by Parag Khanna
Europe’s awakened corporate focus on Asia is unmistakable. In recent years, the Dutch telecom operator Veon has run networks covering more than 200 million people from its hubs across Russia and Kazakhstan. In 2018, Norway’s Telenor sold off its Eastern European operations in order to double down on its Asian operations in Bangladesh, Myanmar, Pakistan, Thailand, and Malaysia, which together represent a market nearly fifty times as large. The United Kingdom’s Cross-Government Prosperity Fund, the government’s nearly $2 billion annual development assistance investment program, gives its largest allotments to Turkey, India, China, and Indonesia. Even some of the most well rooted European industries have globalized to Asia. English, Spanish, and Italian football clubs pack Asian stadiums for off-season exhibition games. Many Michelin-starred European chefs have expanded into Dubai, Singapore, Hong Kong, and Shanghai (where Jean-Georges Vongerichten has his most profitable restaurant). Italian private banks that for two centuries had only domestic operations now earn half their revenue in Asia.
Given the breakneck pace of Asian urbanization, one of Europe’s chief exports is its model of sustainable cities to Asia’s teeming megacities. Entire European countries, including Germany, Italy, and Spain, are at or near grid parity, meaning that the cost of installing wind, solar, and other renewable power now pays for itself in operational savings to citizens and businesses. Once known as a “garden city,” Bangalore today is often called the “garbage city” due to its outdated urban planning and impenetrable congestion. For choking New Delhi or congested Manila to live up to their potential, they need to adapt the bicycle lanes, public parks, affordable housing, green architecture, and vertical agriculture of cities such as Paris, Vienna, and Berlin. As Asia grows wealthier and older, its citizens want not just factory towns but walkable communities. German city planners designed the Tianjin Eco-city in China and are under way with a similar master plan on the Mongolian steppe. Siemens has built Bangkok’s elevated light rail and is expanding Kuala Lumpur’s while bidding to implement a dozen more across Asia. The European Union’s International Urban Cooperation (IUC) program works with more than thirty pairs of cities bridging Europe and Asia to fund sustainability projects. European and Asian cities now share guidance and case studies on platforms such as Metropolis, which also convenes city officials to establish direct city-to-city policy transfer relationships across Eurasia. The German architect Ole Scheeren has designed award-winning East Asian buildings such as the Interlace in Singapore, the MahaNakhon tower in Bangkok and, in Ho Chi Minh City, the Empire City project, where green design will meet the natural green of Vietnam’s tropical flora. British architect Norman Foster designed an entire new sustainable capital city, Amaravati, for the Indian state of Andhra Pradesh. And for Asia’s masses, a dozen European companies have developed low-cost 3D printed homes made of snap-together parts.7
Another valuable service Europeans have to offer Asians is moving money across borders. HSBC, Standard Chartered, and other banks with colonial origins have been operating in dozens of Asian markets for generations and have broad regional networks that most national Asian banks haven’t yet built. Standard Chartered has effectively become a Silk Road bank, focused almost exclusively on outbound Chinese and pan–Indian Ocean BRI-related projects. It is British only in name.
Asian countries’ investment in Europe is substantially higher than in the United States. Chinese investment in Europe reached $40 billion in 2016 across sectors such as consumer goods, entertainment, utilities, and telecoms, and will continue to rise as China diverts investments away from the United States.8 The China National Chemical Corporation (ChemChina)’s purchase of the Swiss-based agrochemical company Syngenta alone was worth $40 billion and is China’s largest overseas acquisition to date.9 After a decade of mergers and consolidation, the Indian-led ArcelorMittal is Europe’s largest steelmaker, followed closely by India’s Thyssenkrupp Tata Steel. In 2015, Saudi crown prince Mohammed bin Salman purchased the rebuilt Château Louis XIV in Louveciennes, France, for $300 million, an eye-opening transaction that shed light on the cottage industry of financiers, lawyers, and other professionals kept gainfully employed by Arabs’ luxury investments across Western Europe.
The United Kingdom remains the top European destination for Asian investors, followed by the Netherlands, France, and Spain. The recently retired Hong Kong tycoon Li Ka Shing’s Hutchison Whampoa is the largest foreign investor in the United Kingdom, and China’s ABP Group has been developing east London’s Royal Albert Dock as a special commercial zone, effectively a portal for Asian companies seeking a bridgehead in the United Kingdom. In 2017, two Chinese navy frigates docked in London on a goodwill tour, symbolic perhaps of the reversal of imperial fortunes since the Opium Wars. With Brexit weakening Great Britain’s economic profile, Asian funds have been quick to take advantage, now dominating new commercial real estate transactions. Qatar holds $50 billion worth of UK assets, including stakes in flagship British companies such as Sainsbury’s and British Airways, and also owns more property in London than the British royal family does.10 Post-Brexit Britain is desperate for financial and trade agreements with Asia, especially in the services arena which accounts for most of its exports. The Financial Conduct Authority (FCA) has proposed a new set of rules intended to lure major Asian IPOs to London’s stock exchange rather than to its competitors in the United States. Former prime minister David Cameron wasted little time after leaving Downing Street in taking over a $1 billion fund dedicated to enhancing the United Kingdom’s trade links with Asia. A London-Singapore “fintech bridge” helps new companies raise money seamlessly in either jurisdiction and particularly benefits UK companies that want to access Asian banking markets. Eight commercial Chinese banks have offices in London to facilitate European investment in China and Belt and Road projects. The sentiment heard so often in London is truer than ever: “Britain is for sale.”
China Dividing Europe, Europe Rediscovering Asia
In the 2000s, it was fashionable for US foreign policy elites to distinguish between an “old Europe” that recoiled at the United States’ muscular foreign policy (in particular the invasion of Iraq) and a “new Europe” of countries that shared Americans’ realism about global dangers and supported higher defense spending and foreign interventions. Arabs have also used their financial clout to tilt European foreign policy. Now China has begun to exploit the old/new Europe divide with the same “new” eastern European countries that support Chinese investments, including construction of a Budapest-Belgrade railway, power plants and steel factories in Serbia, and oil refineries in Romania, even if they might not meet European standards on procurement transparency and environmental quality. Countries such as Romania and Bulgaria are becoming depopulated, postindustrial farmlands. Given Asia’s rising food demand, China and other Asian countries continue to buy up European agricultural land and lay the corridors that will transport its products back to their hungry region for decades to come. For countries that just one generation ago were locked in the Soviet sphere of influence, to be courted with military hardware from the United States, modernization funds from Europe, and new investments from China is a propitious reversal of fortune.
China has even created a new diplomatic grouping called the 16+1 forum with its own secretariat and annual meetings to coordinate various Chinese investments in Eastern Europe and matchmaking between Chinese entrepreneurs and local SMEs.11 The crossover from commerce to politics has had its intended effect: large investments in the Greek port of Piraeus and in Hungarian industries and think tanks have led to Greece and Hungary watering down EU statements critical of China’s human rights record. Hungary—whose people sometimes refer to themselves as the “Asians of Europe” given their ethnic history and linguistic structure—has even proclaimed “Eastern opening” as a new pillar of its foreign policy. Eastern European socialist parties are also keen participants in China’s Progressive Alliance of Socialists and Democrats, showing how China builds political ties across
the spectrum, not just with heads of state. This stands in stark contrast to the failure of the US-sponsored Alliance of Democracies Foundation during the Clinton administration, which in the 1990s sought to have Poland as the key anchor of a global liberal movement. In 2012, Poland was the host of the inaugural 16+1 summit.
Despite a half decade of frosty ties following the awarding of the Nobel Peace Prize to the Chinese dissident Liu Xiaobo in 2010, Sino-Norwegian commercial ties have resumed, much to the delight of Norway’s salmon farmers, who suffered under Chinese boycotts. China Oilfield Services Limited (COSL) is again gaining contracts with Norway’s Statoil, and Chinese and Korean gas exploration in the Arctic has resumed. Chinese businesspeople have attempted—thus far unsuccessfully—to buy scenic but strategic Arctic real estate in Norway and Iceland. Finland, meanwhile, has branded itself as an Arctic hub for Asian investors, and 25 percent of its exports go to Asia.
European regulations are catching up to commercial realities. Previously, Europe lacked strong market advisory services and watchdogs for Asia, but now groups ranging from the Asia-Europe Business Forum (AEBF) to the European Chamber of Commerce in China to the Mercator Institute for China Studies (MERICS) in Berlin provide up-to-the-minute guidance for European companies, policy makers, and intelligence services. The European Union still denies China the one blessing it most craves—“market economy” status—despite a combined thirty trips to Europe by Xi Jinping and Premier of the State Council Li Keqiang. Because China’s playing field is far from level for foreign entrants, Europe is demanding reciprocal access to China’s consumers and stronger protection for European businesses before it will grant China an upgrade. And, like the United States, the European Union is growing much more cautious about approving Chinese acquisitions of sensitive technologies with potential military applications—hence Germany’s blocking of Fujian Grand Chip Investment Fund’s attempted purchase of the semiconductor equipment manufacturer Aixtron SE. Mistrust of China remains high, especially in countries where Chinese investment is the highest.
But unlike the tension between the United States and China, Europe’s conflicts with China are better described as competitive friction: Europe’s high-quality goods and strict regulations clashing with Asia’s intellectual property theft and asymmetrical market access. As European countries run up against slowing growth and intellectual property risk in China, they are diverting investment to elsewhere in Asia. With labor costs competitive and skills improving, German industrial powerhouses such as Bosch have begun to shift their production of advanced antilock braking systems and other auto components to Vietnam, where they are installing the latest technologies and training engineers. There are already 1,800 German companies in Singapore, with 100 more on average adding a presence there annually. With more than $20 billion in annual investment flows into ASEAN, the European Union is Southeast Asia’s largest investor, its cumulative $85 billion in foreign investment larger than that of any other region. And with more than $250 billion in annual trade, the European Union has already surpassed Japan as ASEAN’s second largest trade partner behind China—and ASEAN is the European Union’s third largest trade partner after the United States and China.12 Switzerland has had a free-trade agreement (FTA) with China since 2014 and is now negotiating similar access with multiple ASEAN countries. Where the nimble Swiss go, Brussels usually follows, and indeed, the European Union is negotiating an FTA with ASEAN based on an existing arrangement with Singapore.
European horizons now encompass all of Asia. After South Korea and Japan, India is the next major economy poised to sign a free trade agreement with the European Union. At the 2017 India-EU Summit, the European Investment Bank (EIB) made its largest commitments ever to flagship Indian initiatives such as Skill India and Digital India, with contracts given to European companies to promote Indian “smart cities” through renewable energy projects. At the same time, both Germany and France are selling military hardware such as new submarines to India. Fresh on the heels of British prime minister Theresa May’s visit to India in 2017, London mayor Sadiq Khan followed with a large delegation to both India and Pakistan. This is how Europe plans to get the upper hand in the race for two of the world’s fastest-growing economies—no longer as colonizers but as trade partners.
A similar dynamic is unfolding in the Arab Gulf markets, where Europeans are preferred partners to guide the high-stakes process of economic transformation to a postoil future. France’s EDF, for example, is leading the national rollout of solar power across both Saudi Arabia and the UAE so they can reduce their oil and gas consumption, cut fuel subsidies, and export more hydrocarbon energy. European engineering firms dominate the Gulf region’s megainfrastructure projects, with the German architectural firm SL Rasch’s design for the Mecca clock tower (six times taller than Big Ben) as only the most symbolic example, while Volocopter is supplying Dubai with drone taxis. Great Britain has aggressively ramped up its sale of missiles and other hardware to Saudi Arabia for its bombing campaigns in Yemen.
Among the Arab Gulf nations, Saudi Arabia is particularly resentful of Europe’s rushing into Iran, even canceling pending contracts with Germany. But frustrated with the United States’ reneging on its commitment to lift sanctions on Iran gradually in exchange for a freeze of its nuclear program, Europeans are more explicitly breaking with the United States and Saudi Arabia. While the United States threatens to deny access to the US market to European companies doing business with Iran, European countries have quietly restructured their presence in the United States to allow them to legally transact more business with Iran, while developing a parallel financial network that evades American interference. Europeans have also allowed Iranian investment funds to purchase pharmaceutical and machinery companies, helping Iran stock up to weather the sanctions downturn. In the posh Kish Island free-trade zone lying off the coast of Iran, local European banks out of reach of UN sanctions sign deals with companies in countries from Belgium to Turkey to Indonesia to finance investments in Iran.
Sanctions have at best delayed the inevitable flood of investment that will absorb Iran into the Eurasian commercial system. IranAir has purchased Airbus planes, European energy companies are developing Iranian gas fields in consortia with Asian partners, Norway’s Saga Energy is building $3 billion worth of solar power facilities in Iran, and Mercedes-Benz has sold a fleet of new buses there. The train has literally left the station, with luxury trains carrying Europeans from Budapest to Tehran for lengthy sightseeing holidays around the country’s resplendent historical treasures. Tourism into Iran is doubling year over year, with more than 6 million foreign visitors in 2016.13 After Brexit, the United Kingdom can scarcely afford not to pursue every option to expand trade in and procurement of British goods and has been pushing for Iran to contract with British businesses in energy, infrastructure, and other sectors.
Europe’s history of trading on the Silk Road stretches back to well before the colonial era, and as the new Silk Road era unfolds, European countries know they have to earn their footholds in the Asian marketplace. The British no longer have a commercial edge in India, nor the French in Vietnam, nor the Dutch in Indonesia. One by one, European cities are also coming up with their own strategies to compete for Asian cash. In the maritime hub of Venice, business federations are congealing together into larger metropolitan and provincial groups, realizing that they need to represent not just 250,000 people but at least 5 million if they want to impress their visiting Chinese and Indian counterparts. At the same time, the province of Veneto wants more autonomy from Rome, partially so that it can cut out the federal bureaucracy from its budding relationships with Asian trade partners. Asianization thus means that European cities are clustering together more seriously even as it leads to more devolution within European countries.
Asians March West
From Afghans claiming Greek descent to the German minority in Kazakhstan, small settlements and slight traces of European lineage can be found dotted around Cen
tral Asia. Across nearly six thousand years, Indo-Aryan migrations brought Indus civilizations into sustained contact with northern and western Eurasian peoples. To this day, Lithuanian retains a high number of cognates with ancient Sanskrit. But these historical curiosities pale in comparison to the flows in the reverse direction. In just the past several generations, Asians have formed large settled communities in Europe. Postcolonial migrations brought substantial numbers of South Asians to Britain. Today there are nearly 2 million Indians and 2 million Pakistanis in the United Kingdom alone, together (along with Bangladeshis) accounting for more than 5 percent of the British population. As of 2015, the name Mohamed (in its various spellings) has overtaken Oliver as the most popular name for baby boys in England. Since the 1950s, Turkish Gastarbeiter (“guest workers”) have become a significant demographic feature of Germanic Europe as well. Today an estimated 4 million Turks constitute nearly 5 percent of Germany’s 82 million people. With the relaxation of citizenship laws in the 1990s, many now hold German nationality. There are also 1 million Turks in France and 600,000 in the Netherlands. While Arabs (and Africans) have long been a prominent postcolonial presence in France, in the 1990s Arab populations also began to rise in Germany followed by growing numbers of Chinese, Vietnamese, and Indians in the 2000s. Düsseldorf, whose sister city in central China is the megalopolis of Chongqing, hosts the largest Chinese and Japanese populations in Western Europe. As the reunified Berlin rapidly absorbs immigrants from far and wide into its thriving cultural scene, it is fast becoming Europe’s most Eurasian city, with Turkish doner kebabs, Arabic falafel, Indian lassis, and Chinese wok noodles available in its numerous hip neighborhoods. In an ironic twist of history, the further into the past Europe’s colonization of Asia fades, the more Europe is becoming a scene of demographic Asianization.
