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Countries Wary of China Need Patriotic Investment Plans

The Chinese shipping giant COSCO’s stake in Hamburg’s port raises concerns.

Braw-Elisabeth-foreign-policy-columnist3
Braw-Elisabeth-foreign-policy-columnist3
Elisabeth Braw
By , a columnist at Foreign Policy and a fellow at the American Enterprise Institute.
A ship owned by China's COSCO is moored at the Tollerort Container Terminal.
A ship owned by China's COSCO is moored at the Tollerort Container Terminal.
A ship owned by China's COSCO is moored at the Tollerort container terminal in the harbor of Hamburg, northern Germany, on Oct. 26. Axel Heimken/AFP via Getty Images

His own government is against it, but German Chancellor Olaf Scholz has granted China’s state-owned shipping giant COSCO permission to buy a significant stake in the Port of Hamburg. The six government ministries involved in the consultation regarding the stake all registered their objections in internal government correspondence, and Vice Chancellor Robert Habeck and Foreign Minister Annalena Baerbock had both voiced their opposition to it in public, but the port argues that the Chinese investment is merely a business matter. That’s the dilemma. Just like other companies, the Port of Hamburg is not obliged to concern itself with national security. That doesn’t mean Western governments should wave through investments by hostile regimes—but it does mean that they should find alternative investors.

“It was the right decision,” Scholz—a former mayor of Hamburg—called his decision to let COSCO buy almost 25 percent of the Port of Hamburg’s container terminal Tollerort. Tollerort has the capacity for 2 million TEU (containers, in layman speak) per year. That’s about one-quarter of the total handled by the Port of Hamburg, Europe’s third-largest port, after the ports of Rotterdam in the Netherlands and Antwerp in Belgium. Tollerort can also process container ships carrying up to 23,000 TEU—some of the largest container vessels traversing the world’s oceans today. That’s an enormous competitive advantage for the Port of Hamburg in European ports’ constant tussle for more cargo traffic. COSCO had promised the Port of Hamburg to make Hamburg its “preferred hub”—a considerable boon given that the Chinese behemoth operates 11 percent of the world’s shipping fleet.

Indeed, the CEO of Port of Hamburg Marketing told Chinese state media outlet Xinhua in September that the COSCO investment “was a pure business decision, which is very usual not only in Germany but also in other European countries.” Speaking at a news conference, Scholz said that countries should avoid damaging influence on their infrastructure, but said at the end of October that COSCO’s stake is not an example of such influence, just before a high-profile trip to China that will, it is hoped, intensify German-Chinese business links. Despite the ministry opposition, Scholz pushed the deal through anyway, his only concession being that COSCO will now buy a 24.9 percent stake, not the 35 percent originally foreseen.

His own government is against it, but German Chancellor Olaf Scholz has granted China’s state-owned shipping giant COSCO permission to buy a significant stake in the Port of Hamburg. The six government ministries involved in the consultation regarding the stake all registered their objections in internal government correspondence, and Vice Chancellor Robert Habeck and Foreign Minister Annalena Baerbock had both voiced their opposition to it in public, but the port argues that the Chinese investment is merely a business matter. That’s the dilemma. Just like other companies, the Port of Hamburg is not obliged to concern itself with national security. That doesn’t mean Western governments should wave through investments by hostile regimes—but it does mean that they should find alternative investors.

“It was the right decision,” Scholz—a former mayor of Hamburg—called his decision to let COSCO buy almost 25 percent of the Port of Hamburg’s container terminal Tollerort. Tollerort has the capacity for 2 million TEU (containers, in layman speak) per year. That’s about one-quarter of the total handled by the Port of Hamburg, Europe’s third-largest port, after the ports of Rotterdam in the Netherlands and Antwerp in Belgium. Tollerort can also process container ships carrying up to 23,000 TEU—some of the largest container vessels traversing the world’s oceans today. That’s an enormous competitive advantage for the Port of Hamburg in European ports’ constant tussle for more cargo traffic. COSCO had promised the Port of Hamburg to make Hamburg its “preferred hub”—a considerable boon given that the Chinese behemoth operates 11 percent of the world’s shipping fleet.

Indeed, the CEO of Port of Hamburg Marketing told Chinese state media outlet Xinhua in September that the COSCO investment “was a pure business decision, which is very usual not only in Germany but also in other European countries.” Speaking at a news conference, Scholz said that countries should avoid damaging influence on their infrastructure, but said at the end of October that COSCO’s stake is not an example of such influence, just before a high-profile trip to China that will, it is hoped, intensify German-Chinese business links. Despite the ministry opposition, Scholz pushed the deal through anyway, his only concession being that COSCO will now buy a 24.9 percent stake, not the 35 percent originally foreseen.

The deal will undoubtedly stand the chancellor in good stead when he leaves for China on Nov. 3, accompanied by a business delegation. Just before Scholz’s departure for China, it has also emerged that the German government plans to greenlight the acquisition of German chipmaker Elmos by Silex, a Swedish microchip firm fully owned by China. Silex itself was acquired, along with two other Swedish cutting-edge microchip firms, in 2015 by firms that subsequently turned out to be linked to China’s People’s Liberation Army. At the time, Sweden had virtually no foreign direct investment (FDI) screening, and the acquisitions meant the companies in reality were lost to Sweden.

Both Scholz’s insistence on allowing COSCO to get a chunk of the Port of Hamburg and the plans to wave through Elmos’s sale to a Chinese ultimate beneficial owner suggest that Scholz hasn’t grasped that today’s globalized business differs from its incarnation of, say, 2008, when the Beijing Olympics were on and ties between China and Europe were at a high. Around that time, Scholz was Hamburg’s interior minister—the city counts as a state—and then Germany’s minister for work and social affairs. In 2011, Scholz was elected Hamburg’s governing mayor. His visit to China with a business delegation in tow suggests that he’s keen to expand business ties even as other countries’ companies are retreating from China after having concluded that remaining there exposes them to geopolitically motivated repercussions from Beijing.

Scholz’s approach may be overly optimistic—perhaps even willfully naive. This year, then-Prime Minister Mario Draghi of Italy took the unusual step of annulling a Chinese firm’s acquisition of the Italian dual-use drone-maker Alpi Aviation. In 2018, the Hong Kong-based firm Mars had bought a 75 percent stake of Alpi, but an investigation by Italy’s financial police, the Guardia di Finanza, subsequently established that Mars was itself owned, through a complex seven-layer structure, by China’s state-controlled Management Committee of Wuxi Liyuan Economic Development Zone and the State-owned Assets Supervision and Administration Commission of the State Council.

Now that many Western countries have introduced stricter FDI screening, their governments will need to do much more investigative work before approving sales to even innocuous-seeming entities. But as Jerker Hellström of the Swedish Center for China Studies told me, “Investigating ownership that runs through several layers is very difficult, and as a result it’s very time-consuming.” Often it’s, in fact, not possible. In 2019, Hellström—then working for the Swedish Defence Research Agency, FOI—mapped all Chinese acquisitions in Sweden since 2002, but he says that identifying acquirers that were Chinese owned while not based in China themselves was so challenging that such firms were not included in the report.

If Western governments manage to identify all prospective investors from hostile countries, it will lead to a new challenge: Who’s supposed to invest in the blocked investors’ place? Because the investments concern sensitive companies, it’s vital that those companies find another shareholder or owner instead. In the late 1970s, Chancellor Helmut Schmidt (like Scholz, a Social Democrat from Hamburg) faced a situation similar to that of Scholz. The government of Iran wanted to buy a significant stake in Daimler-Benz, and as Schmidt explained in a 2007 television interview, “The ayatollah was waiting in Paris, and it was obvious that there would be a change of power. … I found it inappropriate that the pearl of German industry, which is what Daimler-Benz was, would end up in Iranian hands. I thought, ‘This has to be prevented.’”

Indeed, unlike Scholz, Schmidt not only thought the investment had to be prevented—he took action. The chancellor called Deutsche Bank and asked the then-unmistakably German bank to buy the stake. “I said, ‘It is in the patriotic interest that you buy this stake,’” he explained in the TV interview. “’You may have to keep the stake for many years … but you have to do it.’ And because they were good patriots, they did.”

With today’s business entirely globalized, it would be harder for Scholz, or Joe Biden, Rishi Sunak, Emmanuel Macron, Giorgia Meloni, or any other Western leader, to ask one of their respective country’s corporate titans to buy a stake in a firm to prevent it from falling into the wrong hands. But it might still be worth a try. Considering that 74 percent of Germans, 69 percent of Britons, 68 percent of French citizens, 64 percent of Italians, 82 percent of Americans, and 83 percent of Swedes view China negatively, a company willing to step in to prevent a Chinese stake in a sensitive company would certainly gain the public’s gratitude (and business to go with it). Conversely, the public would draw its own conclusions regarding a company that refused to perform such a service to the country.

As I outline in The Defender’s Dilemma, governments could also buy the stakes themselves. Because only investments in the most sensitive companies would be blocked, the investments needed would be limited. Indeed, with the companies likely to make profits, government stakes in them would be not just a wise national security move but good use of taxpayer money. Under Chancellor Angela Merkel, Germany pioneered such a strategy in 2018, when state-owned KfW bank bought a 20 percent stake in energy network operator 50Hertz to prevent a Chinese acquisition of it.

Scholz is clearly not intent on following his fellow Hamburger’s strategy. But other Western leaders would do well to learn from Schmidt. What’s the harm in calling up a few corporate titans and asking them to, as a one-off, do a good deed for their country?

Elisabeth Braw is a columnist at Foreign Policy and a fellow at the American Enterprise Institute, where she focuses on defense against emerging national security challenges, such as hybrid and gray-zone threats. She is also a member of the U.K. National Preparedness Commission. Twitter: @elisabethbraw

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