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e-ISSN: 1647-7251

VOL13 N2, TD1

Thematic dossier

Perspectives on China’s international presence

December 2022

PORTUGUESE STRATEGIES TOWARDS CHINA

DURING THE COVID19 PANDEMIC

XIAOYING HOU

usp_xisusofia@hotmail.com

Instructor of Department of Europe, Xi’an International Studies University (China). Ph.D.

candidate in International Politics and Conflict Resolution which is offered by the Faculty of

Economics in collaboration with the Centre for Social Studies of the University of Coimbra. She

holds a Master’s in Portuguese Literature from the University of Coimbra, as well as a Bachelor of

Portuguese Language and Culture from Xi’an International Studies University. She has acted as a

lecturer in the undergraduate program of the Portuguese of School of Occidental Studies of 西安外

国语大学 Xi’an International Studies University.

CARMEN AMADO MENDES

carmen.mendes@fe.uc.pt

President of the Macau Scientific and Cultural Centre. Associate Professor of International

Relations with tenure, accredited at the School of Economics of the University of Coimbra

(Portugal), where she established the course “China and the Portuguese-speaking Countries in

World Trade”. Former head of the International Relations department and coordinator of the

School of Economics International Office at the same university. Holds a Ph.D. degree from the

School of Oriental and African Studies – University of London, a Master degree from the Institute

of Higher European Studies – University of Strasbourg, and a Bachelor degree from the Institute

of Social and Political Sciences – University of Lisbon. She was a Post-doctorate scholar at the

Institute of Political Studies of the Portuguese Catholic University of Lisbon and visiting professor

at the University of Macau, the University of Salamanca and the University of Lyon. She was a

board member of the European Association for Chinese Studies, and the organizer of the 2014

EACS conference in Coimbra; and president of the International Relations Section and member of

the board of the Portuguese Political Science Association. Principal Investigator at the University

of Coimbra on a research project on the role of Macau in China´s relations with the Portuguese

speaking-countries, funded by the Portuguese national funding agency for Science, Research and

Technology; and on a project on South-South Cooperation for the Europe China Research and

Advice Network, supported by the European External Action Service. Auditor of the Portuguese

National Defense Institute. Co-founder of the consulting company ChinaLink, and of the

Observatory for China in Portugal. Author of China and the Macau Negotiations, 1986-

1999 (HKUP) and China’s New Silk Road: An Emerging World Order (Routledge), as well as other

publications available for consultation at: www.uc.pt/feuc/carmen

Abstract

Small states, despite their power deficits, are able to influence large states. This paper

explores how Portugal appears to have selected strategies to modulate yet improve its

relations with China during the Covid19 pandemic. According to the Theory of Asymmetrical

Negotiations (TAN) advanced by Habeeb, small states adopt soft strategies when they have

high levels of commitment, worse alternatives available to them, and a low degree of control.

During the pandemic, an increase in deficits drove Portugal’s government to seek to expand

exports, attract investment, and improve its competitiveness. The authors find that Portugal

has exhibited different behaviour regarding commitment, seeking alternatives, and exerting

control in issues related to investment, export, and competitiveness. Portugal has flexibly

JANUS.NET, e-journal of International Relations

e-ISSN: 1647-7251

VOL13 N2, TD1

Thematic dossier – Perspectives on China’s international presence - December 2022, pp. 77-96

Portuguese strategies towards China during the COVID19 pandemic

Xiaoying Hou; Carmen Amado Mendes

employed soft strategies towards China during the pandemic, while reacting to external

intervention from the US and maintaining internal compliance within the EU. With these

strategies, Portugal has successfully, and without conflict, defended its interests, maintained

its EU status, and limited the intensity of competition between the US and China regarding

Portugal.

Keywords

Portugal-China relations; small states; covid19; Theory of Asymmetrical Negotiations;

strategy choices

Resumo

Os pequenos estados, apesar dos seus défices de poder, são capazes de influenciar os grandes

estados. Este artigo explora como Portugal parece ter selecionado estratégias para modular

mas melhorar as suas relações com a China durante a pandemia de Covid19. De acordo com

a Teoria das Negociações Assimétricas (TAN) avançada por Habeeb, os pequenos estados

adotam estratégias suaves quando têm altos níveis de compromisso, piores alternativas

disponíveis, e um baixo grau de controlo. Durante a pandemia, um aumento dos défices levou

o governo português a procurar expandir as exportações, atrair investimento, e melhorar a

sua competitividade. Os autores constatam que Portugal tem demonstrado comportamentos

diferentes no que respeita ao compromisso, à procura de alternativas e ao exercício do

controlo em questões relacionadas com investimento, exportação e competitividade. Portugal

tem utilizado de forma flexível estratégias brandas em relação à China durante a pandemia,

ao mesmo tempo que reage à intervenção externa dos EUA e mantém a conformidade interna

dentro da UE. Com estas estratégias, Portugal tem defendido com sucesso, e sem conflitos,

os seus interesses, mantido o seu estatuto na UE, e limitado a intensidade da concorrência

entre os EUA e a China em relação a Portugal.

Palavras-chave

Relações Portugal-China; pequenos estados; covid19; Teoria das Negociações Assimétricas;

escolhas estratégicas

How to cite this article

Xiaouying, Hou; Mendes, Carmen Amado (2022). Portuguese Strategies towards China during

the Covid19 Pandemic. Janus.net, e-journal of international relations. VOL13 N2, TD1 -

Thematic dossier “Perspectives on China's International Presence: Strategies, Processes and

Challenges”, December 2022. Consulted [online] on date of the last view,

https://doi.org/10.26619/1647-7251.DT22.5

Article received on June 19, 2022 and accepted on June 25, 2022

JANUS.NET, e-journal of International Relations

e-ISSN: 1647-7251

VOL13 N2, TD1

Thematic dossier – Perspectives on China’s international presence - December 2022, pp. 77-96

Portuguese strategies towards China during the COVID19 pandemic

Xiaoying Hou; Carmen Amado Mendes

PORTUGUESE STRATEGIES TOWARDS CHINA

DURING THE COVID19 PANDEMIC

XIAOYING HOU

CARMEN AMADO MENDES

1. Introduction

While previous studies concerning relations between Portugal and China have tended to

focus on the strategies that could be ascribed to China, this article makes of use of the

Theory of Asymmetrical Negotiations (TAN), advanced by Habeeb in 1988, to analyse

how three factors - commitment, alternatives, and control – can be said to have

influenced Portugal’s strategies towards China during the Pandemic. The paper tests the

effectiveness of TAN in explaining the strategy choices made by small states towards

large states, and thereby enriches our understanding of Portugal’s ongoing diplomacy,

and the diplomatic possibilities available to small states.

In this paper the term commitment refers to the extent to which small states need to

achieve their own defined goals, and alternatives refers to the range of choices available

to small states, other than relying on a large state, to achieve its defined goals. The

expression control refers to the ability of a small state to mitigate the costs of declining

to cooperate with an involved larger state, to achieve its goals. The Theory of

Asymmetrical Negotiations holds that when a small state has a high level of commitment,

unfavourable alternatives, and limited control over a single issue in its relations with a

large state, it is at a disadvantage in terms of the ‘balance of power’, and resorts to soft

negotiation strategies. Conversely, when a small state has a degree of advantage, it

tends to adopt hard negotiation strategies. This article tests this supposition and argues

that small states generally adopt mixed strategies since the ‘balance of power’ is always

in flux.

Portugal is taken here as a case study, and not without reason. Portugal was engaged

for years in negotiations with China over the return of Macau to Chinese sovereignty in

the 1990s, and as Mendes noted, “The Sino-Portuguese negotiations demonstrate how

complex it is for a small, weak country with a tangled political bureaucracy to define

strategy, aims and alternative scenarios when negotiating with a large and relatively

strong state.” (Mendes, 2013:114). Lewis (2009: IX) argued that small states have three

specific vulnerabilities. Firstly, they suffer from a resource vulnerability that derives from

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e-ISSN: 1647-7251

VOL13 N2, TD1

Thematic dossier – Perspectives on China’s international presence - December 2022, pp. 77-96

Portuguese strategies towards China during the COVID19 pandemic

Xiaoying Hou; Carmen Amado Mendes

the physical location of the state. Secondly, they experience socio-political vulnerability

that arises from the management of the state’s policy operations and the stability of its

decision-making processes. Thirdly, and contestably most important of the three in

today’s world, is the economic vulnerability that a state experiences, as an economic unit

of a specific geographical size in relation to both its domestic resources and the networks

of international transactions in which it is involved.

Portugal clearly presents an example of all three vulnerabilities. According to World Bank

data, Portugal has a relatively small population of only 10.3 million citizens, thus ranking

in 88th place in world ranking. Its territory of a little over 92 thousand km2 gives it a

world ranking of 109th position in size. Portugal’s relatively small population and limited

territory have resulted in an economic structure that has led to persistent fiscal deficits

and generally low economic activity. The result has been that the divergences between

the main political parties over fiscal policy have led to a low level of policy continuity.

Portugal may be small, but it is not weak since it has at its disposition rich diplomatic

resources, and promotes economic and technological issues to its advantage. In the

diplomatic dimension, Portugal is a European Union (EU) member-state, an ally of the

United States (US), and active in establishing a coalition with Portuguese-speaking

Countries (PSCs) within the Community of Portuguese-speaking Countries (CPLP). In the

economic dimension, Portugal’s renewable energy industry can be considered to be at an

advanced level. In the technological dimension, Portugal occupies a position at the

medium level within the EU, particularly with regard to its initiatives in renewable energy,

space technology, new materials, and biotechnology (OECD, 2013). China, the US, and

the EU itself have been the three principal sources from which Portugal could borrow

financial resources to enable it to address the increased vulnerabilities that it faced during

the pandemic. Portugal, as the small state that it is, experienced a high fiscal deficit,

social unrest, and even political crisis, thus demonstrating its vulnerability to external

shocks. The Portuguese administration took attracting investment, expanding exports,

and enhancing its international competitiveness as its key goals to address its

vulnerabilities, and consequently has a high commitment to them. When considering

whether there were choices available to Portugal, there were few other possibilities, and

on top of that it was a fact that, leaving aside the EU, Portugal would face the two

dominant economic powers. Ultimately, “For a small country, negotiations with a power

require a lot of preparation in order to keep a good level of intervention during the talks.

It also demands the understanding of the real intentions of the power so as to conclude

whether an issue is really vital for the strong state.” (Mendes, 2013: 114)

In March 2019, Brussel launched ten strategic actions aimed at China in its EU-China: a

Strategic Outlook, and requested EU member-states to strengthen their monitoring and

regulation of Chinese investments in the region. The US and EU both exerted pressure

on Portugal and offered it alternatives in attempts to reduce any increased commitment

on Portugal’s side to China. As support, Portugal has access to EU’s funds and the internal

market as a member-state, while the US provides access to the export market,

investment, and technology. Support has come with conditions. The US has defined China

as a strategic competitor and has clearly stated that American liquefied natural gas (LNG)

would not be allowed to enter the European market through the Portuguese port of Sines

if the port were to accept Chinese investment, or if Portugal cooperated with Huawei in

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e-ISSN: 1647-7251

VOL13 N2, TD1

Thematic dossier – Perspectives on China’s international presence - December 2022, pp. 77-96

Portuguese strategies towards China during the COVID19 pandemic

Xiaoying Hou; Carmen Amado Mendes

the 5G field (DN/Lusa, 2019; Ferreira and Gaudêncio, 2020; Lusa, 2020; Machado,

2020). Furthermore, if China were to obtain stakes in the Portuguese electric utilities

company Energias de Portugal (EDP), the company would experience constraining

limitations in the US. Under these conditions, in its diplomatic exchanges with China,

Portugal principally used an interest-linkage strategy by offering benefits to Chinese

investors to attract Chinese financial support, and a balancing strategy by borrowing

simultaneously from China and other actors, in an attempt to maintain EU integration

and ally itself with the US, to which Portugal gives priority over its relations with China.

Portugal also implemented a control-risk strategy on 5G by not taking any clear stance,

despite it being an issue on which the US and EU attempted to reduce Portuguese

commitment to China. In this way, Portugal managed to ‘borrow power’ from multiple

western allies, and also non-western friendly states, to achieve its goals.

In the following sections, we analyse the factors that influenced and influence Portugal’s

strategic choices. The first of these sections briefly explains the theory and methodology

of the Theory of Asymmetrical Negotiations (TAN). The second section clarifies why

Portugal has defined attracting investment, export expansion, and competitiveness as its

goals during the pandemic. The third section analyses how commitment, alternative(s),

and control on investment-related issues directly influence Portuguese strategies, and

the fourth section takes up export-related issues. The fifth and final section focuses on

issues related to competitiveness, and concludes with the power resources Portugal uses

in its strategy towards China, and the effects that they have.

2. Theoretical framework and methodology

Strategies refer to consciously designed efforts to accomplish previously defined goals

within outcomes. The goals and the ‘influence capacity’ — i.e. the resources available to

a small state’s government and its capacity to employ the resources — together

determine how specific strategies are designed. There are different definitions of what

constitutes a small state’s goals and its capacity to exert influence. Some scholars focus

on the quantitative characteristics of small states, considering them straightforwardly as

actors possessing a small population size, limited gross domestic product, a restricted

territorial area and a small trade volume, or as having a combination of all these four

features (Cooper and Shaw, 2009). For hard-line realists, small sizes are indicators that

measure the material power resources of a state. The difference between the sizes of

small states and of large states directly explains the deficits of material power resources

that small states experience. Hard-line realists view material resources specifically as

available resources that are able to produce influence. They argue that small states, as

actors with a deficit of material power, take survival as their fundamental strategic goal,

and do not really exert any influence on large states.

Focusing on the qualitative natures of small states, Keohane (1969) regarded small states

as those with weak influence. He considered that both material and normative power

resources are effective in producing influence, and argued that the goal of small states

is to strengthen their interdependence, and that this situation explains the two strategy

choices of small states, e.g. constructing alliances with one large state to influence

another, and participating in an international system in which they obtain equal rights to

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Portuguese strategies towards China during the COVID19 pandemic

Xiaoying Hou; Carmen Amado Mendes

make their voices heard. Goetschel (1998) adopts a relational view of power, defending

three types of resources to create influence, namely material, normative, and relational

recourses. He argued that the goal for small states was to maximize influence, and

minimize or compensate for the power deficits. In this article we adhere to Goetschel’s

view and maintain that small states mobilize all their available resources to achieve their

goals. The types of resources mobilized can be observed in their real bilateral exchanges.

Small states use strategies to grow their internal power resources and borrow resources

from large states, or enter coalitions with other small states, to increase their own

influence.

Some commentators regard small states as actors with inherent vulnerabilities.

Vulnerabilities here refer to high exposure to external shocks such as invasions,

externally directed coups, mercenary attacks, and economic setbacks (Payne, 2004:626;

Briguglio, 2014). Correspondingly, resilience refers to the extent to which an small state

can withstand or recover from the negative effects of external shocks (Briguglio, 2014).

Briguglio regards resilience as an ability ‘that may be inherent or nurtured’ in small

states. However, other scholars consider that resilience derives from the goal of the

internal development policies of small states and their foreign policies (Payne, 2009). On

this point we follow Payne’s point of view and regard that the goal of small states as

being to construct resilience, and that their strategies are efforts to address the

underlying causes of their vulnerabilities. To sum up, we maintain that the diplomatic

goals of small states can be classified in two categories. One is external, and consists of

reducing their power deficit in the existing international power relation network. The

other is internal, and focuses on addressing inherent vulnerabilities. The strategic goals

of small states are dynamic, and alternate between the two categories. The more resilient

a state is to external shock, the more importance it places on reducing its external power

deficits. The less resilient it is, the more priority a small state will give to addressing its

vulnerabilities. The power resources that small states use can be material, normative,

and relational. Small states, despite their small size, once they have employed effective

strategies, can gain resilience and influence, and consequently are not invariably

vulnerable and weak.

A number of case studies reveal that the strategy choices small states make in their

relations with large states are constrained both by inherent vulnerabilities and external

power deficits, but few commentators explain the relationship between the two

contextual settings and strategy choices. We consider that the Theory of Asymmetrical

Negotiations (Habeeb, 1988) coherently explains how inherent vulnerabilities and

external power asymmetries moderate the strategies of small states. Following Habeeb’s

reasoning, we maintain that the perception of inherent vulnerabilities, and related

benefit-cost calculations, by the main political parties in a small state determine what

diplomatic goals small states will have, and the extent of their commitment to achieving

these goals. Their perception of external power relations determines what alternatives

will be considered better when borrowing from external power resources. Both

vulnerabilities and power asymmetries, by limiting available internal and external power

resources to small states, determine to what extent they have control over the issue, or

in other words, the ability to achieve their goals without cooperating with a large state.

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Thematic dossier – Perspectives on China’s international presence - December 2022, pp. 77-96

Portuguese strategies towards China during the COVID19 pandemic

Xiaoying Hou; Carmen Amado Mendes

Small states have at their disposition a wide range of strategies to achieve concessions

from a large state. They may request aid using a ‘weakness’ narrative as a negotiating

tool (Keohane, 1969); construct a capacity priority in issues of strategic importance to

the large state (Habeeb, 1988; Dinar, 2009); create a coalition with other small states

that have common interests in their relations to a large state (Lieberfeld, 1995; Ourbak

and Magnan, 2017); draw on the strength of other large states (Keohane, 1971; Cha,

2010; Kuik, 2010; Klöck, 2020); or employ the rights pertaining to their memberships

of international institutions, such as voting, participating in consultations, and initiating

proceedings (Lee, 2009). The strategies by which small states bring benefits to large

states can be seen as soft, and those that bring costs as being hard. From this

perspective, we identify a number of examples of the strategies used by small states

towards large states in different cases, classifying them on a scale from soft to hard:

i. Interest-linkage strategy: establishing linkages between small states’ issues with

advantage to their strategic importance to large states (Haggard and Moon, 1983;

Kuik, 2010).

ii. Balance strategy: drawing on the strength of other large state(s) (Cha, 2010;

Keohane, 1971; Klöck, 2020; Kuik, 2010)

iii. Issue-linkage strategy: using concessions on one issue in exchange for the

counterpart’s concession on another (Zahariadis, 2017)

iv. Control-risk strategy: entering into agreement with the large states in an

ambiguous and flexible manner, fostering good relations with the large power while

providing room for the small state to manoeuvre (Yoffie, 1983; Pacheco Pardo and

Reeves, 2014).

v. Coalition strategy: cooperating with other small states to alter the existing power

balance in the favour of small states (Lee, 2009; Ourbak and Magnan, 2017).

vi. Institutional strategy: using membership in international organizations (Betzold,

2010).

vii. Threat-causing strategy: creating escalating tensions, military conflict, or even

‘defecting’ to the opposing camp to force a great power partner to address the

concerns of the small state (Schelling, 1960).

In terms of methodology, in this paper we have used standard Documentary Research

methods to collect Portuguese official documents, the speeches made by key politicians,

and texts on Portuguese-Chinese relations available on the websites of government and

mainstream media. Our aim has been to assess the perceptions held by elites of

vulnerabilities and power deficits, and thereby Portugal’s overall commitment to

Portuguese-Chinese relations. The sources we have used include critical articles found in

academic libraries, databases and media, and we have made use of the Deductive

Reasoning method to undertake qualitative analysis of the collected texts.

3. Portuguese goals during the Pandemic

Our analysis of government documents and the speeches of key-politicians strongly

suggests that the Portuguese elites share the idea that attracting foreign investments,

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e-ISSN: 1647-7251

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Thematic dossier – Perspectives on China’s international presence - December 2022, pp. 77-96

Portuguese strategies towards China during the COVID19 pandemic

Xiaoying Hou; Carmen Amado Mendes

expanding exports, and improving competitiveness should be prioritized goals for

Portugal, after the setbacks caused by the pandemic.

Prior to the pandemic, according to the Portuguese National Statistics Institute (NSI),

the national resource vulnerability lay in the country’s small and ageing population, which

had labour market of only 4.8 million workers, the limited diversity of natural resources,

and a lack of natural gas and oil reserves. The limited labour market led to low production

volumes and low revenues, and the limited diversity of natural resources could not

support a well-structured industrial system (Cardoso & Rua, 2019). Limited energy

storage led to a high dependence on strategic imports, with Portugal’s energy

dependency rising steadily from 73.5% in 2013, to 78.3% in 2015 (MCC, 2021). Limited

revenues resulted in low investment to develop Portugal’s competitiveness through

improving industrialisation, increasing production volume and added value, developing

transport networks, and training highly skilled labourers (Blanchard & Portugal, 2017;

Lopes & Antunes, 2018; OECD, 2013, 2021).

The result was that Portugal needed to purchase strategic energy resources and

expensive value-added products while exporting limited quantities of low value-added

products, with high transport costs. Expenditure consistently exceeded revenue. Since

the establishment of the Republic in 1974, Portugal has always had to deal with fiscal

deficits and only achieved 0.1% positive fiscal returns once, in 2019. Low wages and high

unemployment have caused frequent strikes and political struggles between political

parties, resulting in politico-social vulnerability. Portugal’s two main political parties have

long been divided over their fiscal policies. The Socialist Party (SP) has emphasized fiscal

expansion while the Social Democrat Party (SDP) has advocated fiscal austerity (Lopes

& Antunes, 2018). During the European debt crisis, austerity policies implemented by the

20th SDP-led administration saw the imposition of wage cuts on Portuguese citizens. The

SP-led 21st and 22nd administrations from 2015 onwards increased public spending, but

were unable to undertake tax relief (De Giorgi & Santana-Pereira, 2020; Moury et al.,

2021; Teixeira et al., 2019). The pandemic had a severe economic and social impact on

Portugal, and saw fiscal deficits reach 5.8% in 2020. Since the implementation of an

austerity policy in 2011, citizens have repeatedly launched strikes and protests, and

caused social unrest (De Giorgi and Santana-Pereira, 2020; Moury, De Giorgi and Barros,

2020). This sort of social unrest escalated during the pandemic. Rising fuel prices in late-

2021 intensified popular resistance to the government led by Socialist Party (SP). Other

political parties took advantage of this situation and voted against the 2022 budget which

led to the dissolution of Parliament and early parliamentary elections. Regarding inherent

vulnerabilities as the causes of these conflicts, the ruling Portuguese government gave

priority to addressing economic vulnerability. It considered that once the existing

economic problems were dealt with, revenues could boost Portugal’s investment capacity

to purchase resources, recruit new members of the workforce from abroad, upgrade

wages, and thus resolve socio-political vulnerabilities.

Apart from its economic goals, when considering its strategies towards China during the

pandemic, Portugal also aimed to fulfil the requirements of its EU membership and

maintain its alliance with the US. The focus of Portuguese diplomacy since the

establishment of the Republic in 1974 has been toward three axes, namely the EU, the

Atlantic Alliance, and the PSCs (Fernandes, 2018; Silva, 2020; Teixeira, 2010). China

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Portuguese strategies towards China during the COVID19 pandemic

Xiaoying Hou; Carmen Amado Mendes

became an import diplomatic alternative to the EU and the US first after the European

debt crisis (Miguel and Faria, 2020). In the context of the European debt crisis, Chinese

SOEs and private companies were able to acquire large volumes of shares in Portuguese

companies by offering preferential terms during the privatisation process under the

financial intervention of the Troika, consisting of the European Commission, the European

Central Bank, and the International Monetary Fund (Ribeiro & Cardoso, 2016; Romero,

2017). In the aftermath of the crisis, Portugal accorded strategic importance to China,

but still prioritized the EU and the US. Although China offered markets and provided

investments that Portugal needed, and still needs, Portugal’s trade deficit continued to

grow. Compared to relying more heavily on China, as an EU member-state, Portugal has

a stable source of funds and its main trading partners are all countries within the EU. The

US provides security, and potential military assistance, to Portugal within the framework

of the North Atlantic Treaty Organization (NATO). Furthermore, Portugal has a trade

surplus with the US, and imports Liquid Natural Gas from the US, which is a strategic

energy supply. Nevertheless, Portugal has remained lacking in a significant volume of

investment, particularly foreign direct investment (FDI).

This article chooses funds in public sector, share purchases in private sector, and Sines

port project as investment-related issues, E-commerce as export-related issues, and 5G

and new energy as competitiveness-related issues. These issues are the key areas in

which US and other EU member-states compete with China in Portugal by offering

alternatives during the Pandemic, and Portugal has different degrees of commitment and

control. Comparing the similarities and differences in Portugal’s strategic choices on these

issues contributes to our distinguishing how the three variables of commitment,

alternative(s) and control have influenced Portugal’s strategies. Basically, except on the

5G issue, where the US has reduced Portugal’s commitment by raising the cost of

Portuguese cooperation with Huawei, Portugal has a high level of commitment to China

on other issues due to its domestic needs. Therefore, Portugal uses control-risk strategy

on 5G issue, while on other issues Portugal combines interest-linkage and balance

strategy due to its high commitment.

4. On FDI

We have noted that on the crucial issue of FDI, Portugal mainly uses an interest-linkage

strategy, combined with a balancing strategy, towards China. The result is that, while

actively receiving Chinese capital, Portugal has also vigorously sought for, and seeks,

other sources of foreign investment. During the pandemic, Portugal had a high

commitment to FDI, worse alternatives within the EU to offers of Chinese investment,

and overall low control. Portugal has a high commitment to Chinese investment because

Chinese investments appear to be a better choice for three reasons. Firstly, despite

having financial support from within the EU, Portugal is still unable to achieve fiscal

balance, and therefore needs investment from outside the EU. EU financial support for

the decade 2000-2010 was mainly invested in infrastructure, and little funds were used

to address other issues related to the improvement of Portugal’s low economy activity

and international competitiveness (Czuriga, 2009; Teixeira & Pinto, 2019). Consequently,

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Portuguese strategies towards China during the COVID19 pandemic

Xiaoying Hou; Carmen Amado Mendes

Portugal has a high exposure to external shocks, as exemplified by the pandemic which

resulted in high fiscal deficits of 5.8% in 2020, and 2.8% in 2021.

Secondly, we note that under existing EU regulations, the available policies for down-

grading wages and borrowing through loans harm Portugal’s economic sustainability. As

an EU member state with no autonomy regarding adjustment of monetary policy and

public debt, Portugal has attempted to achieve competitiveness in exports by down-

grading wages in the labour market (Rathgeb and Tassinari, 2018). Down-grading wages

weakens domestic consumption, and boosts exports at the expense of domestic sales. In

addition, the resulting protests and strikes caused by wage cuts produced production

shut-downs. Besides wage cuts, Portugal has had to borrow to support development

plans, with the result that public debt levels have increased consistently. However,

according to the EU fiscal regime, once Portuguese fiscal deficit exceeds 3%, the EU

mandates the implementation of austerity measures, which may offset the growth

brought by borrowed loans, leading to higher debt and continued economic downturns

(Hancké & Rhodes, 2016). In this way, the institutional framework of the EU favours the

development of export-oriented economies to the detriment of domestic demand-

oriented economies such as Portugal (Molina & Rhodes, 2007; Regan, 2017). Based on

Eurostat’s demographics, with only 2.3% voting weight in the EU Parliament, Portugal

cannot trigger any significant economic regime reforms within EU that might favour

Portugal’s development.

Thirdly, Chinese investments were considered as having the most favourable terms

among other choices during the European debt crisis, and received positive comments

from the Portuguese elites from influential companies and political parties. According to

the CEO of Electricidade de Portugal (EDP), Miguel Stilwell D’Andrade, during their

partnership, China Three Gorges (CTG) assisted EDP in weathering the European debt

crisis. The CTG and EDP jointly identified opportunities for growth, particularly in Latin

America, by investing jointly in hydropower projects, and jointly developed new

technologies. The Portuguese Prime Minister, António Costa, and Former Foreign

Minister, Augusto Silva, considered that China’s economic conduct in Portugal was in line

with Portuguese and EU legal norms. Some political parties — mainly the right-wing

party Centro Democrático Social-Partido Popular and the left-wing party Bloco de

Esquerda — resisted permitting Chinese investments. Their concerns were that issues of

importance to the Portuguese state could be controlled indirectly by a foreign government

if Chinese firms held too many shares in strategic companies. They urged the

government, led by Socialist Party, to exercise prudence in opening the Portuguese

economy to Chinese investment (Gaspar & Ampudia de Haro, 2020). But, overall, those

opposing Chinese investment remained in a minority.

During the pandemic, Portugal has had more investment alternatives in the public sector,

but worse alternatives to Chinese investments in the private sector. In the public sector,

in addition to the regular EU Structural Investment Fund support, in August 2021 Portugal

received from the European Commission €2.2 billion in pre-financing, under the

NextGenerationEU initiative. In the private sector, in the case of EDP, Chinese CTG

remains the largest shareholder, followed by the American enterprise Blackrock with

9.37%. Blackrock has been working to increase its shareholding but thus far has failed

to shake CTG’s leading position. In the case of Bank Millenium Banco Comercial Português

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(BCP), although the Angolan oil company Sonangol, which is the second largest

shareholder, does not want the largest shareholder, Chinese Fosun, to acquire more

shares, Sonangol itself has gone through a restructuring process due to the fall in oil

prices before 2016, and its disorderly investment policy. It is apparent that Portugal has

a low degree of control to be able to reject Chinese investment. The Portuguese

government itself, because of its high debt and deficits, needs EU funds to invest in public

services and cannot renationalise strategic private companies. Foreign capital is unable

to change the dominant shareholder position of Chinese capital. With high commitment,

worse alternatives, and low control of the issue of FDI, Portugal has adopted interest-

linkage and balance strategies. On the one hand, Portugal, in the private sector, permits

the growth of shares held by Chinese enterprises in Portuguese companies. In March

2021, Fosun enlarged its shares in Millenium BCP to 30%. In May 2021, the Chinese

company China Communications Construction Co., Ltd. (CCCC) purchased 32.4% of

Mota-Engil stakes. In the public sector, in October 2020, according to the Portuguese

government, Chinese investors who make gains from the sale of Panda bonds issued by

the Portuguese government in 2021, will continue to be exempt from IRS and IRC (the

income tax that went into effect in the Portuguese tax system on January 1st 1989).

These tax exemptions are used to attract Chinese investors to continue buying

Portuguese national bonds, issued in Renminbi. As a result, according to Banco de

Portugal, the Chinese investments stock in Portugal reached 2,923,01M€ in 2021, an

increase of 8.5% year-on-year. At the same time, Portugal continues to actively search

for other sources of foreign investment.

The Sines port project is a typical case of Portugal’s combination of interest-linkage and

balance strategies towards China during the pandemic. The Portuguese Foreign Minister,

Augusto Santos Silva, has actively encouraged the US and other EU countries to

participate in the bidding, stating that the project will allow the US to increase its gas

exports to Europe, and reduce the energy dependence of Portugal and the EU on Russia.

But Silva has also said that Portugal will keep seeking to attract Chinese investment to

expand trade and develop tourism (Wise, 2020). After the visit of US Energy Secretary

Dan Brouillette to the Sines port in September 2020, Portuguese Infrastructure Minister

Pedro Nuno Santos said that the US interest and potential investment in the Sines port

are an opportunity that Portugal must seize. However, thus far the Sines port has not

received any investment from any Chinese or American companies, although on April

18th 2022, an international company, consisting of a partnership between the Portuguese

Madoqua Renewables, the Dutch company Power2X, and the Danish company

Copenhagen Infrastructure Partners (CIP), announced an investment of 1 billion euros to

implement the project titled Madoqua Power2X in the Industrial and Logistics Zone in the

Sines port, with the aim of producing green hydrogen and green ammonia.

5. On export-related issues related to E-commerce

Generally, in terms of export expansion, Portugal accords significant importance to the

Chinese market. In fact, compared to the EU, China is a small trade partner for Portugal

since its main trading partners are member states within the EU. The weight of the intra-

EU countries exports and imports increased in 2020, reaching 71.4% (+0.7 p.p.

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compared to 2019) and 74.7% (+0.9 p.p. compared to 2019) respectively, according to

the European National Statistical Institute (NSI, 2021). Compared to the US, China does

not provide Portugal with any strategic energy resource but rather with products for daily

life, while it is the US that provides LNG. China offers no security support to Portugal

while the US does so within NATO. Portugal’s trade deficit with China is increasing and

reached 2,500 million euros in 2020 while the US was Portugal’s 2nd largest trade surplus

country in 2020. But, as already mentioned, even these trade revenues are not sufficient

to cover its deficits, and since 1974 Portugal has only once demonstrated a trade surplus,

in 2019. The present trade network, with its high dependence on the market within the

EU hinders resilient construction, and the Portuguese government needs to diversify its

export markets. Portugal’s exports to China are increasing, and Chinese tourists,

although not perhaps as numerous as could be wished, rank first in terms of their

spending in Portugal. For this reason, the Chinese market demonstrates the potential to

enable Portugal to achieve a balance of trade surplus at some point in the future. During

the pandemic, Portugal’s overall exports fell by 10.3% in 2020 mainly due to weakened

intra-EU trade (NSI, 2021: 9). Looking back over the last ten years, Portugal’s trade

deficit reached its highest level, after 2010, in December 2021. In this context, the trade

volume between Portugal and China has grown against the trend of the global backdrop.

Portugal’s exports to China increased by 64% in the first five months of 2021 compared

to the same period in 2020, and by 18.3% compared to the same period in 2019, the

year before the pandemic (Falardo and Sequeira, 2021). China is thus a market that

offers a positive possibility to enlarge the volume of Portugal’s exports.

During the pandemic, the most important export-related issue was E-commerce, for the

global lockdown policy encouraged the development of this sector. The WTO has stated

that e-commerce is expected to save the global economy. On the e-commerce issue,

according to the World Economic Forum, the epidemic has made e-commerce platforms

in China grow faster than anywhere else in the world. In 2020, the China’s share of online

sales in all retail sales increased to a projected 44%, whilst the UK and US reached 27.7%

and 14.5% respectively (Buchholz, 2021; Falardo & Sequeira, 2021). Portugal has a high

commitment to Chinese e-commerce platforms, as one means to expand exports to the

Chinese market. Portugal currently has Amazon as an alternative to Alibaba. Alibaba and

Amazon each offer different advantages. Alibaba’s C2C mode and internationalisation

strategies help the platform to reach more consumers both within and outside China.

Amazon has a better cloud computing system, i.e. Amazon Web Services (AWS)

(Abdulrahman & Oreijah, 2022; Wu & Gereffi, 2018). AWS cloud services are more

developed than Alibaba cloud services in massive data calculation and open storage

(Wang, 2021). Overall, Portugal has a low control over its e-commerce. Two officials of

the Portuguese Agency for Investment and External Trade (AICEP) stated that, during

the pandemic, the inability of Portuguese companies to connect to their customers was

hampered by an underdeveloped online sales model, which hindered their

internationalisation (Falardo and Sequeira, 2021, p. 18). Portugal successfully adopted

both interest-linkage and balance strategies on e-commerce issues. On the one hand,

the Portuguese Trade & Investment Agency (AICEP) acted to improve the sale of

Portuguese agricultural products on Alibaba, and invited Alibaba to visit Portugal and

offer e-commerce trainings. Specifically, in October 2021, the AICEP negotiated with

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Alibaba to enlarge the sale of Portuguese agricultural products, diversifying product

categories and sales destinations (Dinheiro Vivo/Lusa, 2021). In February 2022, a

Portuguese private commercial association, the Portugal-China Chamber of Commerce

and Industry (CCILC), jointly with AICEP, organised a visit by Alibaba representatives to

Portugal, aimed at involving more Portuguese companies in the Chinese marketplace. In

May 2022, Alibaba gave a free course in English intitled “Alibaba Netpreneur Masterclass”

through AICEP to Portuguese, Spanish, and Italian entrepreneurs. On the other hand,

the Portuguese Ministry of Economy and Digital Transformation signed a MoU with

Amazon Web Services (AWS), in preparing the "More Digital powered by AWS" initiative,

which aims to accelerate small business growth with AWS Cloudstart, train the next

generation of cloud builders in Portugal with AWS Educate and AWS Academy, and

support a start-up community in Portugal with AWS Activate. Interestingly, AICEP has

also cooperated with Amazon in providing training webinars to assist Portuguese

businessmen in using the platform for internationalization. In this way, Portugal is

successful in deepening its interdependence simultaneously with both China and the US,

and maximising the benefits of cooperation with both e-commerce platforms.

6. On competitiveness-related issues

As concluding examples, we take renewable energy and 5G as two cases that exhibit the

phenomenon of competitive-relatedness. On renewable energy, Portugal exhibits a high

commitment, has equal alternatives, and a high control on this issue. Portugal’s high

commitment stems from the fact that it is one of the European countries most affected

by climate change. Climate change phenomena such as rising temperatures, shifting

rainfall patterns, rising average sea levels, and extreme weather events, exacerbate the

pressure on Portugal’s coastline, as well as bringing threats of fire, drought, and floods

(Government of Portugal, 2020). Portugal has worse alternatives to China. China is the

world’s largest investor in renewable energy while Portugal possesses advanced

technologies. As previously noted, the base of cooperation between EDP and CTG is that

EDP contributes technology in a joint research project and expands its reputation in

exploring third markets (especially in Africa and Latin America) while CTG provides funds

to invest jointly in third markets. In 2013, EDP and CTG jointly acquired shares in the

companies that own the rights to develop the Cachoeira Caldeirão hydroelectric project

(219 MW) and the Jari hydroelectric project (373 MW). Although CTG holds a large stake

in EDP, the two companies have each acquired shares in other companies in Brazil and

Chile to develop their markets. In this way, both sides benefit from this cooperation to

develop their internationalization, and as funds are the goal of EDP, Blackrock as the

second largest shareholder is a worse alternative to CTG.

Portugal has high control of its renewable energy, and has established technological

priority in renewable energy. EDP is the fourth largest wind power company in the world

and the largest hydroelectric company in Europe, with operations in thirteen countries,

including Belgium, Brazil, Canada, France, Greece, and the United States. The European

Scalable Offshore Renewable Energy Project (EU-SCORES) will participate in Portugal

with a total investment of €45 million to create the world’s first offshore energy array,

combining wave energy with offshore wind energy. China, for its part, gives priority to

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developing new renewable technology and industry, particularly with wind power and

smart grids. This is an initiative to reduce China’s dependence on strategic energy

imports, and to promote China’s image as a responsible global power in combating

climate changes (Zhao et al., 2020; Zhao et al., 2011). China maintains that in the next

five years, its share of non-fossil energy, in total primary energy consumption, will

increase to around 20%. This is to say, Portugal has the capacity for high-end renewable

energy technologies, as well as the researchers to undertake independent research, but

lacks financial support. China seeks breakthroughs in renewable energy technologies and

has the capacity to invest. Hence, Portugal has relatively high control in the issue. The

main Portuguese actors who cooperate with China on renewable energy are EDP and

REN. During the pandemic, EDP, as a representative of Portugal, made use of interest-

linkage and balance strategies at the same time. On the one hand, EDP renewed the

strategic partnership agreement with CTG in December 2021, and continued to jointly

invest with CTG in Latin American and Africa. On the other hand, EDP’s renewable energy

arm, known as EDP Renovável (EDPR), acquired a Singaporean company active in the

solar energy sector, Sunseap, thus diversifying its alternatives to CTG while exploring

Asian markets.

On the 5G issue, Portugal has low commitment, equal alternatives, and low control.

Portugal’s low commitment to 5G originates in external pressure that increased the cost

of its working with the Chinese company Huawei on 5G in the commercial sector. Portugal

needed to improve competitiveness in the 5G area and Huawei was seen as the leader

of 5G developments. However, the US maintained pressure on the Portuguese

government from 2019 onwards, linking 5G to security issues. In December 2019, Mike

Pompeo warned Portugal that Huawei threatened national security and invades privacy.

US government spokesman Robert Strayer, on his first visit to Portugal in February 2020,

warned that Huawei was suspected of human rights violations in Xinjiang, and that

Huawei could steal confidential NATO data, as well as the daily data of Portuguese

residents. Finally, the US Ambassador to Portugal George Glass, in September 2020,

threatened that the US would consider stopping LNG exports to Europe through the Sines

port if Portugal continued to cooperate commercially with Huawei in 5G.

Portugal has equal alternatives to Huawei 5G after 2021. In December 2021, the world-

renowned data analytics and consulting company in the ICT industry, GlobalData released

its research titled 5G Mobile Core: Competitive Landscape Assessment. According to their

findings, Huawei’s 5G Core portfolio was the strongest, and it was rated as the “leader”

among all the 5G core product producers from the world’s major telecom equipment

vendors such as Cisco, Ericsson, Nokia, and ZET. However, only months later, in April

2022, GlobalData released a new report that identified the company American Affirmed

Unity as the “leader” among 5G core products, followed by the American companies

Mavenir, Casa Systems, and the South Korean company Samsung. It remains at present

unclear whether these companies have caught up with Huawei’s 5G advanced

technology, or the US ban against Huawei has prevented it from being included in the

GlobalData rankings of April 2022. The result is that it is noticeable that Portugal has low

control on the 5G issue, facing a lack of competitive companies, products, and

professionals. According to a report made by the European 5G Observatory in July 2021,

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Portugal and Lithuania were the only two EU countries without 5G services at the end of

June that year.

Portugal has adopted a control-risk strategy on the 5G issue. After sustained US pressure,

the Portuguese Infrastructure Minister, Pedro Nuno Santos, revealed on July 30th, 2020,

that a group created by the Portuguese government to assess risks and cybersecurity

issues relating to 5G had completed its work, and had not drawn any conclusions directed

against any supplier, including Huawei (Gonçalves, 2020). In responding to US threats

linking LNG to Huawei 5G, the former Portuguese Foreign Minister, Augusto Silva, and

President Marcelo, stated that Portuguese government would take its own stance

(Lusa/PÚBLICO, 2020). Finally, the decision not to take Huawei into consideration for the

installation of 5G networks came from Portugal’s three largest operators, namely Altice,

Vodafone, and NOS, but not from the government (Moreira & Malta, 2020). In this way,

the Portuguese government was able to maintain an ambiguous attitude, without taking

any clear stance. This control-risk strategy does not harm the US-Portugal alliance at the

governmental level and leaves space for domestic non-state actors to maintain their

cooperation with Huawei. Portugal makes efforts to avoid any escalation of tensions, but

of the six telecom operators licensed to operate 5G in Portugal, only Vodafone Portugal

has signed a 5G supply contract with US-based Mavenir. Altice and NOS have declared

that they will not use Huawei 5G core, but they and the other three telecom operators,

which are Dixarobil, Novo and Dense Air, have thus far not decided upon the provider of

their 5G Core products. As an indicator of future trends, it can be noted that the

University of Aveiro in Portugal recently jointly constructed with Huawei a 5G+AI

Networks Reliability Centre (5GAINER), transforming the entire Huawei 5G issue from

being a commercial problem to a technological issue.

7. Conclusion

During the pandemic, politicians and researchers have agreed that that economic

setbacks Portugal experienced required increased investment, export, and

competitiveness. These were the three key issues to address Portugal’s vulnerabilities,

and the Portuguese government appears to have accepted these issues as its primary

goals. Three strategies were adopted, namely an interest-linkage strategy to attract

Chinese investments and gain market access, a balance strategy to obtain alternative

support within EU and from the US, and a control-risk strategy to avoid conflict between

the US and China. By doing so, without noticeable overt friction, Portugal managed to

maximize its interests, control US-China tension regarding Portugal, and intensify

simultaneously its partnership with China, its alliance with US, and maintain its adherence

to the unity of the EU. During the pandemic, Portugal has used material power resources

to develop interest linkages and has not mobilized “normative power” against China. For

example, when down-scaling its involvement with Huawei, the Portuguese government

has avoided discussion of political issues regarding Huawei as a Chinese enterprise, or

suggested that involvement with Huawei poses any economic threat to Portugal’s

autonomy. Portugal has rather returned cooperation with the world leader to the field of

technical development, and not noticeably exerted any normative pressure on China in

an attempt to influence Chinese actions. Instead, by avoiding taking any clear stance

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between China and Western allies, Portugal manages to continue to project its image as

an EU member-state and US ally while maintaining a friendly attitude towards China. It

has cautiously, yet successfully, availed itself of power resources from all parties

involved, through its balanced diplomatic relations, and managed to take steps to

maximize its interests. In other words, Portugal has provided us with an example of the

use of relational power resources during the pandemic to achieve its goals.

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