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Greece is tapping China's deep pockets to help rebuild its economy

By Anthony Faiola
Wednesday, June 9, 2010; A01

PIRAEUS, GREECE -- Nearly bankrupt and sullied in the eyes of foreign investors, Greece is moving to rebuild its economy by tapping the deep pockets of another ancient civilization: China.

Spurred on by government incentives and bargain-basement prices, the Chinese are planning to pump hundreds of millions -- perhaps billions -- of euros into Greece even as other investors run the other way. The cornerstone of those plans is the transformation of the Mediterranean port of Piraeus into the Rotterdam of the south, creating a modern gateway linking Chinese factories with consumers across Europe and North Africa.

The port project is emerging as a bellwether for Greek plans to pay down debt and reinvent its broken economy by privatizing inefficient government-owned utilities, trains and even casinos. This week, the Chinese shipping giant Cosco assumed full control of the major container dock in Piraeus, just southwest of Athens. In return, the Chinese have pledged to spend $700 million to construct a new pier and upgrade existing docks.

The Greek government, for its part, is taking on the powerful unions in a bid to ensure that the Chinese can introduce dramatic changes to increase efficiency and productivity. That effort has ironically turned the Greek Communist Party -- which is closely aligned with the labor unions -- into the fiercest critic of China's economic march on Greece.

The Greek government is also courting China for a bevy of other projects, including a sprawling new distribution center in the industrial wastelands west of Athens, a monorail line, five-star hotels and a new maritime theme park. Greek hotels, eager to fill rooms as crisis-weary Europeans cut back on travel, are also wooing Chinese tour operators as never before. The whitewashed island of Santorini has started selling itself as the ideal spot for "Big Fat Mandarin Weddings" and has seen a surge in fairytale nuptials by wealthy Chinese as a result.

"We have a saying in China, 'Construct the eagle's nest, and the eagle himself will come,' " Wei Jiafu, Cosco's charismatic chief executive, said in a televised interview in Athens this week. A high-ranking member of China's Communist Party, he is now so well-known in Greece that many here refer to him by his nickname, "Captain Wei."

"We have constructed such a nest in your country to attract such Chinese eagles," he said. "This is our contribution to you."

Pattern of investing

The Chinese have plunked down billions from Angola to Peru to ensure the delivery of natural resources to feed China's red-hot economy as well as to guarantee unfettered and cost-effective shipment of its exports abroad. The investments here in Greece, analysts say, are part of China's plan to create a network of roads, pipelines, railroads and port facilities -- sort of a modern Silk Road -- to boost East-West trade.

Forced in April to turn to the European Union and International Monetary Fund for a $140 billion bailout, Greece fits perfectly into China's pattern of investing in challenging environments. China is building a new commercial maritime base in Greece at a time when other European nations remain suspicious of Chinese state investment. France, citing national security risks, recently blocked a bid by China to take over a French firm.

Alarm is also growing that China's plans will flood Europe with cheap Asian imports.

"There is growing unease in Europe at the extent and size of their trade imbalance with China," said Jonathan Wood, global issues analyst at Control Risks in London. "They are worried about finding themselves in the same situation as the United States, running a high trade deficit with China."

Yet the Greeks see Chinese investment as nothing short of a gift from the gods. The biggest question facing the troubled European Union is how nations with uncompetitive economies such as Portugal, Spain and Greece can reinvent themselves to be more on par with the successful nations of Northern Europe. Greek officials say Chinese investment is offering a glimpse into how this nation can do just that by building on its expertise in shipping.

"The Chinese want a gateway into Europe," Theodoros Pangalos, Greece's deputy prime minister, said in an interview. "They are not like these Wall Street [expletive] pushing financial investments on paper. The Chinese deal in real things, in merchandise. And they will help the real economy in Greece."

Yet the privatization of the port also shows how difficult such a transition might be, particularly as Greece tries to privatize more of its economy.

35-year lease

The Chinese deal for the port began to come together in 2006, with Cosco taking transitional control of the main dock at Piraeus on Oct. 1, 2009. It came in armed with a 35-year lease and a mission to whip the notoriously inefficient container docks into shape.

The unloading of a mid-size cargo ship could take as long a week at Piraeus, days longer than at a modern, well-run port such as Rotterdam, now Europe's largest. Many in the shipping industry blamed Greek state workers. "The problem is, the workers were trained to make more money without working," said Nicolas Vernicos, owner of a shipping company whose tugboats have been subcontracted by the Chinese to operate at the port. "That is Greece's problem."

The unions at the port had been striking off and on for months to protest the Chinese arrival. Greece's Socialist government, which came to power in October, initially stood behind the unions, almost scuttling the Chinese deal.

But as Greece's economy went into a tailspin, the government did an about-face, not only welcoming the Chinese at the container dock but also entering into new talks with them for a major shipping repair hub at the port as well as a huge new distribution center.

As part of the deal, 500 union workers at the port were gradually replaced -- allowing the Chinese to bring in cheaper subcontractors. To calm the unions, the government offered 140 workers up to $2,000 a month in pension payments, while others were promised government jobs elsewhere.

The unions and the Greek Communist Party say the Chinese are hiring subcontractors with fewer than 20 workers -- putting them just below the legal threshold in Greece to form organized unions. In addition, they say, the new workers are being pushed too hard, pointing to an incident three weeks ago when two new hires were hospitalized after being injured on the job.

"We are not only giving up national sovereignty but selling our workers out," said Nikos Xourafis, a labor leader with the Greek Port Workers Association. "That can't be the answer for Greece."

Special correspondent Iason Athanasiadis contributed to this report.

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