Big deal: China banks on Europe with $11bn fund

China is hoping to increase ties with eastern and central European countries as it announces an $11bn fund to boost its Silk Road initiative.

China’s premier Li Keqiang attended the fifth meeting of the heads of government of Central and Eastern European countries in Riga, Latvia, this weekend and took the opportunity to launch Sino-CEE Financial Holdings, Reuters reported yesterday.

The company is set to manage a €10bn ($11bn) investment fund that will focus initially on businesses in Central and Eastern Europe. Backed by the government, it is also being supported by insurance provider China Life Insurance and conglomerate Fosun, though their precise involvement remains unclear.

The vehicle is aiming to leverage €50bn in funding and may expand across Europe if deemed beneficial to the cooperation between China and Central and Eastern Europe. Sectors targeted by the fund include high-tech manufacturing, consumer goods and infrastructure projects.

Despite being launched formally only this weekend, Sino-CEE Financial Holdings was set up earlier this year by state-owned financial institution Industrial and Commercial Bank of China – by some accounts the largest financial services firm in the world by total assets and market capitalisation.

The move comes as tensions between China – which considers Central and Eastern Europe as part of the new "Silk Road" creating new export markets for the people’s republic – and some western European economies are running high.

In October, Angela Merkel and Sigmar Gabriel, Germany's chancellor and minister of the economy respectively, withdrew approval for semiconductor technology producer Aixtron to be acquired by Fujian Grand Chip. The country is now conducting another investigation into whether this could lead to military technology making its way to China.

That same week, Germany announced it would look into a proposed acquisition of lighting maker Osram’s subsidiary Ledvance by Chinese investors.

In the UK, prime minister Theresa May ordered a last-minute review of Chinese investment in nuclear power plant Hinkley Point C after the plans drew criticism. The project finally gained approval in September, but has been marred by controversy ever since over leaked government papers that revealed the taxpayer would be forced to pick up the tab if costs for nuclear waste storage go over budget.

Nevertheless, China appears confident it can carve out a way into the single market through investments in Central and Eastern Europe. Gao Yan, China's vice-minister of commerce, claimed last year that Chinese businesses had already injected more than $5bn into the region.

Li Keqiang also hinted at a possible China-CEE Countries Interbank Association to strengthen ties further, and said: "China-CEE cooperation, a trans-regional cooperation between the world's biggest developing country and emerging economies of the CEE region, is conducive to upholding the world trading system and promoting balanced and inclusive development of the world economy.”

Indeed, while some calls for restricting Chinese access to the EU single market may have been getting louder, the union is also facing tough socio-economic questions that could benefit from collaboration with one of the world’s largest economies.

Coping with a continuing weak recovery from the 2008 financial crisis in many member states, a refugee crisis that has boosted right-wing populist parties such as Ukip in the UK, FPO in Austria, PVV in the Netherlands or Front National in France, and Brexit, western Europe might find itself having to welcome investment from an $11 trillion economy more openly – especially when China has already made inroads into eastern and central parts.

See more from this Government Report: People's Republic of China


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