That China Connection

1. From Closed Shop to Open All Hours

In 1405 the Great Emperor Yongle sponsored a massive mission of world exploration that would be captained by the explorer Zheng He. The boats used by these expeditions were among the largest sail powered boats the world had ever seen – by comparison Colombus’ three vessels when he set off for the Indies would measure one-eighth of the Chinese behemoths). This Age of Chinese exploration was brief. The expeditions went far and wide and magnificent gifts were brought back from places such as Malindi in Africa (most memorably a giraffe). The next Emperors though believed that such explorations were a waste of public expense and China would soon close in upon itself and clam up to the world (including an outright ban on sailing ships).

Fast forward to  1793 Lord Macartney made a trip to China in a bid (sponsored by Mad King George) to convince the hermit power to open up to European trade. Emperor Qianlong fobbed off the British entreaty towards openness (See the rather interesting reply here) and while ordering King George III to “tremblingly obey” his wishes Qianlong maintained what would be a short lived policy of closed-shop. The main reason imputed to Qianlong’s decision was that China already had everything it needed.

Fast forward again and watch how in gradual steps starting in the nineteen-eighties Deng Xiaoping, Jiang Zemin and Hu Jintao transformed China’s outlook towards the world. The giant nation is now a huge force to be reckoned with and is bulging with economic muscle that can be flexed around the world. This time there should be no turning back…

2. Ma Tagħmlu Xejn Ma’ Dr Joseph

Which brings me to the current government’s sudden trysts with the Chinese behemoth. In the run up to the election we already had a Labour delegation scooting up to the new land of opportunity presumably to prepare the preliminaries for deals should they get into government. Nothing wrong in that, at all. The media exercise in recent days has been such as to highlight the fact that Chinese Investement is sought after across the continent and not just by the Taghna Lkoll government. Such news is brilliant for the non-discerning voter of course – and all it took Joseph Muscat was a little trip to a sort of Economic Forum in Dailan China (a sort of young leaders exercise mainly intended to promote China and Chinese economic clout).

The Bulgarian and if I am not mistaken Finnish Prime Minister also attended this little chat to a mostly empty room in Dailan. Attendance was not important from the Maltese perspective though, what really counted were some sound clips from Muscat such as the fact that Europe lacked real leadership or the assumption that “EU PM’s agreed that Chinese investment is important”. The impression given by the press bytes back home was that there was an impromptu EU28 meeting of heads of state in Dalian and that the leaders had all agreed to issue a statement confirming the importance of Chinese investment.

It’s not that Chinese investment is not an attractive opportunity. Not at all. The CIC that basically manages $200 billion in dollars of foreign reserves for the Chinese government and is constantly injecting capital into public and private projects (Joseph Muscat did mention their foray into Thames Water as an example of special national services being sold to the Chinese). “As of August 2013, the CIC has 575.2 billion in assets under management.” (Wikipedia)

One type of investment occurs when Chinese companies buy into European counterparts. I drive a car that’s nominally Swedish (a Volvo) but the manufacturer is owned by Geely Automobile who bought it off another non-European company called Ford. American today, Chinese tomorrow – capital wise that is but still Swedish safety and know-how. So the Chinese companies are attracted by the expertise and know how of the company they are ultimately purchasing. Back in China the purchasing company gets additional credibility through its collaboration. Luxembourg’s Cargolux was under scrutiny for a similar kind of buyout only last week.

Then there is the Maltese MOU with the Chinese authorities. We should premise that nothing is certain about what was exactly agreed and that we have to wait for the details to be stamped out – presumably in a decent parliamentary debate (without the excuse of economically sensitive information shrouding the whole exercise). The first glaring inconsistency in this “investment” is that in the economic world you do not get something for nothing. So if we do know that the Chinese are paying €200 million into Enemalta we need to know what they are getting in return.

Moody’s seem to know more than the media in this respect, here is what they said in their latest report:

In addition, the government recently announced that it had signed a Memorandum of Understanding with the China Power Investments Corporation (CPIC), one of the five largest state-owned electricity producers in China. As part of the agreement, Shanghai Electric Power, a subsidiary of CPIC will become a minority shareholder in Enemalta, providing the Maltese utility company with a cash injection that will improve its financial position. Enemalta and CPIC also plan to set up a joint venture to produce photo-voltaic units for sale in Malta and across the EU, which would help Malta reach its renewable energy production targets,while providing China with a foothold in the European solar energy market.

Another initiative between both parties is the setting up of a Energy Service Centre that will cater for the maintenance and service of energy production plants in Southern Europe, Turkey, the Gulf and Africa, a venture that is likely to further boost economic activity in Malta.

So if Moody’s are right then the CPIC will provide the “cash injection” and in return set up a “joint venture” to produce PV units in Malta (apart from the Energy Service Centre). Which brings me to the balancing out part of the equation. So the Maltese government has effectively charged a Chinese company 200€ million in order to “allow” it to set up shop in an EU Territory and break into the PV market that is worth trillions of euros last I checked. It does not stop there. The 200€ million give Shangai Electric Power a stake in one of our most important assets – Enemalta – effectively limiting our sovereign independence where energy is concerned.

Many more questions need to be asked about the PV manufacturing plant in Malta. Hopefully these will be done in the right forum in Parliament. Meanwhile the optimism among the Labour crowd is palpable. Joseph Muscat has got Malta a “deal” like some latter day Mintoff and brought much needed money to the Enemalta purse. At what cost though? Are we fully aware of the risks involved and of what really has been sold to the Shangai Electric Power?

As for Moody’s report. It just calls a spade a spade. IF the Labour promises do work out then the outlook is deemed to be good. Call me negative if you will but the most significant paragraph in the report is the following – something none of the media seems to highlight:

We do note, however, that the planned reforms are ambitious and there are risks to its successful implementation. For instance, the building of new infrastructure relies on the interest of private partners, adding a degree of uncertainty as to whether a suitable partner may be identified. Moreover, Enemalta’s financial health could be jeopardised by a premature cut in tariffs should anticipated savings be delayed. Nonetheless, we believe that the sovereign will benefit from a less volatile Enemalta and a more resilient energy sector that is likely to attract greater investment to the country as input costs fall.

Private partners can easily be found if you sell your wares for cheap or if you offer to “prostitute” your sovereignty for a measly cash-injection (Shangai Electric Power are buying into our sovereign Energy for the price of two Welsh International Footballing Superstars – and they get a foothold into the PV market to boot). True the opposition populist taunts of “China with a finger on our Energy button” are still part of the same old same old diatribe but then again other huge alarm bells begin to ring when you notice that our Energy Minister has a not too nuanced China Connection that runs in the family so to speak.

Add to that the wanton nonchalance with which this labour government seems to want to appoint personnel in the diplomatic and economic fields on the basis of what can only be described as nepotism and you can begin to piece together a not so rosy picture.

This government was elected with promise of cheaper light, it seems to be rushing headlong into a tunnel of darkness. And this is not only thanks to the Chinese.