A Trojan Horse Approach? Chinese Infrastructure Investment in Europe
Bottom Line Up Front
Chinese infrastructure investments throughout Europe have the potential to pose a strategic risk to the West, not just the countries where the People’s Republic of China (PRC) is spreading its economic and geopolitical influence, but also to Europe’s allies, including the U.S.
Chinese ownership and investment in ports highlights the impact and influence that Beijing has, and can exert, on the supply chains that dominate the global trading system.
Chinese investment in Europe’s infrastructure has the potential to undermine American alliances and NATO cohesion, provide Beijing with leverage in times of crisis (control of strategic assets), and pose myriad military, security, and counterintelligence concerns, including espionage and cyber sabotage.
The PRC uses the lure of investment and bilateral deals that circumvent Brussels, complicating efforts to craft a coherent European Union-China policy and undermining U.S.-EU coordination on countering authoritarian influence.
As part of the People’s Republic of China’s (PRC) signature foreign policy framework, the Belt and Road Initiative (BRI), Beijing is building infrastructure worldwide. And while much of the focus on these efforts looks at what the Chinese Communist Party (CCP) is attempting to achieve in Africa and other parts of the Global South, the PRC is also investing heavily throughout the European Union (EU). These investments have the potential to pose a strategic risk to the West more broadly, not just the countries where the PRC is spreading its economic and geopolitical influence, but also to Europe’s allies, including the United States. In different instances, Chinese-built infrastructure could be considered dual-use, meaning it has both commercial and military applications.
As a component of the BRI, the PRC is also seeking to develop a Twenty-First Century Maritime Silk Road (MSR), the main objective of which is to enhance connectivity throughout Southeast Asia, Oceania, the Indian Ocean, and East Africa. Strategically, both the BRI and MSR serve as force multipliers in great power competition. Moreover, it makes sense for the PRC’s competitors to view Chinese investment in infrastructure not as regional, but as interlocking parts of a comprehensive system. As a result of U.S. President Trump’s trade tariffs, Europe is expecting to be inundated with more Chinese goods.
Chinese investment in Europe focuses on strategic infrastructure, including ports, energy, telecommunications, transportation, and so-called ‘green technologies’ and electric vehicles. The PRC has invested in ports across Europe, including those in Belgium, Germany, Greece, Italy, the Netherlands, and Spain, among others. Major players include two Chinese state-owned companies: COSCO Shipping and China Merchants Port Holdings. Between COSCO, China Merchants, and the Hong Kong-based Hutchison, these three companies now hold stakes in more than 30 terminals across the EU. In May, the EU’s Commissioner for Sustainable Transport and Tourism, Apostolos Tzitzikostas, suggested that Europe’s ports had to “reconsider security…and examine foreign presence more carefully,” in what many perceived as a thinly veiled message from Brussels to Beijing. Throughout the EU, there have been louder calls for implementing stricter control over foreign ownership in the area of “critical transport infrastructure.” The PRC is currently threatening to block the sale of more than 40 ports to a joint venture by BlackRock and Mediterranean Shipping Company, or MSC, respectively, if COSCO does not secure a stake in the deal.
Chinese ownership and investment in ports highlights the impact and influence that Beijing has, and can exert, on the supply chains that dominate the global trading system. For some time now, Chinese investment in some of the world’s busiest and most well-connected ports has provided the CCP with essential leverage. Many countries, including those in Europe, are gradually becoming strategically dependent on the PRC, with significant long-term consequences for trade, logistics, and the economy. It is worth noting that not all Chinese infrastructure projects are successful. Some have failed, and have done so for a variety of reasons, including political, economic, security, and/or environmental reasons. The barriers to entry are higher in Europe than in parts of South and Southeast Asia, where the PRC maintains stronger relationships and can utilize political influence and corruption in a manner that Beijing is less able to in the West.
It is not just ports, but other areas where the PRC has invested heavily in Europe’s infrastructure. This includes Chinese firms that have acquired stakes in power grids and utilities, including China Three Gorges, which is the largest shareholder in Portuguese energy company EDP, and the State Grid Corporation of China, which indirectly owns percentages of both Terna and Snam, Italy’s electricity transmission system operator and its natural gas equivalent. Both Huawei and ZTE have built or proposed to build parts of Europe’s 5G infrastructure. Just last week, Spain was heavily criticized for awarding a multimillion-dollar contract to Huawei for the storage of judicial wiretaps, leading some in the U.S. to question whether Washington should be sharing intelligence with Madrid. Huawei was added to the U.S. Department of Commerce Entity List in 2019.
In the transportation sector, the PRC has facilitated rail projects in Eastern Europe, including the Budapest to Belgrade line, which is funded by Chinese loans. This has been accompanied by a recent surge in Chinese investment in battery factories and electric vehicle (EV) assembly plants. The PRC boasts the world’s largest EV battery maker, Contemporary Amperex Technology Co. Ltd. (CATL), and last month announced that 90 percent of the funds it raised through its initial public offering would be dedicated to expansion in Europe, particularly a factory it is currently building in Hungary. Under Viktor Orban, Hungary has become the PRC’s gateway into Europe, offering Chinese investment tax incentives and infrastructural support to build and operate factories in the country. PRC-made electric vehicles pose an economic threat to the European car market, particularly in Germany, which also leads to intra-European disputes. Southern European nations, including debt-stricken nations like Greece, Portugal, and Italy, have all welcomed Chinese investment, especially during the Eurozone crisis, while Beijing is also continuing to court Central and Eastern European countries, as well as Balkan nations. So far, Western Europe’s stricter regulatory environment has somewhat limited Chinese penetration at similar rates.
There are a number of ways that growing Chinese investment in Europe’s infrastructure poses challenges to the United States. To begin with, it undermines U.S. alliances and NATO cohesion. Chinese investment can create economic dependencies that attenuate Washington’s influence in European capitals and make countries more reliant on Chinese capital. In turn, political pressure from Beijing could influence some European countries to become less supportive of U.S. positions on technology bans, as has occurred with Huawei. Over time, there are greater concerns, including European support for sanctions on the PRC as a result of human rights violations or military aggression, and a direct challenge to the United States in terms of what countries are willing to support with regard to strengthening Indo-Pacific security cooperation.
Another major concern, as described above, is Chinese control of strategic assets, including ports, energy grids, and telecom networks. Chinese control of ports in Europe—which serve as logistical hubs—poses long-term military and economic risks, especially during times of crisis. The PRC likely views its control of ports, particularly those in the Global South, as serving as dual-use facilities for the People’s Liberation Army (PLA) Navy, enabling power projection into the Atlantic or the Mediterranean in the event of a conflict, although this would be much more difficult to do in practice than in theory and is complicated by a number of factors. Infrastructure data collected via projects on railways, telecoms, and/or energy could also support targeting, disruption, or surveillance during wartime.
Energy grids and other critical infrastructure become especially vulnerable, offering Beijing crucial leverage. And telecom networks, including 5G networks built by Huawei, provide opportunities for espionage, surveillance, and cyber sabotage, something that the U.S. and its FVEY partners have warned about for years. In terms of technology transfer and industrial espionage, Chinese firms use joint ventures and acquisitions to gain access to industrial designs and engineering expertise, transportation and energy management systems, and clean tech innovations (battery production and EVs).
Although the intelligence and counterintelligence risks seem apparent, it is worth noting that infrastructure projects often come with embedded surveillance technologies or data-sharing agreements that serve as a Trojan horse for the Chinese government to access sensitive data. Under Chinese law, state-owned enterprises are legally bound to cooperate with Chinese law enforcement and intelligence services, including the Public Security Bureau (PSB) and the Ministry of State Security (MSS). Beijing’s entire strategy of investing in European infrastructure is dual-use, as it not only aids the PRC economically but also serves as a divide-and-conquer approach within the EU geopolitically. By using the lure of investment and bilateral deals that circumvent Brussels, Beijing has confounded a singular, coherent European China policy. After the PRC’s COSCO invested in the Greek port of Piraeus, Athens blocked EU statements on the South China Sea ruling and human rights issues in the PRC. This, and other examples, serve as evidence of the CCP undermining U.S.-EU coordination on countering authoritarian influence, which has geopolitical implications throughout Asia and beyond.