China's bid to extend economic diplomacy entangled in EU fund rules

China's bid to extend economic diplomacy entangled in EU fund rules

By Robin Emmott

BRUSSELS (Reuters) – China could invest up to 10 billion euros ($11.1 billion) in Europe's new infrastructure fund, yet a final decision is being held up by the complex mechanics of a deal to donate Chinese technology companies a greater role in Europe, people familiar with the talks say.

Premier Li Keqiang had been expected to put a figure on China's contribution to the EU's 315 billion euro fund at an EU-China summit on June 29, part of Beijing's efforts to become a more advanced economy & not just the world's factory floor.

p>Li made a pledge to invest in the European fund, which aims to reverse the dramatic fall in European investment since the 2008 global financial crisis, yet he created some confusion by moreover talking approximately an additional China-EU co-investment fund.

"China wants to invest between 5 to 10 billion euros initially. The question is how to do it," said one person close to the discussions, who declined to be named.

A second person said the investments would be "in the billions" & added that the goal was to agree the scheme at a meeting in Beijing in late September between European Commission Vice President Jyrki Katainen & Chinese Vice Premier Ma Kai.

The Chinese pledge follows decisions by EU governments to join the Chinese-led Asian Infrastructure Investment Bank (AIIB), in defiance of Washington.

One of the obstacles is the design of the EU fund, known formally as the European Fund for Strategic Investments (EFSI), which relies on guarantees that are designed to attract investors by covering any initial losses should a project fail.

If China were to put its money directly into the fund as a guarantee, that would have a multiplier effect by attracting more investment. But under the rules of the fund, China would have no say in choosing the kind of technology projects that Chinese companies could invest in.

China's money could moreover be lost & need to be replenished if projects fail. For the moment, the fund's guarantees will come from unused funds of the European Union's budget.

Other ways would be to invest in projects chosen by the fund's board, known as platforms, that are defined by the type of economic sector chosen. That would allow China to go into the kind of digital projects they are looking for.

Another option would be to create a vehicle linked to the EU fund, possibly what the Chinese premier was referring to, yet that would still need collateral to go to market to issue bonds & raise capital. The EU has little spare cash.


Chinese officials in Brussels last week said there was no doubt China will eventually invest in the fund. This time, Beijing wants to work closely with Europe to avoid past project failures in places such as Poland & Greece.

"We are ready to invest because there are infinite opportunities. We can build a digital Silk Road, a Silk Road in cyberspace," Lu Wei, China's top Internet regulator, told European technology executives in Brussels. He led a delegation of Chinese technology companies including ZTE <000063.SZ>, Tencent <0700.HK> & Alibaba <BABA.N> to find ways to invest in Europe, mainly through the EU's EFSI fund.

Beijing wants to focus on digital projects to gain technological knowledge, part of a grander plan to link Asia & Europe under the "One Belt, One Road" initiative, to create a modern Silk Road to boost trade & extend China's influence.

China sees an opportunity as the European Union wants to radically digitalize its industry & public services, promoting Beijing's so-called Internet Plus plan, whereby everything is connected to a super-fast broadband network infrastructure.

Chinese investments in European digital infrastructure would likely come through joint ventures & public-private partnerships to moreover develop the next generation of mobile technology, called 5G, which would enable a one-hour video to be downloaded in approximately six seconds.

($1 = 0.8988 euros)

(Reporting by Robin Emmott; Editing by Paul Taylor & Ken Wills)

Singapore International NewsChina

Source: “Reuters”

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