It was a small change in language. But when it comes to European policy, a small change in language can indicate a large change in direction.

And in this case, Beijing may have had a hand in the writing.

At issue is the rephrasing of a small but crucial passage in the conclusions of a European Council summit in June. The change, say officials involved in its drafting, is one of the clearest examples to date of a shift in the way Beijing influences EU decision-making.

China has long used the size of its market as leverage in negotiations with Europe. Now, say critics of the country’s trade and human rights policies, Beijing has found its way into the room at the European Council, where national leaders gather to make decisions.

“There are several [countries] that profited in the last months and years from Chinese direct investments,” said Matthias Machnig, German state secretary for economic affairs and a vocal proponent of EU-wide restrictions on Chinese takeovers. “And now the Chinese exerted pressure on these countries.”

At the June Council summit, French, German and Italian leaders — seeking to prevent Chinese firms from snatching up companies in strategic sectors — wanted EU leaders to jointly call on the European Commission to examine “ways to screen investments from third countries.”

That line would have paved the way for the Commission to monitor and potentially block foreign takeovers of Europe’s most cherished companies — high-tech firms like German industrial robotics maker Kuka, which was bought last year by a Chinese manufacturer of washing machines and rice cookers.

The protectionist language appeared in early drafts but did not make it into the summit’s final conclusions — to the chagrin of France, Germany and Italy, which are used to getting their way when they call for something jointly. Instead, it was replaced with watered-down wording welcoming an existing Commission initiative to “analyze investments from third countries in strategic sectors.”

The effort was derailed by an ad hoc coalition of smaller countries that included traditional champions of free trade like Finland, Sweden and the Netherlands. They were backed by Portugal, Greece, Malta and the Czech Republic, all of which have received high levels of Chinese investment, according to two trade attachés and an ambassador from a Western EU country present at the negotiations.

Said Abdu, a member of the Swedish parliament’s business and trade committee for the Liberals party, said Swedish businesses he spoke to generally welcomed a push for investment screening. Sweden’s opposition in the Council “could be linked to the fact that Sweden’s two big carmakers [NEVS and Volvo] are owned by Chinese investors,” Abdu said.

A Western European trade official who did not attend the negotiations but was briefed on them said the critics of the screening proposal “threatened, or rather indicated, that if the plan went through they would have to be compensated financially” for the loss of investment they would have otherwise received.

“Greece explicitly mentioned China,” the official said.

'Casting the net'

Beijing has never shied from seeking to influence European decision-making. But its main threat traditionally relied on the size of its market. If the EU was planning a law that Beijing didn’t like, China would threaten to stop buying French wines or German cars.

When, in 2012, the EU was planning to charge all airlines, including foreign airlines flying to the EU, for carbon emitted during flights, China threatened to stop buying planes from Airbus. France, Germany and Britain, where Airbus is a big employer, then pressured the Commission to freeze its proposal to include aviation in the emission trading system.

More recently, China has threatened Germany's car industry with an electric car quota that would hurt sales of Mercedes, BMW, Audi and VW to one of their biggest markets. As POLITICO reported, the threat is linked to the EU's anti-dumping rules, which Brussels is hoping to pass by the end of the year.

According to a senior Commission official working on the reform, it became necessary to soften the rules “because of pressure from China.”

Now — as June’s Council meeting showed — Beijing has found a new way to exert leverage on the Continent.

“There are new dividing lines in the Council that are not necessarily the traditional ones between Northern, liberal and Southern, protectionist countries,” said André Sapir, a senior fellow at the Bruegel think tank. “Southern countries used to favor a harder line against China, but then came the crisis.”

Over the last decade, the EU has become a top destination for Chinese investors, who have bought banks, ports, energy companies and high-tech manufacturers across the bloc, from the Greek peninsula to the outskirts of Dublin, Ireland.

A survey by the consultancy EY said the Chinese spent €75 billion in European acquisitions and investments in 2016. Another study showed that China invested as much in Europe in 2016 as it did in the 10 previous years combined.

Tackling Chinese investments is “the next big battle,” said Axel Eggert, director general of Eurofer, the European Steel Association. “This is not just about stealing key technologies. It’s about gaining political control.”

“China is casting out the net to gain influence in EU countries,” he added.

Beijing’s influence, say China’s critics, can be seen in a recent series of human rights votes.

In June this year, Greece blocked an EU statement at the United Nations criticizing China’s human rights record — months after China’s COSCO Shipping took over Greece’s port of Piraeus.

Last March, Hungary — another country with heavy Chinese investment — derailed the EU’s consensus to sign a joint letter denouncing the reported torture of detained lawyers in China.

And in July 2015, Greece, Hungary, Croatia and Slovenia fought hard in Brussels to avoid a direct reference to Beijing in an EU statement about a court ruling that struck down China's legal claims over the South China Sea.

“China’s strategy in Europe is divide and rule,” said Franck Proust, a French MEP and the author of a parliamentary report on investment screening in Europe. “And it’s working because the 27 EU member states are incapable to remain in solidarity with each other.”

It’s not that Beijing is dictating policy in Lisbon, Prague, Budapest or Athens, Sapir said.

But as those countries have become dependent on Chinese investment, they have also become increasingly reluctant to take stances that would anger Beijing.

“In Portugal and Greece, Chinese investment has risen after the crisis,” he added. “And that has played a role in shifting these lines.”

Finger pointing

The European Council’s failed effort to lay the ground for EU-wide investment screening is the first concrete example in which China is suspected to have used its investment influence to alter a core EU initiative.

The push for restrictions on Chinese investment started with a letter sent by France, Italy and Germany in February, asking the Commission to work on a screening tool that grants "additional protection based on economic criteria taking into account, and with reference to, the Commission’s expertise.”

As a model for the EU, French diplomats pointed to the United States, where a government panel aggressively vets and sometimes blocks foreign purchases of strategic assets — most notably by China.

The debate has been vigorous, with Finland’s trade minister warning that introducing protectionist measures could spark a trade war. But ultimately, the proposal for an EU-level screening mechanism was derailed in the European Council.

In September, European Commission President Jean-Claude Juncker proposed an investment screening law — but it wasn’t what France, Italy and Germany had in mind at the Council.

Instead of vetting takeovers on the EU level, the law would only give guidance to national governments, which can already vet and block takeovers of strategic companies. Crucially, it would not give Brussels the power to force countries to take action.

Germany welcomed the proposal as a tool that “widens our decision-making power,” according to the spokesperson for Berlin’s economy ministry. But France and Italy called for broader powers for the EU, arguing that officials in Brussels should be put in charge of vetting Chinese takeovers.

Beijing has repeatedly played down concerns about Chinese investments in Europe. In September, Chinese foreign ministry spokesman Lu Kang criticized Juncker's proposal. “Practicing trade and investment protectionism for short-term interests, from a long-term perspective, the losses will outweigh the gains,” he told a daily news briefing in Beijing. The EU must “avoid putting out wrong, confusing and negative information to the outside world."

The Chinese Embassy and the Chinese Ministry of Commerce’s attaché in Brussels did not reply to a request for comment on this article. Nor did the China Investment Corporation in Beijing.

Bail-out blues

In the wake of the June Council summit, Germany has pointed to Portugal specifically as an example of an EU country that is blocking EU legislation that Beijing opposes, pointing to its sale of banks and energy grids to Chinese investment groups.

Portuguese officials are actively wooing their Chinese counterparts in a bid to attract more money to an economy that is still in dire need of investment. Lisbon has sought to attract Chinese money, offering “golden visas” and granting residency permits in exchange for investments in real estate, cultural or artistic activities or small and medium-sized companies.

In July, the two countries signed a memorandum stressing Portugal’s willingness to participate in the “One Belt One Road” initiative, a program designed to increase Chinese exports to the EU, and China’s aviation group HNA announced direct flights between Beijing and Lisbon. Chinese state media rhapsodized that bilateral relations with Lisbon were the “best in history.”

Portugal has good reason to not want to cut off the money flow, said one senior EU diplomat from a Southern country. The investments went a long way to help rebuild the Portuguese economy, and additional influxes inject new money into Lisbon and Porto.

Still, many in the country find German accusations of selling out to the Chinese galling, given that it was politicians in Berlin that urged Portugal to sell off assets and state-owned companies to the highest bidder just five years ago.

“Yes, it is ironic,” said one senior Portuguese official, when asked about the German accusations. By refusing fiscal transfers within the EU, Berlin had driven poorer EU countries into the arms of Chinese investors.

Portugal cultivated a bond with the East Asia region that goes back to Portuguese traders settling in Macau in the 16th century. But in recent years, this relationship has been turned upside-down, with Chinese state-owned companies now establishing a foothold in Lisbon.

“They have taken control of our major assets,” said Sérgio Martins Alves, secretary-general of the Portugal-China Chamber of Commerce and Industry.

“Ten years ago we were building an airport in Macau — we were building an entire economic infrastructure there,” added Alves, who advised former Portuguese Prime Minister José Sócrates on diplomatic affairs up until June 2011. “Now, it is the opposite.”

Many of those acquisitions were required by a debt restructuring program following the eurozone crisis — on which Germany insisted before lending Portugal the credits that saved it from collapse.

Under the terms of the bailout EU countries negotiated with Portugal in 2011, the state sold off key assets and forced banks to restructure their debt in return for a €79-billion loan from the International Monetary Fund, the European Commission and the European Central Bank — then known as the Troika.

Acquisitions of critical companies in Portugal came “in direct response to the Portuguese government reconsidering its budgets and selling off stakes in order to make money available,” said Hinrich Voss, an associate professor specialized in Chinese foreign investment at the University of Leeds.

“Chinese investors increasingly deployed capital in economies that were severely affected by the financial crisis,” says a report from Baker & McKenzie, a law firm. “The share of Portugal, Ireland, Italy, Greece, Spain and Cyprus in total Chinese inbound EU investment grew from 8 percent in 2009-2011 to 33 percent in 2012- 2014,” according to a report by the European Trade Union Confederation based on data from Baker & McKenzie and Rhodium Group.

“In particular, Chinese investors targeted opportunities arising from the privatization of state-related industries such as utilities and transportation infrastructure,” the report points out.

The list of takeovers and acquisitions runs long and points to a dramatic shift of ownership of Portugal’s banking, insurance, energy and infrastructure businesses.

“We just sold to the guys offering most money — and evidently they were always Chinese in that period,” Alves said.

Joshua Posaner and Giulia Paravicini contributed reporting.