China-US tension: Portugal feels Washington’s ire as Beijing comes wooing with an eye on strategic Azores

As US-China rivalry intensifies, European states have found themselves caught in the middle. The Post looks at how countries on the continent are responding, ranging from anti-China, to China-friendly, and those trying to walk a line between Washington and Beijing. The first in the four-part series looks at Portugal. Read part two, on the Czech Republic, here, and part three, on Greece, here.

When it comes to geography, Portugal is the EU member state physically closest to the United States. In diplomatic terms, however, the small Atlantic nation is the subject of an energetic economic courtship by Beijing, and Washington is not happy with Lisbon’s wandering eye.

With the US and China in open, strident attacks on each others’ policies, from trade to human rights, Washington’s ambassador to Portugal George Glass told local newspaper Expresso last month that the time had come for Lisbon to “choose between its friends and allies, and China”.

The remarks annoyed Foreign Minister Augusto Santos Silva who countered that Portugal was a “reliable and credible” member of the three blocs it had long been associated with – the EU, Nato and the West.

In reality, American concerns about Beijing’s influence in Portugal predate the current hawkish policies of US President Donald Trump towards China. And those concerns are not just economic, they involve military strategy and Portugal’s Azores archipelago, a group of nine volcanic islands about 1,400km (870 miles) off the coast in the middle of the North Atlantic Ocean.

The Azores today are better known for tourism, but in World War II they played a decisive role as a base for US and allied warships and aircraft. In the Cold War, the US used the islands to track Soviet submarines in the Atlantic, with the Lajes US airbase on the Azores island of Terceira vastly extending the range of military surveillance aircraft.

As military demands shifted though, in 2012 the Pentagon began to scale back Lajes, which is now referred to as a “ghost base”. Beijing soon came knocking.

In 2012, China’s premier at the time Wen Jiabao made a stopover at the Azores, followed in 2014 by President Xi Jinping to meet Portugual’s then deputy prime minister Paulo Portas on Terceira Island. Premier Li Keqiang visited two years later with Santos Silva.

“Washington has a bad habit of ignoring Lajes until a crisis erupts and we need it,” said Michael Rubin, a former Pentagon official and currently a resident scholar at Washington-based think tank American Enterprise Institute.

“We have failed to recognise and respect just how important Portugal has been to Nato and the United States.”

The Azores visits of Beijing’s leaders and top diplomats dovetailed with China’s growing investment in Portugal, which was left with debt that exceeded its GDP and an unemployment rate of about 16 per cent following the global financial crisis in 2008.

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While the European Union forced Lisbon to accept unpopular austerity measures in exchange for a debt bailout, Chinese state-owned companies pumped cash into some of Portugal’s key industries.

In 2011, China Three Gorges Corp beat several European conglomerates in the race for the Portuguese government’s stake in struggling Energias de Portugal (EDP), the nation’s largest power provider, offering €2.7 billion (US$3.2 billion) for 21.35 per cent of EDP’s shares. In 2018, Three Gorges proposed a takeover of EDP that was rejected last year by the energy company’s remaining shareholders.

Glass had spoken out against the takeover bid, stating the US would never allow the Chinese state-owned conglomerate to take over EDP’s assets in the US, where it is the third largest producer of energy from renewable sources.

“If China Three Gorges wants to proceed after this warning, the Trump administration has the power to dismantle EDP in the United States through the regulator for foreign investment,” Glass said in 2019.

Last month, Glass referred to that deal as the first warning shot in the US-China battle for influence over Portugal.

The second came when China set its sights on the Atlantic. In 2016, Portuguese Prime Minister António Costa said there was interest from Beijing to convert the US Lajes military base into a Chinese-run scientific research institute.

This set off alarm bells in Washington, with Republican Representative Devin Nunes, who is of Portuguese ancestry and the former chairman of the US Congress House Intelligence Committee, waging a campaign to not only fight the Pentagon spending cuts in the Azores, but rebuild the US presence at Lajes.

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In a note sent to then secretary of defence Ashton Carter in 2016, Nunes urged Carter to see the Azores in the context of what he called China’s growing overseas military ambitions.

“China has spread its influence through similar infrastructure investments in Djibouti, Sri Lanka and elsewhere around the globe,” he said.

“It is now using the same tactics to establish a foothold in the Azores which, if successful, will be used for a logistics and intelligence hub that could ultimately be expanded for other military purposes, adjacent to critical US military facilities,” Nunes said.

“Effectively, we are divesting from billions of dollars worth of infrastructure at Lajes Field that is likely to end up in the Chinese government’s possession.”

Glass, who was appointed to the ambassador post after donating hundreds of thousands of dollars to Trump’s 2016 election campaign, said last year that the Lajes base was “fundamental” to Atlantic security.

As the debate about the Lajes base continues, Beijing is investing in the Portuguese mainland as a key part of its Belt and Road Initiative, Xi’s ambitious plan to reshape the international order via a network of transport and trade links emanating from China.

In 2017, Chinese investment in Portugal totalled US$4.36 billion, or more than three times the US$1.26 billion from the US, according to OECD figures cited by the European Think-tank Network on China.

And it was not just Beijing-backed corporate spending. With Portugal offering a so-called Golden Visa scheme that gives residency rights to individuals who invest a certain amount, there was a “great boom” in Chinese clients buying property between 2014 and 2016, said Nelson Santos, a Lisbon-based property agent.

Some buyers set up WeChat groups and seemed to want to outspend each other, he said.

“There was a client who would want a property for €600,000, so another in the group would then want to spend €700,000, and the next €800,000. It was all about who bought the biggest and most expensive,” Santos said.

As Europe’s westernmost country, Portugal’s airports and ports are a gateway into Europe, North Africa and the Mediterranean, as well as a springboard into Atlantic trade routes and South America, or what the US considers its own backyard.

The port of Sines in the south of Portugal will start taking bids for a new €642 million container terminal in April next year and local media reports say Chinese shipping groups are expected to be front runners.

During the 2017 Belt and Road Forum in Beijing, Jorge Costa Oliveira, Portugual’s then secretary of state for internationalisation, said he hoped for “a maritime route to [the port of] Sines be included and, in addition, that the land rail Silk Road, which already goes from Chongqing to Madrid, also comes to Portugal”.

Connecting the Spanish capital to Portugal will stretch the belt and road as far westwards as it can go and provide the first and only contact point with the Atlantic Ocean.

Portugal’s former ambassador to China José Manuel Duarte de Jesus said the belt and road plans spoke to relations going back to the 16th century when Portuguese explorers established official ties with the Ming empire.

He said the trading networks developed between the Portuguese and Chinese empires were defined by multilateralism and that the Trump presidency’s disdain for such cooperation and “demonisation of China” was part of the problem.

“I think Portugal can make contributions when it comes to stopping the propagation of that demonisation at the level of the EU,” he said.

US ambassador Glass said Portugal should stop looking at China through the rose-spectacled prism of history.

“Portugal has been doing business with China for centuries and that is well accepted, but this is not the same China that it has dealt with in the last 500 years. This is a new China, with long-term plans for malign influence through economics, politics or other means,” he said.

Just a few days after the Glass interview with Expresso, the Portugal-China Chamber of Commerce waded in with its own interview in the same publication, calling the US ambassador’s comments “shameless”.

“American pressure against China is nothing new and has been increasing on a global scale,” its president Y Ping Chow said.

“We are confident Portugal’s government will continue to act with common sense. We trust the long history of [the] Portugal-China friendship and we will not be concerned with the words of the ambassador.”

Rubin at the American Enterprise Institute said Washington had not been a very good friend to Lisbon in recent years and that was a mistake. But he said other countries had signed up for belt and road projects and found themselves in massive debt to Beijing.

Lisbon officials should ask themselves “whether China would really respect Portugal any more than it does the targets of its debt diplomacy around the world and whether China would ever peacefully depart should Lisbon request”, he said. “Frankly, the answer to both is no.”