China's new European trade hub: An Irish town of 18,000

As China's government readies to buy up European infrastructure, a trade hub slated for the Irish midlands could prove a showcase for the world's second-largest economy in a struggling continent and provide much needed jobs in debt-addled Ireland.

In December, local authorities in the Irish town of Athlone gave the go-ahead to a trade hub that would give Chinese business an anchor in Europe. Backers say the 1.4 billion euro ($1.8 billion) project "will become the largest European source of Chinese-branded goods in Europe.” With the World Bank's growth forecast for China reduced, partially because of the reduction in European demand for Chinese goods, a revived Europe is in China's interest.

Meanwhile, Ireland is looking at 63 billion euros in bank debt and is mired in a deep recession. Although the country was edging toward growth earlier in 2011, by the third quarter of 2011 the government reported a 2 percent decline in national output. 

The Athlone Institute of Technology hosts more than 200 Chinese students – one of the links that helped bring the trade hub to the town, says Prof. Ciaran Ó Catháin, the president of the school and one of the players in the project negotiations. Professor Ó Catháin would not disclose who the Chinese backers are, but says, “suffice to say there are significant players involved on the Chinese side." Plans for the project predict at least 400 Chinese businesses using the trade hub to launch their products in Europe.

The Athlone announcement came on the heels of a November announcement by Chinese Commerce Minister Chen Deming that Beijing will send a delegation to Europe in 2012 to explore options for investing in state-owned infrastructure. China has already bought about 600 million euros worth of European debt and is now looking to invest in state assets as well, such as roads and trains.

According to Mr. Chen, European countries facing substantial debt are seeking to convert their assets into cash – and are looking to foreign investors for that capital. As part of Ireland's debt reduction plans, The International Monetary Fund (IMF) has suggested that Ireland divest up to 5 billion euro worth of state assets, a fire sale that could interest more Chinese investors. Editor's note: This paragraph has been edited to correctly reflect the amount of state assets the IMF has requested Ireland divest.

If the Athlone project is successful, China could take the game to the US. According to Ó Catháin, Ireland's low corporate tax rate was "a major inducement" for Chinese investors to back the trade hub there, but Asian investment in Ireland is still almost subterranean compared to US investment there. While there are 41 Asian companies operating in Ireland, there are 491 American companies and 99 German ones, according to 2010 statistics from the Industrial Development Agency, the state body responsible for attracting foreign companies to Ireland. Editor's note: This paragraph has been edited to correctly reflect the ownership of the foreign companies.

Google, Facebook, and fashion retailers

Ireland remains a hub for transnational brands. Google, Facebook, and Intel all run major European operations out of Ireland, lured by its 12.5 corporate tax. Amid a 14 percent national unemployment rate, roughly 13,000 new jobs were created in 2011 by foreign investors – a net gain of 6,000 jobs because 7,000 others were eliminated.

Driven by these big brands, Irish exports are on the up – a positive sign amid an otherwise harsh economic outlook. Enterprise Ireland, a state agency that promotes Irish investment overseas, said in December that 2011 export figures would “exceed the pre-recession record levels of 2008.”

However, exports are not putting a dent into Ireland's unemployment rate, which keeps consumer demand low and in turn hinders economic growth. Economist Brian Lucey says “part of the problem is Ireland's concentration on pharmaceutical, medical, and hi-tech sectors, which do not create many new jobs.”

Exemplifying this ambivalent economic outlook is Carraig Donn, a stylish but affordable fashion retailer headquartered in Westport, on Ireland's west coast near Croagh Patrick. Chairman Pat Hughes says that with revenue boosted by online sales, he hired an extra 60 people in 2011, bringing total staff up to 350. However, “times are challenging, and we cannot really plan too far ahead," he says. 

According to statistics compiled by Vision-Net, 160 irish companies collapsed each month in 2011, a 20 percent increase from the previous year, highlighting the depth of Ireland's economic woes.

Strategy: Attract foreign investment

The Irish Exporters Association reports 75 percent of Irish exports come from foreign investors, rather than homegrown successes such as Carraig Donn. With that in mind, the government job strategy remains based on attracting more foreign investment and expanding export industries that can employ citizens, said a spokesman for Minister for Finance Michael Noonan in an e-mail. Editor's note: Due to an editing error, this paragraph previously misidentified Michael Noonan. It has now been corrected.

Investments like the Althone trade hub – dubbed Chinatown by one local paper – might help. Though three anonymous objections to the project have since been lodged with the Irish planning board, Athlone residents generally seem to be in favor. 

Some locals think so. Speaking in a busy Athlone shopping mall during post-Christmas sales, teacher Kevin Jordan says, “We don't know a whole lot about the project, but it could mean a lot of jobs for this region, and that has to be welcomed.”

Athlone Mayor Alan Shaw said town residents are pleased that the county council approved the project. He said he believes that one reason the Chinese backers chose Ireland for such a huge investment is that unlike other European countries, "Ireland has not been preaching to the Chinese about human rights."

Mr. Hughes of Carraig Donn is already looking to the vast potential middle-class markets in China and India and had an office in Guangzhou, China. Should he be able to grow his business there, it could create more demand for jobs at home. 

"I see India and particularly China as markets we can access, with their growing and vast middle classes, and we hope to get potential customers there aware of our product," he says. 

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