A new phase for Sino-EU economic ties
- By Loh Su Hsing
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E-mail Beijing Review, February 29, 2012
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Loh Su Hsing |
The United States remains the largest investor in Europe and total U.S. investment in the EU is three times higher than in all of Asia. U.S. private equity giant Blackstone was the largest real estate investor in Europe in 2011, with 2.6 billion euros ($3.4 billion) of investments. Yet U.S. investment does not receive the same negative media scrutiny that Chinese investment does. Part of the reason is because many of these large Chinese companies are state-owned enterprises, or sovereign wealth funds, and thus there are concerns of an additional political agenda. Sovereign wealth funds made up a pool of funds totaling approximately $20 trillion in 2011, and with the world economy confronting one of its largest economic crises, it is perhaps unrealistic to suppose that these funds would not play a role in injecting money into cash-strapped economies.
The rise in Chinese investments is a logical extension of China's economic growth, and its investment in Europe reflects its aspiration to compete in new markets. China surpassed the UK and Japan as the fifth largest investing country in the world in 2010, compared to its 12th place in 2008. And China is not alone in this surge of outbound investment. Widening the lens to developing countries, according to the UN Conference on Trade and Development, foreign direct investment (FDI) flows from developing countries reached $316 billion in 2010, 23 percent more than in 2009, while FDI outflows from developed countries increased by 10 percent over the same period.
Rather than debate whether the financial crisis marks the demise of the Western capitalist model, and whether Asia's rise is potentially threatening, a more constructive angle would be to identify opportunities in this new sustained trend for equal partnerships between developed and emerging economies.
Mutual advantage
Amidst the discussion on whether China could or should rescue the euro zone, the point seems to be missed that this is an excellent opportunity for fostering cooperation on equal grounds and an important juncture to recalibrate the economic relationship between China and the EU. Much has been said about the EU being China's largest trading partner and export market, but there is certainly room to improve both the quality and diversity of trade between China and the EU.
The purchase of euro bonds is merely one of several ways to promote euro-zone recovery. Chinese investments in infrastructure and factories inject much-needed cash directly into the EU economy, rather than via banks, which aids economic growth and the creation of jobs. The crisis could serve as a catalyst for China and the EU to reexamine how they might better match their needs and also work on improving market access. The EU needs to start reimagining the role of China, not just as an investment destination or a low-end manufacturer, but an investor with wide-ranging economic interests.
Although Chinese companies are cash-rich, they need to build up their brands, improve their technology and management expertise and expand their reach in old and new markets. The EU needs the injection of large amounts of cash, the restoration of investor confidence, and access to overseas markets, particularly in the services sector. China and the EU both have the capacity to fulfill the needs of the other and creative ways should be explored to foster partnerships. Rather than focusing solely on the crisis at hand, it is more important to view the crisis in the larger context of long-term economic relations and how China and the EU might work together to create sustained momentum for economic growth.
The author is an associate fellow with Chatham House, London.
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