Beijing to make good on investment pledge at EU-China summit

Other News Materials 11 July 2016 04:06 (UTC +04:00)

China is set to make good on a promise to invest two billion euros in the European Union's new infrastructure fund at a summit in Beijing on Wednesday, officials say, a gesture aimed partly at easing tensions over other issues, Reuters reported.

From massive Chinese steel exports to Beijing's militarization of islands in the South China Sea, the EU is nervous about the activities of its second-largest trading partner.

But Brussels can claim one small victory in persuading China to sink money into an EU-controlled fund over which Beijing has no direct say.

"China has a lot of liquidity and needs to invest it somewhere," one senior EU official said, asking not to be named. "We've made it quite clear this is a European fund over which China has no sway, but Chinese banks can expect to see returns on their loans."

At the EU's annual summit with China, China's premier Li Keqiang will make an initial investment of about two billion euros ($2.21 billion) in a financing vehicle linked to the European Union's 315-billion-euro European Fund for Strategic Investments, officials familiar with the talks told Reuters.

The deal that was first discussed a year ago should be a success for European Commission President Jean-Claude Juncker, who will travel to Beijing with European Council President Donald Tusk. Juncker faced scepticism in 2014 when he proposed the fund because EU governments are putting in only seed money.

While China already invests billions of euros in Europe, Beijing hopes that by putting money into a European Union-controlled infrastructure fund, it can avoid past pitfalls of operating alone in Europe and still generate strong returns as China seeks to reduce its reliance on massive exports.

The investment will also mark a deepening of Sino-EU economic ties, after European governments signed up to the Chinese-led Asian Infrastructure Investment Bank (AIIB), despite Washington's displeasure, part of China's so-called chequebook diplomacy to win greater influence.

EU officials hope the sum will quickly grow toward the 10 billion-euro mark, a prospect that relies on European support for China's westward infrastructure drive -- the "One Belt, One Road" initiative that involves building major energy and communications links across Central, West and South Asia to as far as Greece.

Two other EU officials said they expect the investment pledge to go ahead because Europe's fund is backed by the EU budget and the European Investment Bank (EIB). The fund has promised to pick up the bill of any projects that go bust in the early stages, acting as a so-called first-loss guarantor.

With that backing, the bloc is relying mainly on private investors and development banks to fund selected projects that might otherwise be considered too risky for funding by commercial lenders.