China seeks influence in Europe, one business deal at a time

A Chinese flag flutters at Xinhuamen Gate of Zhongnanhai leadership compound in central Beijing, China, on Dec 15, 2017. PHOTO: REUTERS

PRAGUE(NYTIMES) - When Xi Jinping became the first top Chinese leader to visit the Czech Republic, he was accompanied by a mysterious Chinese tycoon with big political ambitions, money to burn and strong ties to the Czech president.

Ye Jianming was the sole businessman among the group of Chinese and Czech government officials who gathered two years ago outside the presidential summer residence where Xi and Milos Zeman, his Czech counterpart, planted ginkgo trees.

For Ye, it was recognition of his role as a major power broker in Prague, having bought landmark properties, a local brewery and a much beloved soccer team.

The meeting - and the presence of Ye - cemented China's newfound influence on politics and business in Zeman's Czech Republic and signalled its broader ambitions in Europe.

In just two years Ye's company, CEFC China Energy, had spent more than US$1 billion on deals in the Czech Republic. He hired former Czech officials, including a onetime defence minister. Ye was even named a special economic adviser to Zeman.

Zeman, in turn, became a big backer of Beijing, tamping down domestic opposition to Chinese influence and taking up Chinese causes.

He publicly supported China's claims over Taiwan, the democratic island that Beijing claims as its territory.

When Xi visited, police tried to keep protesters out of sight; some later accused the police of using violence to suppress them.

The family of a prominent Holocaust survivor said Zeman withdrew a proposed medal for the man after his nephew met the Dalai Lama, an exiled spiritual leader whom China considers a rebel.

For China, the Czech courtship was an unqualified victory: It had won a sure friend in Europe, a US military ally and a country once seen as a bulwark for liberal democracy in a strategically important region.

As Zeman declared, the Czech Republic hoped to become "an unsinkable aircraft carrier of Chinese investment expansion" in Europe.

Then, Ye was detained in China this year, exposing the Czech Republic to the perils of this new relationship and forcing the president to defend his quick embrace of the Chinese deal-maker.

While the reason for Ye's detention was never made public, critics of the Czech president saw Ye's disappearance as proof that the country shouldn't have tied its future and its fortune to the Chinese.

An emboldened, globally ambitious China is using money, business deals and other incentives to extend its power abroad. The pitch can hold great appeal in a world shaken by Washington's growing disengagement and Europe's struggles.

But tighter ties to China mean greater susceptibility to an opaque political system where decisions are made behind the scenes. Investments can be driven by politics rather than economics, resulting in costly white elephants.

In the Czech Republic, Ye's sudden disappearance took the country's leaders by surprise. They could not discern why that would happen to someone who seemed to have the government's blessing.

They had not pressed him on where he was getting his money to make big flashy deals in the Czech Republic and elsewhere.

Officials also had difficulty answering questions about criminal allegations in the United States that a senior business associate of CEFC had tried to bribe his way into new business opportunities in Africa.

Zeman dispatched a team of officials to determine what the tycoon's problems meant for the Czech Republic. He soon found out.

Prague was about to become even more enmeshed with the Chinese government.

A state-owned company stepped in to take control of Ye's empire, fuelling suspicions that the company was politically important to the Chinese leadership.

Early in his political career, Zeman, a blunt-spoken populist, warned against toadying up to Russia and China. Those seeking deeper ties with Beijing, he told a local newspaper in 1996, are "ready to go under plastic surgery to slant their eyes."

But the realities in Europe were changing by the time he won the Czech presidency in 2013.

The global financial crisis had tested Europe's unity. Refugees from Syria had begun to arrive, fuelling nativist sentiment and pitting local politicians against the bloc's leaders. Western Europe no longer seemed to be the only option.

For Zeman, the courtship basically had to start from scratch.

The former Czechoslovakia recognised Communist-led China in 1949, but a rift between Moscow and Beijing kept them apart. The post-Soviet Czech Republic, remembering the brutal 1968 Soviet crackdown on reform efforts in Prague and subsequent Communist domination, found common cause with Beijing's critics.

Václav Havel, the anti-Communist activist and the country's first leader after the fall of the Berlin Wall, invited the Dalai Lama to a state visit in 1990, angering Beijing. He had stern words for China. "Intimidation, propaganda campaigns, and repression," he wrote, "are no substitute for reasoned dialogue." Zeman, a well-known smoker and drinker who once publicly denied that he showed up at his inauguration drunk, broke with that history. He rejected Havel-era support for the Dalai Lama and its close ties to the government of Taiwan.

He visited China in 2014, the first visit by a Czech leader in nearly a decade. A year later, he was the only European Union leader to attend a military parade celebrating the 70th anniversary of the end of World War II. That helped him secure Xi's 2016 visit to Prague.

Zeman's 2014 visit proved fateful for the Czech Republic.

Among the business deals reached was a cooperation pact between a Czech financial firm and an up-and-coming energy company called CEFC.

It was led by Ye, who grabbed hold of assets once controlled by a notorious smuggler, and in a few years parlayed them into a sprawling business empire with 30,000 employees.

The Czech Republic made a tempting target for CEFC's international push. The country was a member of NATO, was disillusioned with the West and ready to do business.

CEFC bought a stake in Florentinum, one of Prague's biggest office complexes. It invested in the Czech national airline, two hotels and a pair of Renaissance-era buildings. It bought a brewery that traces its roots back more than 700 years.

Zeman's staff trumpeted the deals as proof that courting China made economic sense.

CEFC's deals made little business sense to observers. "So many of the acquisitions were made in a rush, and were nonsense," said Olga Lomova, head of the Chiang Ching-kuo Foundation International Sinological Center of Charles University in Prague.

"They were not investments that were able to pay for themselves."

And CEFC acknowledged that its motivations went beyond business. "Our company cares about what we can do to bridge the cultural gap," Jiang Chunyu, a senior executive at CEFC, said at a forum in China in December.

If a direct role for Beijing in Czech businesses bothered Zeman, he has shown little public sign. He is set to make another visit to the Chinese capital this autumn.

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