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

Sun Jul 12, 2015 7:10pm EDT
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By Robin Emmott

BRUSSELS (Reuters) - China could invest up to 10 billion euros ($11.1 billion) in Europe's new infrastructure fund, but a final decision is being held up by the complex mechanics of a deal to give 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 and not just the world's factory floor.

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, but he created some confusion by also talking about 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" and added that the goal was to agree the scheme at a meeting in Beijing in late September between European Commission Vice President Jyrki Katainen and 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.   Continued...

Chinese Prime Minister Li Keqiang sits in a cockpit during a visit to the Airbus A350 assembly plant on July 2, 2015, in Colomiers near Toulouse, ending Keqiang's three-day visit to France REUTERS/Pascal Pavani/Pool