Why you should care
From Norway to Estonia, Beijing is expanding its investment footprint across Northern Europe.
On a map, they appear so close together: Helsinki and Tallinn, the capitals of Finland and Estonia, sit just 50 miles from each other across the Gulf of Finland. Yet in practice, they couldn’t seem farther apart, especially given their close cultural, linguistic and, increasingly, economic ties. On a good day, it takes about two hours by ferry to cross the often choppy waters.
But not for long, if an ambitious project to directly connecting the two cities takes off. Officials in both capitals have long considered such a link, but now, for the first time, there’s hard money behind the project — $17 billion, to be exact. The 60-mile tunnel — it would be the world’s longest undersea rail crossing — would dramatically shorten travel time between the cities to around half an hour. Proponents believe it could transform an already well-developed region into a Northern European hub of commerce and innovation. There’s just one catch: It’s largely Chinese cash that would make this dream come true.
While Italy’s decision to join Beijing’s $1 trillion Belt and Road Initiative has grabbed the West’s attention, China is — far more quietly — carving out a new playground for its investments in a part of the continent it had traditionally ignored: Northern Europe. Total Chinese investments in Europe dropped in 2018. But in the first half of the year, Sweden emerged as the European country that attracted most Chinese investments, according to consultancy Baker McKenzie. With Norway, China reopened diplomatic ties in 2016 — the countries had severed relations in 2010 after the Nobel Committee awarded Chinese dissident Liu Xiaobo the Peace Prize — and is now pressing hard for a free trade agreement.
In November 2017, China launched a first-of-its-kind cargo train connecting it all the way to Finland — the Kouvola-Xi’an route is part of the BRI. Last year, it announced plans to expand that rail line to Sweden and Norway. And in March this year, private Chinese firm Touchstone Capital Partners committed $17 billion for the Helsinki-Tallinn tunnel to FinEst Bay Area, a development group run by Finnish entrepreneur Peter Vesterbacka — perhaps better known as the marketing mind behind Angry Birds.
That size of investment creates gravity — it creates opportunity.
Peter Vesterbacka, FinEst Bay Area
As in every other part of the world, China’s investment forays into Northern Europe are beginning to face pushback. But the quantum of cash China can offer is often transformative for countries and companies, making it hard to turn down. And large investments such as Touchstone’s commitment to the Helsinki-Tallinn tunnel can bring broader spillover benefits, say supporters.
“That size of investment creates gravity — it creates opportunity,” says Vesterbacka.
The attraction varies from country to country. In Sweden, China invested $3.6 billion in the first six months of 2018 — Beijing’s second-biggest investment destination in Europe in that period was the U.K. ($1.6 billion). Swedish infrastructure and logistics firms, some experts believe, could gain if the country were to also sign on to the BRI, as it would open up opportunities for them along the project’s long route. “Both the [Swedish] government and the business community need to engage more actively with the BRI,” wrote Mikael Weissmann, a senior research fellow at the Swedish Institute of International Affairs, in a December 2017 academic paper. For Norway, China’s not just a growing source of investment but also a lucrative country to invest in, using its $1 trillion sovereign wealth fund — which needs markets where that money can grow.
Meanwhile, since 2000, China has invested $7 billion in Finland and has promised an additional $2 billion. Beijing is also one of Helsinki’s top trading partners, so improved connectivity between the two countries through the cargo train line helps them both. Add the Helsinki-Tallinn tunnel to the mix and Chinese investment becomes almost irresistible. By reducing the travel time between the capital cities by 75 percent, the connection could offer the two nations a major competitive advantage in attracting investors and businesses from around the world, supporters argue, matching up high-quality education in both Finland and Estonia with a highly skilled workforce. “We’re creating the highest talent density anywhere on the planet,” Vesterbacka says confidently.
It would also form an important bookend of an ambitious, transnational rail project aimed at better integrating the European Union’s northeastern flank with the rest of the continent. That project, called Rail Baltica, envisages a connection between key cities in EU members Estonia, Latvia and Lithuania on the one hand, and Warsaw on the other, and then extending into a North Sea corridor anchored by global shipping hubs like Hamburg and Rotterdam. Effectively halving passenger and freight travel time among the Baltic states and Central Europe, it would be a major economic win for all sides.
“This is a project that will carry additional benefits for Europe as a whole — not least in completing the integration of the Baltic states and Finland with the rest of the European single market,” says Kaspars Briškens, head of business development at Rail Baltica.
Many of these investments have largely flown under the radar so far, suggests Charly Salonius-Pasternak, a senior research fellow at the Finnish Institute of International Affairs. “It’s probably only now that people are really starting to think about this,” he says, adding that China’s growing 5G ambitions have attracted serious attention.
For sure, not everyone is welcoming these Chinese investments. The Swedish government has not joined the BRI formally yet. After local criticism, China pulled out of a project to build a deep-water port in the Swedish town of Lysekil in January 2018. Earlier this year, Norway’s intelligence agencies accused China of using Huawei’s technology to spy on the Scandinavian nation’s telecom networks — a charge Beijing denied.
An EU-sponsored feasibility report on the Helsinki-Tallinn tunnel has predicted that it would be ready only by 2040, raising serious questions about FinEst Bay Area’s timeline. Vesterbacka believes his project — a private initiative with no official support from Estonia, Finland or Brussels — will be up and running by 2024. He’s even begun selling tickets. And just last month, the European Commission’s director-general for mobility and transport warned the Touchstone investors they’d need to play by European rules if they’re going to pump that kind of cash into the project.
It’s also unclear how Russia might react to another power investing so heavily close to its borders — a prospect it traditionally hasn’t welcomed.
Vesterbacka, meanwhile, plays down fears of potential Chinese meddling. He argues that the controlling stake in the tunnel project would remain with FinEst Bay Area, and that plenty of Chinese investments in Europe have ended up successful. Ultimately, he says, it’s a major economic boost for an already well-developed region.
The question is: at what cost?