As the world marks the 500 year anniversary of the arrival of the Portuguese people to China, a wave of Chinese investment and capital is pouring into Portugal.
Portugal was the first European power to establish a permanent settlement in China and was the last to leave when it returned Macau to Beijing in 1999. Now, suffering from a severe economic crisis, Portugal is making a strong push to attract foreign investment. China, despite its own economic slowdown, is taking advantage of the opportunities offered by the crisis in Portugal – and in other southern European countries like Spain and Greece.
To begin with, a growing number of Chinese investors have also been taking advantage of the drop in Portuguese property prices by buying new luxurious apartments in Lisbon’s best districts. The Portuguese government is trying to attract this investment as well by offering Portuguese citizenship to any Chinese willing to invest a minimum of US$800,000 in the country. The “Golden Passport” plan is attracting an increasing amount of Chinese companies and private citizens to buy real estate and set up offices in the country. Chinese businesses have also expressed interest in acquiring several struggling vineyards and olive farms in southern Portugal too. This makes sense since China is quickly emerging as one of the world's major destinations for European wine exports.
Meanwhile, over the past two years, Chinese state-owned enterprises (SOEs) have been acquiring major shares in strategic sectors of the Portuguese economy, such as the water, electricity, and communications industries. One example of such a purchase occurred in late 2011, when China’s Three Gorges Corporation acquired a 22 percent stake in Portugal’s national energy company, Energias de Portugal (EDP), for US$3.5 billion (nearly twice EDP’s actual market value). This was also followed by a loan of US$1 billion by the Bank of China to EDP.
Another example of Chinese business acquisitions in Portugal includes China State Grid’s 2012 purchase of 25% of Redes Energeticas Nacionais’ (REN) shares for a total of US$524 million. China State Grid paid the Portuguese power company 2.9 euros for each share, which was 40 percent over the value of the stock at the time of the agreement.
Also, in March of this year, Beijing Enterprise Water Group acquired Veolia Water Portugal from its French parent company for US$123 million. Veolia provides water to four districts in Lisbon, supplying approximately 670,000 people. That same month, China Mobile announced that it was considering acquiring an unspecified stake in Portugal Telecom too.
These acquisitions not only allow China to establish a strong foothold in Portugal; they also facilitate Beijing’s expansion into Portuguese-speaking countries in South America, Africa and Asia, since many Portuguese companies already have a strong presence in these regions. For instance, last March, the Three Gorges Corporation and EDP both announced they were planning major investments in hydropower and solar parks in Brazil, Angola and Mozambique. In April 2012, China’s Sinopec bought 30 percent of the operations of Portugal’s state-owned oil company, Galp Energia SGPS, in Brazil for US$4.8 billion. Also, China Mobile’s interest in Portugal Telecom is highly motivated by the strong presence the company has in Angola, Mozambique and Timor-Leste. In Angola, for instance, Portugal Telecom has 25 percent of the cell phone market and provides 40 percent of internet communications, while in Timor-Leste, it virtually controls the whole market.
In the past decade, China’s presence has grown rather quickly in the former Portuguese colonies, especially given that China is now Brazil’s largest trading partner. and Angola became China’s largest trading partner in Africa in 2012. China’s rapid penetration of the Portuguese market should further its presence in the Portuguese-speaking world. It will also likely improve China’s access to Western technology and to European and U.S. markets. For example, EDP has landed at the forefront of renewable energies, and is among the most competitive companies in the U.S. market.
Opinions in Portugal and around the world are divided over the surge of Chinese business acquisitions, and some fear that Portugal is sacrificing important assets with serious consequences for the future. However, some proponents of Chinese investment counter that the Portuguese state still has a majority stake in all companies and that China has clearly made the best offers, so there is little reason to worry.
Even though there are some risks for Portugal by allowing Chinese capital into its strategic sectors, there can still be many mutually beneficial opportunities. For instance, Portugal can contribute industry expertise and provide market access to China in exchange for increased Chinese investment and funding in important sectors.
Still, many worry about how much Portugal will benefit from opening its market to China, especially considering that many Portuguese and Brazilian companies have struggled to profit in the current Chinese market. For instance, Brazil’s EMBRAER and China Harbin Aviation developed a commercial passenger jet that was hailed as a symbol of south-south cooperation. In exchange for Brazilian technology, China agreed to give Brazil access to its growing aviation market and it had promised to purchase 1,000 planes in their deal. However, in 2011 EMBRAER was considering closing its factory located in China and had reportedly complained that the Chinese had taken their technology to build their own planes instead. (The company has apparently had a more positive outlook in recent months.)
While opinions remain divided over the benefits of China’s growing presence in Portugal, Chinese interest in Portugal and southern Europe is likely to continue growing. So far, China has bought US$1.3 billion of the country’s national debt and opened a US$1 billion fund to support investment projects between China and eight Portuguese-speaking countries. For a country in urgent need of cash, Portugal and its neighbors have very few places to turn to as the rest of the continent struggles, so Chinese investment will likely play an important role in their economic future.
Loro Horta is a graduate of the People’s Liberation Army National Defense University senior officer’s course and the Chinese Ministry of Commerce Central School.