Strategic Questions for EU Leaders on NATO’s 70th Birthday

President Donald Trump and China’s President Xi Jinping shake hands in Beijing, China, November 9, 2017. (Damir Sagolj/Reuters)
Now is the time for Trump to press Macron, Merkel, and others on the security risks posed by China.

Leaders of North Atlantic Treaty Organization countries are gathering in London this week to celebrate the 70th anniversary of the alliance. It’s the perfect opportunity for President Trump to declare a big halftime lead in his campaign to persuade other members to meet their financial obligations to the alliance. It’s also an opportunity to meet one-on-one with European leaders and assess their readiness to confront the growing threats that China’s geopolitical expansion poses to alliance members.

France
Trump should take French president Emmanuel Macron’s call for a new EU army as a sign of interest in defending France, NATO members, and the West from new security challenges. But a few questions could help channel Macron’s vigor into efforts against more-immediate threats.

For example: Does France have any plan to evaluate the cybersurveillance risks posed by the Chinese undersea fiber-optic cable soon coming ashore in Marseille? Ironically named the PEACE cable, the fiber link will add a major new connection between the EU and China through interchanges serving Pakistan and Djibouti. The PEACE cable involved Huawei Marine Networks until U.S. attention on Huawei forced it to sell its subsea subsidiary. The buyer, Hengtong Optic-Electric Co. Ltd., is a Chinese conglomerate of more than 50 companies in telecommunications, cable systems, and electrical power. Hengtong became involved in the PEACE cable last October, when it set up a venture company for the project in cooperation with Hong Kong-based PCCW Limited, and appointed Huawei Marine to perform the undersea work. For its part, PCCW is partly owned by China Unicom Group, a Chinese state-owned telecommunications company. PCCW runs the electronic passport and identity card systems for the Hong Kong government, as well as the securities clearing system for the Hong Kong Exchange.

Such complexity is par for the course with Chinese state-owned enterprises (SOEs). But it should not confuse Macron, himself an investment banker trained in unraveling opaque corporate structures to get to the real decision-makers. The bottom line is that a Chinese technology SOE will soon have what French telecom operator Orange called a “gateway” into the EU data network, through the new digital window that Orange is building for the Chinese in Marseille.

Indeed, Marseille has become a major site of Chinese strategic expansion. The ancient port city is home to CMA CGM, a shipping and port operator that is the main partner in the Ocean Alliance with China’s COSCO Shipping — which now dominates global container shipping, port operations, and logistics services. Despite capital infusions from Chinese state lenders over the past several years, CMA recently announced it was selling its stake in ten port terminals to China Merchants Port Holdings Co. Ltd., which already owns about half of CMA’s terminal business. The French line also sold two container ships to Shanghai Pudong Development Bank for an undisclosed price, and leased them back. The cash will help CMA finance its $1.7 billion purchase of CEVA Logistics, which operates one of the largest logistics businesses in the U.S. The stress on CMA’s financial resources prompted one rating agency to downgrade CMA’s debt, but more importantly, the bailout meant that Chinese operators had taken over the hard assets of a Western company in a strategically important sector.

Germany
Trump might also turn up the heat on Angela Merkel. Germany recently rebuffed U.S. warnings about the cyber-risks of Huawei network equipment, refusing to ban Huawei gear from its own national networks. In a move seen as targeting Chinese state-backed investors, Berlin tightened foreign-investment rules last year. Now it can investigate and, if warranted, block purchases of stakes in German companies by non-European entities.

Even so, finding common ground with Merkel will be an uphill slog. A recent survey by the Pew Research Center and the Körber Foundation found that 75 percent of Americans said the U.S.–German relationship was “good” or “very good.” Only 34 percent of Germans surveyed agreed. Seventeen percent of Americans saw the relationship as “bad” or “very bad,” compared with 64 percent of Germans. Merkel solicited Chinese capital during a trip to Beijing in September, and German technology collaboration with China is growing. Earlier this year, Germany’s Fraunhofer Institute, akin to U.S. national research centers such as Argonne National Laboratory or Los Alamos, struck a deal with a Chinese university to open an advanced manufacturing-technology research center in the harbor at Shanghai.

Italy
Trump will formally meet for the first time with the leader of an Italian nation that is a formal supporter of China’s Belt and Road program. If Italy’s support for the Belt and Road is loosely defined, it is nevertheless a pledge that Italy will give Chinese views more than a fair hearing. With China showing its interest in curtailing America’s maritime presence, it would be prudent for the president to seek the strongest assurances from Italy’s leaders that the country fully supports the U.S. and NATO facilities and commands housed in Naples — despite the marked increase in Chinese investment in Italian public infrastructure such as ports and railroads as well as private-sector assets such as banks.

Later this month, major new deep-water docks and an upgraded refrigerated terminal will begin operating at the northwestern Italian port of Vado, primarily using the ships, cranes, and other equipment that China’s COSCO installs at ports under its control around the world. The president is almost certain to ask Italy where it stands in its evaluation of Huawei as a provider of equipment for the Italian 5G network. But several other questions would probe whether Italian governance is being affected by Chinese capital.

China routinely employs “gray-zone” techniques that meld civil security measures with operations that can have military or intelligence purposes. Chinese police have conducted joint patrols with Italian police over the past several years, ostensibly to protect Chinese tourists who don’t speak Italian from the predations of restaurateurs around tourist sites. What is the nature of that collaboration? What are Italy’s national leaders doing to monitor Chinese influence over Italian security personnel and systems?

The state of Italy’s budget should also be on the table: It’s become clear that one way countries can meet their financial obligations under Chinese Belt and Road investments is to surrender national assets, usually in the form of hard assets — such as a road or seaport — but also in the intangible form of sovereignty. What level of financial support to the Italian state would give China effective control over major Italian policy decisions? Could a financing package from Chinese banks, perhaps led by the Asian Infrastructure Investment Bank, clear up Italy’s ongoing budget tussle with the EU?

The Rest
An expected meeting with the leader of Greenland, meanwhile, presents an opportunity for the president to help the U.S. secure access to natural resources, including rare-earth minerals. China’s aggressive global infrastructure expansion is aimed in large part at securing mineral supplies. A billion-dollar Chinese loan to Montenegro for a “road to nowhere” may result in China taking over the road or other Montenegrin national assets — such as its deposits of bauxite, a source of gallium compounds essential to electronics manufacturing. Access to minerals is a top priority for China. This week, a Chinese-backed consortium won the rights to move ahead with a major new iron-ore mining project in the West African nation of Guinea. (The consortium is already the biggest bauxite miner in the country.) The first step is construction of roads and port facilities to export the ore from Guinea.

During a trade war, commercial shipping alliances can be as important as formal security alliances. Trump also should suggest opening discussions with Danish shipping, port, and logistics company Maersk to evaluate how non-Chinese companies can remain competitive with Chinese shipping companies that enjoy Chinese state financing and regulatory support, perhaps in an appropriate forum with Swiss, Japanese, and Korean lines facing the same vertically integrated Chinese logistics juggernaut.

China’s decision to suspend the rights of U.S. naval vessels to call at the port of Hong Kong highlight U.S. vulnerability to China’s global commercial port network. While Hong Kong is part of China, the suspension — which may well turn into a ban — sends a stark message that freedom of navigation is becoming a matter of “one ocean, two systems,” with China steadily encroaching on the rights of vessels to sail unimpeded on the high seas.

The 70th anniversary of NATO will mark one of the longest, and most successful, security alliances in history. But the global environment has changed dramatically over that time. While military factors gave rise to the alliance, economic factors are likely to shape the security landscape of the future. The next 70 years will show whether NATO can adapt.

Christopher R. O'DeaMr. O’Dea writes on political economy and infrastructure finance. He is working on a book about the security implications of China’s global expansion in maritime commerce and logistics.

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