China Faces European Obstacles as Some Countries Heed U.S. Pressure

China Faces European Obstacles as Some Countries Heed U.S. Pressure

Concerns over Chinese geopolitical aggression prompt smaller European countries to block Chinese companies from public bids

Some European countries are starting to block Chinese involvement in their economies, drawing closer to positions advocated by the U.S. amid growing anxiety in Europe over China’s increasingly aggressive geopolitical posture.

Governments from the Baltic to the Adriatic seas have recently canceled public tenders that Chinese state-owned companies were set to win, or are moving to ban Chinese companies from investing or contracting in their countries.

The shifts have been prompted by a mix of national-security concerns and disappointment with the performance of Chinese contractors, say officials involved in the decisions. Several of the canceled projects fell within China’s world-wide infrastructure initiative, Belt and Road, which has disappointed several participating countries.

The shift is largely taking place in smaller European countries, adding to tensions within the European Union, where big countries still largely favor maintaining business links with China.

Romania and Lithuania are taking broad measures to exclude Chinese companies from certain public procurements. Other moves are more targeted. Authorities in Slovenia, Croatia, the Czech Republic and Romania have suspended public tenders involving Chinese companies for work on nuclear-power plants, highways, rail lines, security scanners and a shipping-container terminal. Greece is debating whether to allow a Chinese shipping company to increase its majority stake in the country’s largest port.

China underestimated the “Russia factor,” said Andreea Brinza, vice president of Bucharest-based think tank the Romanian Institute for the Study of the Asia-Pacific. European countries dominated by Moscow during the Cold War have lingering strategic concerns, and as most of them rely on U.S. security guarantees, they want to show which side they are taking in trade disputes between Washington and Beijing, she said.

“We are simply respecting the strategic choices we’ve made: our partnership with the U.S., NATO and EU membership,” said Romanian Deputy Prime Minister Dan Barna of his country’s recent cooling toward China. The government said earlier this month that it would tighten public-procurement rules, effectively banning Chinese companies, after blocking Chinese participation in the country’s 5G rollout and in refurbishing a nuclear-power plant last year.

The Chinese Embassy in Bucharest and the Chinese Chamber of Commerce in Romania didn’t respond to requests for comment on the new Romania regulation.

Lithuania’s government on Feb. 17 prohibited Chinese security-scanner maker Nuctech Co. from supplying equipment to the country’s two airports, saying a proposed deal was “not in line with national-security interests.” State-controlled Nuctech, which the U.S. government in December listed among Chinese entities banned from certain transactions with U.S. parties, had won a tender launched a year ago by state-owned Lithuanian Airports.

Nuctech said it was assessing a response, potentially including legal action. “Not only is this decision politically motivated, but it also distorts competition in the security-equipment market to the detriment of the Lithuanian taxpayers,” a Nuctech spokeswoman said.

Canada last year also abandoned a plan to buy Nuctech scanners for its embassies following controversy around the announced deal. Norway, Croatia and an EU directorate in recent months have also stopped scanner tenders involving Nuctech, although none publicly linked the cancellations to security, as Lithuania did.

“We are choosing the Western technosphere. We are not choosing the Chinese technosphere,” said Laurynas Kasciunas, chairman of the Lithuanian parliament’s national-security and defense committee, which oversees a national-security review board that had recommended banning Nuctech.

Such policy reversals remain a minority amid extensive Chinese business activity across the EU. Chinese direct investment into the bloc has declined since a peak in 2016 because of new European limits and Chinese restrictions on financial outflows. But public-procurement wins in Europe by Chinese companies—mostly state-owned—have ballooned recently, according to a Wall Street Journal analysis of public data.

In response, the EU last year issued guidelines for weeding out bidders from outside the bloc that offered extraordinarily low prices and launched a study on the impact of foreign subsidies in Europe, covering areas including procurement and corporate acquisitions. New EU rules on member states’ screening of foreign investments for potential national-security consequences took effect in October, and many EU countries have adopted national versions.

Wariness of Chinese companies has risen largely in parts of Eastern and Southern Europe, even as Germany and France—the continent’s largest economies—have pushed to deepen economic ties. German Chancellor Angela Merkel and French President Emmanuel Macron in December pressed the EU to strike a preliminary deal with China on an investment agreement that had been under negotiation since 2013.

The deal drew objections from Poland and prompted U.S. national security adviser Jake Sullivan before he took office to call for more trans-Atlantic consultation on China. The investment agreement still requires formal approval, which may only come next year and could face growing opposition from EU lawmakers.

Central and Eastern Europe have been prime targets of Chinese contractors eager to profit from the region’s vast infrastructure needs, often bidding prices far below those of European rivals. In many cases, those low-bid wins failed to deliver, politicians now say.

“We are learning from our experience,” Romania’s Mr. Barna said of his government’s decision to largely bar Chinese contractors. “We looked at why certain projects weren’t completed and found that bidders didn’t meet the standards or didn’t have the capacity to finalize the projects,” he said.

U.S. lobbying efforts under the Trump administration’s so-called Clean Network initiative last year resulted in several EU nations signing up to security criteria and drafting legislation that would effectively ban or limit Chinese companies including Huawei Technologies Co. in their 5G technology. Huawei complained to the EU authorities in September that Poland’s and Romania’s 5G laws, inspired by the U.S., might violate EU competition law.

In a sign of Central Europe’s increasing wariness toward China, six European leaders snubbed Chinese President Xi Jinping when he hosted a videoconference earlier this month. Beijing had organized the virtual event within a group known as 17+1, referring to the number of European countries involved, plus China. Instead of sending their invited leaders, Estonia, Latvia, Lithuania, Romania, Bulgaria and Slovenia were represented by government ministers, despite pressure from Beijing for higher-level participation. A spokesman for China’s Foreign Ministry said the meeting “was successfully held…with leaders” of the countries.

China’s promotion of the group, which includes 12 EU countries and five aspiring members, has irritated EU officials, who see it as Beijing’s attempt to divide the bloc and draw Balkan countries into its orbit.