Europe makes room for Chinese investment, but not without concern

China has signed a number of trade deals throughout Europe that could boost struggling economies, but some Europeans have misgivings about the possibility of a financial lifeline from China.

China's new foray in Europe was launched just days into 2011. European royalty and heads of state welcomed Vice Prime Minister Li Keqiang, believed to be next in line for premier, with great pomp. He toured Spain, Britain, and Germany with an entourage thick with rich businessmen and, along the way, announced billions of dollars of investment into Europe's debt-ridden economies.

Mr. Li returned to Beijing having promised to spend $7.9 billion more in Spanish bonds. His delegation inked 16 deals in Spain that alone are worth $7.5 billion. Following Li's visit, China's largest bank said it would double its European presence, and China even sent two pandas – Sweetie and Sunshine – to the Edinburgh Zoo in Scotland.

Many in Europe are cheering what they see as a Chinese rescue: Perhaps investment from the world's second-largest economy will save the ailing eurozone and pull some countries back from the brink of collapse.

But along with this potential lifeline comes risk, many economists and security analysts warn, if Europe becomes too beholden to China. Indeed, in exchange for investment, Beijing is seeking entry to big financial markets and access to technological know-how. It's also seen as coming to the Continent with an eye on gaining more geopolitical clout and possibly trying to preempt Europe's ability to react to China on all fronts – from human rights to trade disputes to the arms embargo the European Union still has in place.

"China wants to establish an alternative, a new order in which it dominates. The political move is to establish itself as a superpower alternative to the US," says Lawrence Sáez, a senior lecturer in comparative and international studies at the University of London and chair of the Centre of South Asian Studies.

More than a business exchange

Mr. Sáez says China's involvement in Europe could first lead to bringing down trade barriers. In Spain, for example, during Li's visit China's biggest oil refiner formalized a $7.1 billion stake purchase in the Brazilian operations of Spain's largest energy company, Repsol, which had for years rejected offers from Chinese and Russian companies.

While China's promises of billions of dollars in business investment will be years in the making, already scores of middle- and upper-class Chinese students and entrepreneurs are coming to Europe in anticipation of a greater economic partnership between China and Europe.

Cultural exchanges are increasing, too. Last October, Italian author Umberto Eco and Chinese researcher Qui Xigui chaired the first annual EU-China High Level Cultural Forum in Brussels. This year, the forum will be organized in China and focus on youth and greater cultural cooperation.

Chengcheng Li, originally from an impoverished mountainous region near Tibet, came to Spain almost five years ago from the outskirts of Beijing as part of a student exchange program. An only child of a chemistry professor and gynecologist, she just wanted "to leave the mountains, but I never dreamed Europe would be my destiny." She soon discovered what her place should be in a new world increasingly influenced by China's spreading wings.

"I am a bridge, an ambassador," says Ms. Chengcheng, in her early 20s, pointing to how little China and Europe know about each other. In the northern region of Catalonia, she earned a bachelor's degree and two master's degrees while working as a marketing consultant in a firm exporting high-end Spanish goods to China.

She was in the first batch of Chinese exchange students in Spain, who were made into minor celebrities by Spanish TV. "This is very new," she says. "We are not opening up restaurants and grocery stores, looking to escape poverty. We are getting an education, learning about Europe, networking, and doing business."

She's now enrolled in a part-time business program at IE Business School in Madrid and working toward a master's degree in business administration. "Business is politics and politics is business," she says, switching between fluent Spanish and English.

Europeans doubt Chinese intentions

Many of the Chinese newcomers feel Europeans are overly suspicious of their intentions, says Jiang Shixue, professor and deputy director of the Institute of European Studies, affiliated with the prestigious Chinese Academy of Social Sciences.

"Economically, it's for the purpose of gaining profits, diversifying the use of China's foreign exchange reserves, participating more deeply in the international capital market, integrating China more closely with the world economy; diplomatically or politically, it's for the purpose of improving bilateral relations with the EU; and morally, it's for the purpose of helping somebody when he or she is in need of such help," he says about China's rescue of the EU.

"If China stood by just watching the situation in Europe turning for the worse, China would have been criticized for lacking sympathy. Now China offers to help, some people in Europe are suspicious of China's intention. Tell me what China should do," says Mr. Shixue.

Deep suspicions about China's intentions in Europe are because of cultural misunderstandings, says Huang Ning, executive manager of Wuhan Asia Heart Hospital in Wuhan. He visits Europe and the United States often for work and as part of overseas business programs organized by Cheung Kong Graduate School of Business in Beijing, one of China's most prestigious.

"It's a matter of different cultures that contribute to suspicion. American people and attitudes have changed a lot, and there is less suspicion. Europe does not have as much contact with China so they are more suspicious. It's understandable," he says in a phone interview from his home, speaking through a translator.

Diplomacy via the financial system

While only at the start of what is surely a years-long process, China's Euro­pean landing illustrates the economic and geopolitical rise of one power – which may be on a "soft power" offensive – and the deline of another. A rising power is bargaining and a faltering one appears happy to negotiate.

Total Chinese investment in European bond purchases remains a mystery because neither China nor Europe report total amounts. It probably adds up to dozens of billions spread across several countries, an amount that is insignificant compared with China's $2.85 trillion in foreign reserves and to Europe's overall debt, analysts say.

So far Chinese bond purchases have had little effect in European economic recovery, other than offering a small and temporary psychological boost. Rather, China's financial rescue of Europe is in the form of direct private investment, a tempting scenario for European countries like Spain, that need to create jobs.

In effect, China is applying a version of its cash diplomacy used successfully for decades in developing countries in Asia, Africa, and Latin America.

"In China we are still in the stage of transforming traditional industry. We must learn from advanced countries, and this is why we are open-minded," Mr. Huang says. "I am an entrepreneur, and I don't worry about politics. My feeling echoes most of the comments of Chinese entrepreneurs."

Another young Chinese MBA candidate in Spain, Tiantian Huang, says, "Chinese think differently. We are trying hard to benefit the world. We want harmony, not a fight. We want to increase trade, to build relations, to learn. We are trying to be more innovative to fit in the new world order."

She wants eventually to return to China with her experience and set up a company to trade with Europe and the US. "But first I need to understand the culture, languages, get my experience, and network."

As for Chengcheng, she intends to stay. "Once you get to a certain level in business, you can influence your surroundings," she says. "It's international relations. It's economy and politics."