European Union

Spain’s role in Chinese infrastructure drive tops agenda for Xi Jinping’s visit to Madrid

  • Madrid may be cautious about any agreement on Beijing’s ‘Belt and Road Initiative’ as EU concerns persist about Chinese investments
  • But Spanish companies keen on Chinese projects, while country needs foreign cooperation after past debt crisis
PUBLISHED : Tuesday, 20 November, 2018, 6:15pm
UPDATED : Tuesday, 20 November, 2018, 11:20pm

Chinese President Xi Jinping will push for Spain to endorse the “Belt and Road Initiative” and consolidate China’s ties with Europe when he visits Madrid next week before his planned talks with US President Donald Trump.

Spain’s royal palace announced Xi will stop in Madrid on November 28 to commemorate the 40th anniversary of Chinese-Spanish relations, and will meet Spanish Prime Minister Pedro Sanchez, who was sworn into office in June. Xi is also expected to visit Portugal.

The trip will precede Xi’s arrival in Argentina for the G20 summit, where he will meet Trump to discuss China-US tensions triggered by their trade war and security confrontations such as South China Sea disputes.

Analysts said Sanchez may take a more cautious attitude towards Chinese investment after it ballooned rapidly under his predecessor Mariano Rajoy. Chinese investment in Spain grew from less than 10 million euros (US$11.4 million) per year before 2012 to more than 1.6 billion euros in 2016, according to independent research provider Rhodium Group.

Why China buying up ports is worrying Europe

“The new government is a bit more concerned about a sell-out,” said Jan Weidenfeld, head of the European China Policy Unit at the Berlin-based Mercator Institute for China Studies, citing widespread European concerns about growing Chinese investment in Europe.

The 28-member European Union bloc was expected to finalise a plan for a foreign investment screening mechanism in the European Commission on Tuesday, according to Reuters.

Bloomberg reported in April that China had bought or invested in at least US$318 billion of European assets over the previous 10 years. The report recorded 36 deals worth more than US$7 billion in Spain alone.

“[Spain and China] are in the process of forming a new relationship,” Weidenfeld said. “It will be interesting to see how the new government will position itself.”

A key part of the agenda for China is for Spain to sign an agreement under the “Belt and Road Initiative”, Beijing’s massive programme to build and fund infrastructure projects in nations stretching from Asia to Africa, launched in 2013.

Mario Esteban, senior analyst for Asia-Pacific at the Real Instituto Elcano think tank, said the Chinese side would hope to sign a memorandum of understanding on the initiative, although Spain was unlikely to agree.

China’s Djibouti military base: ‘logistics facility’, or platform for geopolitical ambitions overseas?

Cui Hongjian, a senior fellow with the China Institute of International Studies in Beijing, said China wanted to extend cooperation with European countries.

“Now that Spain has a new government, and it urgently needs to shake off its debt crisis of the past, it has a need for foreign cooperation,” he said. “You could say that it has a need to cooperate more with China.”

Belt and road projects have been marred by controversies, and by developed countries’ scepticism over the lack of transparency in how the programme is run and concerns that China is using the projects to extend its geopolitical influence abroad.

At least 12 EU nations, most recently Greece, in August, have signed a memorandum of understanding on the initiative with China, but Germany has not signed and the UK – in common with the United States and Japan – has refused to endorse it.

European Commission seeks to restrict investment from Chinese companies

China’s connections in Europe could be strengthened if Spain and Portugal also signed the endorsement.

Chinese investment in Spain has mainly been in agriculture, hospitality and real estate, but in recent years has begun to grow in more “strategic” areas, according to a report by Esteban and his colleague Miguel Otero-Iglesias.

In 2016, Chinese companies purchased two Spanish engineering firms, and Chinese shipping giant Cosco bought a majority stake in Spain’s biggest port operator.

“China feels that unilateralism and protectionism is increasing,” Cui said. “And China feels that belt and road can influence the world’s development, especially in the face of unilateralism and protectionism. The initiative emphasises cooperation, so in this way China can push globalisation and free trade.”

Spanish companies, meanwhile, are eager to increase their involvement in belt and road projects outside Spain, and hope a memorandum of cooperation for third markets can be signed.

China has signed similar deals this year, including with Singapore and the Netherlands, to facilitate business cooperation in other countries in belt and road projects.

Despite the unlikelihood of Spain agreeing to a government-to-government memorandum of understanding, Esteban said, “Spain hopes Spanish companies can win contracts for projects under Chinese financing and that Chinese and Spanish companies can form competitive consortiums to bid for contracts in Asia, Africa and Latin America.”

The trade war between China and the US is a concern for Spain, in particular how their rising tensions will affect Europe, and it wants the two sides to improve their relations, said Esteban. Madrid, and the EU at large, shares some of Washington’s concerns. “Spain is aligned with the EU in the trade war,” he added. “Spain wants China to open its economy to foreign firms.”

Weidenfeld said Spain would also look to address its trade deficit with China, which stood at 19.4 billion euros last year. Spanish exports to China increased last year by 28.3 per cent, but its overall deficit grew by 2.3 per cent from 2016, according to Agence France-Presse.

“It’s all about getting that trade relationship a bit more balanced, but that’s going to be tough,” Weidenfeld said.