China and new big infrastructure projects

It is a fact of life that big countries want to maintain and expand their sphere of influence, because that, they believe, can create the biggest benefits for themselves. 

We see this with the EU where Germany and France use their size and power to dominate he rest of the EU or their greatest advantage. The Common Agricultural Policy and soft policies on polluting car emissions are 2 good examples. The US is also following policies aimed at protecting their interests like claiming that climate change is not happening, investing in coal mining and fracking, pulling out of the Iran nuclear agreement, and claiming that important multinational organisations are bad. Russia, for its part, pursues an energy export policy like Nordstream 2 to increase its sphere of influence.

The list is actually really long, but the impact on small countries like Finland are generally indirect and often rather insignificant. There is very little we can do about them because we are so small so we make do to minimise their impact. But now there is one power play from China that is causing some disconcerting activities here in Finland. 

There is talk about an undersea tunnel that is being proposed between Helsinki and Tallinn. This, like the UK/French Channel Tunnel, has been discussed for decades. It is a hugely expensive project that requires years of planning and years of building. The construction risks are massive and the risks of budget overruns are huge. Even optimistic plans mean that it will take many decades for the repayment of construction costs. Do not even think about what will probably happen with costs if problems emerge!

You should recall that the Channel Tunnel was a financial failure that cost the French and British governments dearly. Banks and investors lost incredible amounts of money.

Huge projects like this can only and should only be backed and financed by those governments directly involved. Private capital never enters into open agreements to dig these tunnels at a fixed cost. Private companies can never finance such contracts without state support, and no third party government will undertake such a project unless they have full protection from the 2 governments involved on both sides of the tunnel. Even the EIB requires state guarantees for financing such projects. Your correspondent was working for the French government-owned bank in the 1980’s and knows this to be the case. He has also been involved in dozens of other such projects after that in over 20 different countries.

At the moment there are 2 groups who are considering to construct this Finnish/Estonian rail tunnel. The Finnish and Estonian governments have one plan and the Chinese government is offering another plan to finance and build the tunnel. 

The Chinese government is represented by a young man who used to be a marketing director at Rovio Entertainment the company that brought us Angry Birds. He was also involved in Slush. He has no past experience with banking, big infrastructure investment projects or with their financing.

The Chinese are well-known for using big infrastructure projects to gain political power and influence. We have seen such activities in Europe, Africa, South America and in Asia and there is nothing about their offer for this project that is more attractive than our own sources of financing and construction knowhow. 

We can get cheaper financing and we have great engineering knowhow. Do not believe a word about cheaper Chinese financing or faster project management. It is naive to believe that they are here to give us a better “deal”.

Let’s be clear, China is a fine country with massive resources, but there is nothing that they can offer on such projects that will reduce our risks or reduce our costs.

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