that Cosco could buy another 16 per cent share in the port for an additional 88 million euros. The sale came with a condition, however: Cosco would invest hundreds of millions in safety measures and infrastructure.
Gunter lived in China for more than a decade. He is fluent in Mandarin and has seen the country change over the past ten years. He worries that the EU has been late in grasping the true extent of China’s complex plans: “The initial deal was signed years ago. But it seems incredibly naive to me that Cosco was able to increase its influence in the port ever since.”
Early concerns
Both Greek and European Commission officials warned Brussels about potential geopolitical consequences of the privatisation process from the very start. Finance ministers within the Eurogroup were not blind to China’s growing influence, but decided to use harsh privatisation and austerity policies to keep Greece within the debt limits required to keep it in the eurozone.
According to a Commission official who asked to remain anonymous to discuss sensitive matters, the aim was to prevent the country from falling under Russia’s sphere of influence if it got kicked out.
“We tried to raise the issue of potential geopolitical consequences of privatising Piraeus at the time,” the official said. “Our warnings were ignored because the Troika wanted to put its financial affairs in order by selling off as much state property as possible.”
A former senior Greek official now at Athens University, who didn’t want to speak on the record because it could compromise his current position, said: “The Troika wanted to privatise as much as possible, as quickly as possible. Our demand that Cosco at the very least invest in security measures was seen by the European institutions as an obstacle to the privatisation process.”
Member states are not required to use the FDI screening mechanism at their disposal, and translating such EU legislation into regulation is ultimately the member states’ responsibility. “Blocking a foreign investment should only ever be a last resort,” a European Commission spokesperson said. “Member states always retain the right to decide whether or not they will allow an investment on their territory. Information about such deliberations is usually classified.”
“We tried to raise the issue of potential geopolitical consequences of privatising Piraeus at the time. Our warnings were ignored.”
Still, the Commission would have had plenty of opportunity to limit Beijing’s hold on Piraeus even before the FDI mechanism came into effect. Though the Commission spokesperson described the fund as operating “almost autonomously”, Greece was in effect under the Commission’s direct supervision until August 2022 as a condition of its economic bailout. Also, the Commission had appointed two observers as part of the seven-member HRADF board in order to monitor against any potential corruption surrounding the often lucrative privatisation transactions.
One HRADF employee confirmed that no decision over its affairs in Athens could be made without Brussels’ implicit permission. According to the employee, who spoke on condition of anonymity to discuss HRADF processes, the Commission’s observers as a rule assess and report on each proposed sale and ensure everything is in compliance with European law.
Limited effectiveness
In a report from December 2023, the European Court of Auditors found the non-binding nature of the FDI screening mechanism to be a fundamental shortcoming. Though necessary to preserve member states’ sovereignty, the ban on the Commission’s determining rules for national investments and internal security makes FDI inherently vulnerable to wealthy state-owned companies such as Cosco, according to the Court of Auditors’ Mihails Kozlovs.
He said that in such matters, member states are mostly concerned with obtaining foreign investment and so don’t take the wider view of European security into account. “You expect everyone to participate in an internal market like the European one, but that is not the case,” he said. “Investment policy happens to be the responsibility of individual member states.”
Kozlovs points out this is “a contradiction” in the way the EU functions. “It only takes one weak link among the 27 member states to stop the system from being effective altogether.”
But is that what the member states actually want? Research at Princeton University in the US has shown that economic interests and national considerations of power stand in the way of the effectiveness of overarching European rules. As part of the 2021 study, Sophie Meunier, co-chair of the EU Program at Princeton, talked to dozens of senior Commission officials and employees of the diplomatic outposts of the member states. She found strong opposition to the proposed FDI screening mechanism from the very start.
Within the Commission itself, there was fear of damaging trade relations with China.
At the same time, most member states were reluctant to cede power to Brussels regarding their investment decisions. Liberal trading nations such as the Netherlands and Sweden believed it would cause undesirable market barriers, and Greece was against the idea because it had already become dependent on Chinese capital and didn’t want to irritate its new paymasters.
“In short, the current structure was the only way for the Commission to realise some form of investment screening,” Meunier said. “It’s not perfect, but at least it’s better than it was.”
It does not surprise her that Greece is one of four member states that by the end of 2023 still had not implemented any national laws for screening foreign investments. “Economic characteristics, and an emphasis on high-tech research in particular, determine a country’s attitude towards foreign investors,” said Meunier. “In that respect, France and Germany are more sensitive than other countries, because they worry about losing [the fruits of] scientific research to a country like China.”
Like Meunier, Kozlovs sees FDI screening as an imperfect solution to a knotty problem, and believes the current rules should be just a first step toward making the Union more resistant to foreign state-owned companies with agendas of their own.
“To make screening more effective, we recommend focusing on better coordination between member states,” Kozlovs said. “That way, they can look at the investments that concern all of them together.”
Dragon’s head
Ever since Xi Jinping became president in 2013, China has grown more and more assertive on the global stage. To become a superpower, the country must no longer be just the world’s factory, but a sophisticated economy exporting laptops, cars, robotics, chemicals, and green energy equipment made by Chinese firms.
To reach these goals, Beijing has devised an intricate web of complementary long-term strategies. The industrial plan Made in China 2025 should turn the country into a leading power in areas such as agricultural technology, robotics, information technology, shipbuilding, and biotechnology. At the same time, the Asian Infrastructure Investment Bank (AIIB), launched in 2016, competes with the Washington-based World Bank as a developer of foreign economies in its own interest. AIIB already serves as the main investment vehicle for the Belt and Road Initiative, a global web of transport infrastructure and logistics links such as railways, bridges, seaports, motorways, and transshipment terminals.
Piraeus plays no small role in this plan: During a 2020 visit, President Xi went so far as to call the Greek port city China’s “dragon’s head” in the Mediterranean.
As the state-owned Cosco’s gradual takeover of the port demonstrates, China is able to use its state-owned companies’ market power to slowly but surely acquire more and more economic and political influence in member states of the EU block, Gunter said: “Here in Germany, businesses have been putting a lot of pressure on the government not to get in China’s way too much. Car manufacturers and the chemical industry in particular are terrified of losing access to the Chinese market. I would suspect that in Greece, similar economic considerations played a role in the decision to give Cosco extensive control over the port of Piraeus.”
Gunter argues that measures should go beyond those that Kozlovs recommends: investment screening for every member state should be done in Brussels.
He sketched a hypothetical situation whereby “port management in Hamburg says: if we don’t win that investment, Cosco will go to Rotterdam. But the issue is China’s cumulative influence throughout Europe. If we don’t screen such investments in Brussels, we’re giving China the perfect opportunity to play off member states against each other.”
Unfulfilled promises
Anastasia Frantzeskaki, board member of the Federation of Greek Port Workers, pushes her bright red bike through dockworkers who have gathered in front of the Greek Ministry of Shipping on a sunny morning in May 2023. They are protesting what they say are unsafe working conditions at the shipyards and container terminals. A few days earlier, a drydock employee died after an accident caused a ship’s propeller to come off. Two others were seriously injured.
Such accidents occur frequently. Cosco has invested heavily in new cranes and railways at Piraeus, and the number of containers handled has increased 167 per cent between 2007 and 2016. But the promised safety improvements never came, Frantzeskaki said. (Cosco didn’t reply to requests for comment.) Meanwhile, Cosco achieved a record turnover of 154.2 million euros at Piraeus in 2021.
Frantzeskaki says that she tried to warn EU institutions on numerous occasions about the poor safety practices she observed at the port. “The European Commission has ignored warnings about Cosco’s power in Greece for years. So now we are accountable to Shanghai in everything we do.”
In fact, Cosco was rewarded even more power and influence after ignoring the agreements that were made, which calls into question the effectiveness of the new European law for screening investments.
“As the harbour master, it is Cosco’s responsibility to keep an eye on working conditions and compliance with safety requirements,” said an angry Frantzeskaki. “But it doesn’t, and it is not willing to invest in it either. The entire port area would be much safer if Cosco would simply stick to the agreements that were made.”