A Chinese-funded project to build the world’s longest undersea rail tunnel in the Baltic Sea is being held up over concerns about its financing, making it a focal point of larger European questions about the influence of China.
The idea of building a tunnel between the Finnish and Estonian capitals of Helsinki and Tallinn is not new, but fresh concerns arose about the project after Peter Vesterbacka, a Finnish tech entrepreneur, inked a deal this year with Touchstone Capital Partners, a financial firm that invests the resources of state-owned Chinese enterprises.
The deal will supply $17 billion to fund the three Chinese companies that have signed on to build and design the tunnel.
Should the project break ground, it would become the largest Chinese investment in Northern Europe and open up a slew of other opportunities to build infrastructure across the region.
In July, however, Estonian Public Administration Minister Jaak Aab said the current timeline to open the tunnel in 2024 wasn’t realistic and questioned Vesterbacka’s business plan while also raising serious concerns about the source of the private financing: China.
The tunnel controversy is playing out against the backdrop of an ongoing trade war between Washington and Beijing, and greater concern about China’s growing presence across Europe. Even as individual countries cut deals, the European Union has begun to take a tougher approach to China’s rise, making an unprecedented declaration this year that Beijing was a “systemic rival” in some areas, as well as a competitor or potential partner in others.
In late September, Japan and the EU also signed a major deal to build infrastructure and set development standards around the world, in what was seen as a response to Beijing’s amorphous Belt & Road Initiative.
The moves came on the heels of a series of Chinese acquisitions across Europe, which sparked new EU rules that allow for closer scrutiny of foreign investments and led to an ongoing debate over updating the bloc’s procurement, competition, and industrial policies to better adjust to China’s economic pull.
“There is more strategic thinking about China now than ever before in Europe,” said Erik Brattberg, the director of the Europe program at the Carnegie Endowment for International Peace, “but there isn’t a coherent European strategy yet.”
Vesterbacka says concerns over Chinese involvement are overblown. He argues that the tunnel will be majority-owned and operated by FinEstBay, the development company he co-founded, not the Chinese investors and contractors.
“We need to do more to alleviate the fears and concerns over Chinese involvement, but I think that’s very much doable,” Vesterbacka told Foreign Policy in an interview.
“The Chinese are investing in this because they see it as a good business case.”
Indeed, until Beijing entered the picture, the political will and public funds had never fully materialized for such an ambitious undertaking.
So, Vesterbacka, who made his name as the former chief marketing officer at Rovio, the game-maker behind the international hit Angry Birds, decided to launch a privately funded version in 2016.
Since then, Vesterbacka has moved quickly to bring the project to fruition by lining up tunnel boring companies to drill under the Baltic, developing a ticketing system for the trains, bringing private investors on board, and setting an ambitious December 2024 deadline for the 62-mile tunnel. His deal with the Chinese companies was intended to help make the project a reality.
Instead, the episode has opened up a conversation about how best to finance and build large-scale infrastructure projects and provided a window into the growing tension between geopolitics and business when it comes to China-linked projects in the European Union.
Bit by bit, despite pressure from the Trump administration, EU countries are demonstrating a willingness to engage in big projects with China.
In March, Italy became the first G-7 country to sign up to the Belt & Road Initiative, joining 23 other European countries that signed memorandums of understanding with Beijing’s signature foreign-policy initiative. Meanwhile, countries such as Hungary, Greece, and Portugal continue to welcome Chinese investments in their railways, ports, and energy infrastructure, and British Prime Minister Boris Johnson has signalled that China will play a big part in the country’s post-Brexit economy. France and Germany are also still searching for a balance to strike in their dealings with Beijing, using tough rhetoric while still courting Chinese cash.
“Europe wants to address its concerns, but there is no desire to follow the Trump administration in confronting and decoupling from China,” Brattberg said.
Vesterbacka says the venture could be transformative for both Finland and Estonia. In the Finnish entrepreneur’s plans, which entail the construction of at least one artificial island in the middle of the Baltic Sea, the new connection would turn the current two-hour ferry ride between Helsinki and Tallinn, which is one of Europe’s busiest crossings, into a 30-minute trip, increasing opportunities for travel, work, investment, and also provide a fast cargo link between Northern Europe and the continent that could increase trade.
The tunnel’s wider potential won over the previous Finnish and Estonian governments, which expressed tentative support for the venture and acknowledged that private funding would be needed in order to complete the project.
A state-led version of the same tunnel relying on EU support has also long been discussed, but a 2018 feasibility study found that such a venture would require an EU grant to cover 40 percent of the costs and also both Estonia and Finland to provide subsidies. The project also likely couldn’t be completed until 2040.
With money on offer and a desire to break ground as soon as possible, Vesterbacka believes his version is superior. But having not yet secured official backing from the two governments and the European Union, he now finds himself navigating bureaucratic hurdles and intensified scrutiny over his investors.
“It’s very clear to me that some of the people involved are dragging their feet and not wanting to make a decision,” Vesterbacka said.
The main concerns expressed by the Estonian government are related to security, particularly around ownership and financing, but also questions about the tunnel’s estimated passenger and cargo volumes and Vesterbacka’s short construction time frame.
“At the moment, we are in a stage where we are trying to get as much information about FinEstBay’s plans as possible for our government to be able to decide on this project,” said Eva Killar, an executive officer at the Transport Development and Investments Department of Estonia’s Ministry of Economic Affairs and Communications.
Sabina Lindstrom, the director-general of the Networks Department at Finland’s Ministry of Transport and Communications, told Foreign Policy in emailed comments that the tunnel project is not part of the current government’s policy program and that while unofficial talks with Estonian colleagues are ongoing, “an official request to sign [a memorandum of understanding] has not been received at the moment.”
Economic relations between Europe and China have expanded dramatically over the last decade, with the EU becoming China’s largest trading partner and China becoming the EU’s second-largest after the United States.
Building new trade and infrastructure links to Europe’s massive consumer market is the end goal of Belt & Road, and Beijing has taken a stronger interest in Northern Europe in recent years as it looks to expand its presence in the Arctic.
But China’s rise has also led to a swift learning curve about Beijing’s intentions amid concerns that its economic weight will be used to build up political influence among EU member states.
The added attention has coincided with several examples of Chinese investors losing bids or pulling out of projects in Europe.
In June, a Chinese state-owned company withdrew its bid to build two strategic airport projects in Greenland, and Chinese investors abandoned plans in 2018 to build a deep-water port in Sweden amid local concerns about the project’s environmental and security implications. Meanwhile, a high-speed rail link between Budapest and Belgrade has faced numerous obstacles, with the $3 billion projects held up in an investigation about whether Hungary followed the EU’s anti-corruption rules when awarding contracts to Chinese companies.
In Finland and Estonia, two countries that have maintained a welcoming attitude toward Chinese investment, China’s involvement has also begun to be more scrutinized.
“The general attitude until a few years ago was fairly positive across the board,” said Mikael Mattlin, a collegium researcher at the Turku Institute for Advanced Studies who studies China’s presence in Finland.
“Even now, it is not that critical, but the discussion is starting to reflect that there are security dimensions to Chinese investment.”
Still, China has invested $8 billion in Finland since 2000, with promises for more, and Beijing has developed into one of the country’s top trading partners. Estonia, meanwhile, has sought to stay in Beijing’s good graces.
The Baltic nation cooperates with China through the Belt and Road Initiative and is also a member of the 17+1 format, a China-initiated forum that allows the country to deepen relations and cut deals with smaller and more receptive European countries.
“Policy circles in Estonia view Russia as the main security issue,” said Frank Juris, an expert on China’s role in the region at the Estonian Foreign Policy Institute under the International Centre for Defence and Security in Tallinn.
“Not many people have been thinking of China in these terms, and the national conversation [shows] that.”
For the moment, the tunnel project’s future is uncertain. Vesterbacka says that despite the recent stumbling blocks, he believes that his venture will move forward.
But with large-scale Chinese investments being looked at more closely by individual governments and the EU, projects like he could be left waiting.
“With everything happening in the world, I understand that people are cautious and worried about competing interests,” Vesterbacka said.
“But China can’t just be cut out—we can’t view everything in this black-and-white way.”