Category Archives: Investment Agreement

21st
Jul 2016

Asia and Europe inching closer to each other

Cooperation between Asia and Europe in the last 20 years has enhanced the relations of the two continents in all fields, from international trade to global economic recovery, infrastructure and migration. Asia and Europe have signed many bilateral trade agreements and discussions are ongoing on regional deals.

These achievements were in full display at the 11th Asia-Europe Meeting (ASEM) Summit held on 15-16 July 2016 in Ulaanbaatar, Mongolia where 53 Heads of State and Government – 30 European and 21 Asian countries, as well as the ASEAN Secretariat and the European Union – got together under the overarching theme of ‘20 Years of ASEM: Partnership for the Future through Connectivity’.

Leaders at the ASEM 11 Summit, 15-16 July 2016, Ulaanbaatar (Mongolia). Source: http://www.aseminfoboard.org/events/11th-asem-summit-asem11

Leaders at the ASEM 11 Summit, 15-16 July 2016, Ulaanbaatar (Mongolia). Source: http://www.aseminfoboard.org/events/11th-asem-summit-asem11

The ASEM dialogue process was first launched on 1 March 1996 in Bangkok, Thailand, to enhance relations and various forms of cooperation between the then 15 members of the European Union and its Commission, the then 7 members of the Association of Southeast Asian Nations (ASEAN), and the individual countries of China, Japan, and South Korea which would form the so-called ASEAN+3 grouping. A series of enlargements saw additional EU members join as well as India, Mongolia, Pakistan, and the ASEAN Secretariat in 2008, Australia, New Zealand and the Russian Federation in 2010, Bangladesh, Norway, and Switzerland in 2012, Croatia and Kazakhstan in 2014.

When the ASEM was inaugurated in 1996, it was conceived as an instrument for bridging the missing link between the EU and East Asia. At the time of the first ASEM in 1996, North America and East Asia had already established an institutional mechanism (the Asia-Pacific Economic Cooperation) for deepening inter-regional cooperation and North America and the EU had further bolstered their transatlantic ties. In this context, it was perceived that there was a glaring missing link as far as relationship between the EU and East Asia was concerned and that the ASEM process would serve to fill this missing link in the triangular relationship: North America-EU-East Asia.

ASEM paramount objective has always been the enhancement of economic relations between the two regions. The ASEM process allows the EU to avoid the risk of being isolated by too close a collaboration among the Asia-Pacific countries while also giving East Asia the opportunity to counterbalance US presence by opening up to Europe.

Europe’s economic presence in Asia is felt particularly in the areas of trade and monetary policy. For instance, Brussels is Beijing’s most important commercial partner—the two trade more than one billion euros a day. The EU is ASEAN’s third-largest trading partner, after China and Japan, but ahead of the United States. Overall, Asian markets are the destination for almost one third of EU exports and offer rapidly expanding market opportunities for European firms, which are also among the biggest contributors of FDIs in the region

Following the surge of trade relations, Asia has become the largest buyer of euro-denominated assets. The share of euros in the foreign exchange portfolio of Asia’s major central banks’ accounts is, on average, for around 25-27 percent of the holdings of Asia’s major economies, reaching 30% and above in China (the world’s largest holder). This makes the euro the second-most-important reserve currency in Asia – after the dollar, but ahead of the yen.

Europe’s economic rebalance toward Asia is rooted, as in the case of the United States, in the realisation that Asia has become central to global prosperity and to the Western powers’ own growth prospects. Since 2011, the EU has signed free-trade agreements with South Korea and Singapore; it is negotiating one with Japan, Vietnam, Malaysia and Thailand; and has opened discussion on a trade and investment agreement with the whole of ASEAN.

At the last ASEM summit, leaders from the two regions explored plans for an inter-regional investment and trade agreement that would counterbalance the US-led Trans-Pacific Partnership (TPP). Such dynamics deserve to be followed closely by European and Asian companies for the potential that they could have for trade, investment and jobs creation on the Eurasian continent.

More on this in the interview to Dr. Casarini by Xinhua News.

31st
Oct 2015

China’s forays into the West

China’s outbound direct investments increasingly target the countries touched by the One Belt, One Road (OBOR) initiative. This is China’s biggest diplomatic project in decades. It combines a land-based Silk Road economic belt and a sea-based 21st century maritime Silk Road, which connects China to Europe through Southeast Asia, Central Asia and the Middle East, covering 55 per cent of world GNP, 70 per cent of global population, and 75 per cent of known energy reserves.

A study by Grisons Peak, a London-based boutique investment bank, published in June shows that the majority of 67 overseas loan commitments made by China’s largest policy lenders – China Development Bank and the Export-Import Bank of China – have been in areas interested in the OBOR project since its launch in late 2013. Loans for infrastructure projects contribute to upgrading the Chinese economy at a time of domestic restructuring of various sectors – including heavy industries involved in building and maintenance of transport and energy infrastructure, but also consumer goods. Trade financing serves to maintain existing, as well as find new, markets for Chinese products.

The stated aim of this grandiose project is to boost connectivity and commerce between China and 65 countries. China’s financial commitment is likely to reach up to $300 billion in loans for infrastructure and trade financing in the coming years – not counting the leveraging effect on private investors and lenders. This sum includes a $40 billion contribution to the Chinese-led ‘Silk Road Fund’ for infrastructural developments. Sitting at the end-point of the Silk Roads project, central and eastern Europe, the Balkans and the Greek ports have been so far the main beneficiaries of these funds.

In June, Hungary became the first EU member to sign a memorandum of understanding with China on integrating the ‘belt and road’ initiative with Hungary’s ‘opening to the east’ and ‘opening to the south’ initiatives. Poland is also considered a pivotal country for the OBOR project. Plans have been made for building a railway connecting the Chinese province of Sichuan with the Polish city of Lodz as well as for developing several Polish harbours such as Gdansk – all financed by soft loans from China. Other EU members have integrated China’s OBOR project with their own investment strategies or are in the process of doing so. For instance, in June China and France signed an agreement for prioritizing cooperation in third-party markets, including joint ventures and project financing.

At the last EU-China summit on June 29, 2015, Juncker called for the creation of synergies between his European Fund for Strategic Investments and China’s ‘belt and road’ initiative. Premier Li Keqiang replied to Juncker by making a multibillion dollar investment commitment to the EFSI, though no precise amount has been unveiled so far.

Juncker and Li Keqiang  at the EU-China Summit on 29 June 2015. Source:  www.businessgreen.com

Jean-Claude Juncker and Li Keqiang at the EU-China Summit on 29 June 2015. Source: www.businessgreen.com

Totalling €315 billion, Juncker’s plan aims to relaunch growth and job creation in sectors ranging from innovation to research, education, and transport infrastructure. Policymakers in Brussels are identifying appropriate cooperation mechanisms between the belt and road initiative and Juncker’s fund. Ideas presented so far include the establishment of a China-EU joint investment fund, joint contracting and co-financing. European critics worry, however, that the initiative lacks transparency rules and the opaque financing deals may threaten the competitiveness of European companies.

Greater Sino-European connectivity will inevitably entail some economic and political costs for Europe – and the same could be said for China. Yet, the OBOR remains, ultimately, a great opportunity for a continent that is still struggling to recover from the crisis. What is urgently needed in Europe is a comprehensive response to the belt and road initiative. The focus should not be limited to economy and trade, but also include political and security issues.

An enlarged version of this article was published with the title China’s inroads into the West in The World Today

09th
May 2015

40 years after: the road ahead for EU-China relations

On May 6, 1975, forty years ago, in the wake of the thaw in relations between Washington DC and Beijing, and without much fanfare, Brussels and China established diplomatic relations. It was certainly a different period in history. The European Community was in its infancy, China was a poor country, in the midst of a power struggle for the succession to Mao Zedong who, already very sick, died the following year.

Today, the relations between Europe and China are among the world’s most important, having taken on such a strategic importance that they are the object of close scrutiny – and sometimes apprehension – by the United States. Just think of Washington’s disapproval when four important EU countries – Germany, France, Great Britain and Italy – joined as founding partners the Asian Infrastructure Investment Bank (AIIB), the multilateral bank promoted by Beijing.

Source: www.rtcc.org

Source: www.rtcc.org

The turning point between Brussels and Beijing goes back to 2003 and the signing of a strategic partnership: the various parties reached an agreement on the joint development of Galileo, the European satellite navigation system and alternative to the American GPS, and the foundations were laid for improved relations in the field of security and the defence industry. Germany and France took the lead, but Italy and Spain were with them, and they proposed to begin discussions to lift the embargo on arms sales to China.

While the European Union was enlarged to include Central-Eastern European countries, Brussels became the most important trading partner of Beijing, while China climbed to second place as the most important trading partner of the EU, just behind the United States. The Europeans were, however, unable to agree on the embargo issue, and the European Council in June 2005 decided to postpone indefinitely the solution, leaving the Beijing leaders with a bitter taste in their mouth.

Even the euro played an important role in the relationships between China and Europe. In 2003 the European Central Bank and the Chinese one signed an agreement that led Beijing to diversify their basket of reserves, increasing in a gradual but constant manner in the coming years their exposure to the common European currency, while reducing their exposure towards the dollar.

China supported the euro during the sovereign debt crisis to accelerate the shift against the dollar when, in August 2011, Standard & Poor’s downgraded the sovereign rating of the United States: the growth in the share of reserves held in the common European currency went from approximately 26% in 2011 to approximately one third at the beginning of 2015. What’s more, two years ago, for the first time, the European Central bank signed an historic contract with the People’s Bank of China that opened a swap line in renminbi between these two areas of the world to facilitate investments in both directions, despite the non-convertibility of the Chinese currency.

China is investing heavily in European companies to acquire know-how and technology that is necessary to modernize Chinese industry. At the end of 2014, it made purchases through SAFE (State Administration of Foreign Exchange, ed.’s note), the administrative agency governing foreign exchange market activities, for about $ 54 billion in listed companies on European stock markets, ranking fifth for the size of the investment, just behind Japan.

The 40th anniversary of Europe-China relations coincides with an important note on the strategic agenda of cooperation between the European Union and China valid until 2020, signed in Beijing in November 2013: the possible closure of European Union-China bilateral negotiations on investments. A turning point that could open the way, as expressly requested by Xi Jinping during his first visit in Europe and to the European institutions last year, to a free-trade agreement that would introduce a new dynamic in the Sino-European relations. It would create an equally significant Euro-Asiatic axis, both economically and commercially, to the Atlantic and Pacific one.

An earlier version of this article was published in Italy24

28th
Nov 2014

Western competition for Asian markets is heating up

President Obama used his recent trip to Asia to push through the Trans-Pacific Partnership (TPP), a massive trade agreement that includes twelve nations total, but excludes China. The TPP is the economic centerpiece of the U.S. rebalance to Asia, and China is responding to it by promoting the Regional Comprehensive Economic Partnership (RCEP), a mega-regional trade agreement that includes ASEAN, Japan, South Korea, India, Australia and New Zealand, but excludes the United States. Beijing is also pressing forward a free-trade agreement for the whole Asia-Pacific—the FTAAP—as a way to dilute the TPP and ensure that Beijing continues to get preferential access to some of its most important trading partners.

Yet, China is not the only one trying to create an alternative to the TPP. The European Union (EU) is pushing forward its own economic rebalance toward Asia—a move that challenges U.S. initiatives and provides Asian countries, including China, with more leverage over trade negotiations with the United States.

Source: www.debatingeurope.eu

Source: www.debatingeurope.eu

Europe’s economic presence in Asia is felt particularly in the areas of trade and monetary policy. For instance, Brussels is Beijing’s most important commercial partner—the two trade more than one billion euros a day. The EU is ASEAN’s third-largest trading partner, after China and Japan, but ahead of the United States. Overall, Asian markets are the destination for almost one third of EU exports and offer rapidly expanding market opportunities for European firms, which are also among the biggest contributors of FDIs in the region. In the case of ASEAN, Europe is by far the largest investor. EU companies have invested an average of 13.6 billion euros annually in the region in the last decade.

Following the surge of trade relations, Asia has become the largest buyer of euro-denominated assets. The share of euros in the foreign exchange portfolio of Asia’s major central banks’ accounts is, on average, for around 25-27 percent of the holdings of Asia’s major economies, reaching 30 percent and above in China (the world’s largest holder). This makes the euro the second-most-important reserve currency in Asia—after the dollar, but ahead of the yen.

Europe’s economic rebalance toward Asia is rooted—as in the case of the United States—in the realization that Asia has become central to global prosperity and to the Western powers’ own growth prospects. Since 2011, the EU has signed free-trade agreements with South Korea and Singapore; it is negotiating one with Japan, Vietnam, Malaysia and Thailand; and has opened discussion on a trade and investment agreement with the whole of ASEAN.

China and the EU are currently negotiating a bilateral investment treaty that, if successful, could pave the way for a bilateral free-trade agreement. At the last summit of the Asia-Europe Meeting (ASEM)—an inter-regional dialogue forum between European and Asian leaders—held in Milan in October, Matteo Renzi, Italy’s prime minister, expressed support for the opening of negotiations on an FTA with China. While some European leaders such as David Cameron, the British prime minister, have already declared their support for an EU-China FTA, the position of Italy—currently holding the presidency of the EU Council—is somehow surprising, given that the country’s small and medium enterprises have been particularly hit by Chinese competition in the last decade. Yet, sluggish growth in many Eurozone countries and growing Chinese investments in Europe are playing in favor of an early adoption of an EU-China deal.

The EU does not have troops or binding military alliances in Asia, making it easier for Brussels to engage the region without the security and strategic considerations that beleaguer the United States. While politically the EU’s presence in Asia is broadly complementary to that of the United States, economically the transatlantic allies are competitors. As Western competition for Asian markets is heating up, companies should devote the right amount of time and resources to understand the implications of these dynamics for their business.

A longer version of this article was originally published in The National Interest.

21st
Oct 2014

Prepare for a EU-East Asia trade and investment agreement

The 10th summit of the Asia-Europe Meeting (ASEM) took place in Milan, Italy, on 16-17 October 2014. Amid concerns for the Eurozone’s economy and China’s sluggish growth, the summit provided an opportunity for the two sides to explore the prospect for a trade and investment agreement, something that would complement the US-led Trans-Pacific Partnership (TPP) on the one hand, and the Transatlantic Trade and Investment Partnership (TTIP) on the other.

Today, the ASEM process brings together 53 participants: 31 from Europe, and 22 from Asia. On the European side, there are the 28 EU member states, 2 European countries (Switzerland and Norway), and the European Commission. On the Asian side, there are the 10 members of the Association of South-East Asian Nations, the ASEAN Secretariat, three North East Asian countries (China, Japan and South Korea), three South Asian countries (India, Pakistan and Bangladesh), plus Kazakhstan, Russia, Australia and New Zealand. The ASEM countries account today for around 60% of the world’s population, half of global GDP and more than 60% of international trade.

world map

Image source: Wikipedia

This success in terms of membership is also ASEM’s major limitation. It appears, in fact, more and more difficult to reconcile the priorities, including the national agendas, of so many and diverse countries. Thus, off the record some of the founding members of ASEM – the EU and the ASEAN grouping plus China, Japan and South Korea – have aired plans for a trade and investment agreement that would complement the TPP and TTIP. In so doing, the ASEM process would renew with the spirit of its founding principles.

When the ASEM summit was first inaugurated in 1996 in Bangkok, Thailand, 26 participants took part: on the European side, the 15 member states of the EU and the European Commission; on the Asian side, the 7 members of ASEAN plus China, Japan and South Korea – the so-called ASEAN+3. The first Asia-Europe meeting achieved two objectives: it created a counterbalance to the Asia-Pacific Economic Cooperation (APEC); and gave impetus to integration dynamics in East Asia. It was, in fact, in the context of ASEM that consultations between ASEAN and the region’s three largest economies (China, Japan and South Korea) led to the subsequent creation of the ASEAN+3. This ‘only-for-Asians’ grouping had been vigorously opposed by the US for fear of losing influence over regional dynamics.

Today, East Asian nations have the possibility to gain leverage over TPP negotiations by opening up to European business interests. At the same time, a trade and investment accord with the ASEAN+3 grouping would allow the EU to bring under a single framework those FTAs that it has already signed with South Korea and Singapore; those under negotiation with Japan, Vietnam, Malaysia and Thailand; and the bilateral investment agreements currently under discussion with China and ASEAN – which are meant to lay the ground for a comprehensive FTA. It may take some time before official negotiations for a comprehensive EU-East Asia trade and investment agreement are launched. Yet, companies should start preparing now to reap the benefits of such a grand initiative.