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Pragmatism with potential

By LIU MINGLI | China Daily Global | Updated: 2020-07-28 08:35

SONG CHEN/CHINA DAILY

China-EU cooperation in investment to improve infrastructure in Africa would serve the interests of all three parties

This year marks the 45th anniversary of the establishment of diplomatic ties between China and the European Community/European Union. Looking back, we can see that the economic cooperation has been the ballast for relations over the past 45 years. The EU has long been China's largest trading partner, while China is the EU's second-largest trading partner after the United States. However, in recent years, rather than trade, investment has become more and more important in bilateral relations.

Investment can drive economic growth directly. Since China's reform and opening-up, the EU has been an important source of foreign direct investment. After the financial crisis, China's direct investment in Europe also increased significantly, by almost 50 times in only eight years, from less than $840 million in 2008 to a record high of $42 billion in 2016, according to Rhodium Group statistics.

But along with the rapid growth of Chinese investment, there has been growing concern in the EU that Chinese acquisitions of European high-tech companies, although economically profitable in the short term, may lead to the loss of Europe's technological advantage and decline in competitiveness in the medium to long term. French Finance Minister Bruno Le Maire warned of the dangers of "looted "French assets, while former Italian trade minister Carlo Calenda warned Europe not to "unilaterally disarm" against China. National security considerations, not economic efficiency, are increasingly challenging the previous balance.

Since 2017, a new review mechanism for foreign investment from outside the EU has been built up at both the member states level and the union level, which has led to a sharp decline in the amount of Chinese investment in Europe. In 2019, the combined value of completed Chinese FDI transactions in the EU dropped to 12 billion euros ($13.8 billion), down 33 percent from 18 billion euros in 2018, reaching a five-year low. Even with the impact of the outbreak of the novel coronavirus and the risk of a deep recession, the European Commission has warned that European countries should buy stakes in companies to stave off the threat of Chinese takeovers.

Meanwhile, European annual FDI in China has not grown in recent years, and European companies have long complained that the Chinese market is not open enough to Europe. That is why the proposed Bilateral Investment Treaty is a priority for the two sides currently. It is fair to say that in China-EU relations, investment is becoming more and more important, as well as more and more challenging. The potential of investment cooperation between the two sides has not yet been fully unleashed.

Against this backdrop, the Organization for Economic Cooperation and Development has published a report titled Quality Infrastructure in 21st Century Africa. It notes that Africa is facing a monumental task to prioritize, accelerate and scale up quality infrastructure development, with 28 African countries having doubled their population in the 25 years between 1990 and 2015. As the population grows in the future, the present infrastructure falls far short of demand, which seems to provide new space for China-EU cooperation in investment. Improving infrastructure in Africa serves the interests of all three parties.

First, Africa would be the direct beneficiary of the improvements in infrastructure that would directly improve the lives of Africans as well as Africa's economic growth in the future. Second, for China, it serves the Belt and Road Initiative through enhancing the connectivity in this region. Better infrastructure in Africa also makes it easier for China to find more trade partners at a time when the growth potential of its traditional export markets are declining, and whose policies are more conservative than before. Third, for Europe, the spread of the novel coronavirus in Africa could spark another influx of migrants and refugees, putting more pressure on Europe's security and stability. The new president of the European Commission has made Africa a clear diplomatic priority. More investment in African infrastructure will help the EU mitigate the migrant pressure.

Meanwhile, China-EU investment cooperation in Africa is highly complementary and less competitive. Given that most African countries are less developed economies, China-EU investment cooperation involves fewer high technologies than China's investment in Europe. The Europeans will have less incentive to worry about forced technology transfers, loss of competitive advantages of enterprises or national security issues. What's more, in the field of infrastructure construction, China has accumulated a lot of experience and advantages in recent decades, which can be shared with the EU, which would be conducive to building mutual trust and removing previous misgivings. China could also learn experiences from Europe which has a longer history of working with African countries.

The OECD's report also notes that African governments are increasingly turning to emerging economies, notably China, for large infrastructure projects, with the more compact time frames that their policy banks and contractors offer, compared with Africa's mainstream development partners. The trilateral cooperation between China, Europe and Africa is also conducive to exploring the reasons behind this phenomenon for better infrastructure building in the future.

As a popular Chinese saying goes, crises often contain opportunities. With multiple factors, such as refugee crisis, climate change and the novel coronavirus outbreak, China, Europe and Africa can further tap their cooperation potential in the field of infrastructure building.

The author is deputy director of the Institute of European Studies at the China Institutes of Contemporary International Relations. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

 

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