EU seeks Beijing assurances on investments by sovereign fund

PUBLISHED : Tuesday, 26 February, 2008, 12:00am
UPDATED : Tuesday, 26 February, 2008, 12:00am

The European Union does not plan to block forays by China Investment Corp into its market but it will require assurances from Beijing that all investments are commercially rather than politically motivated.

EU trade commissioner Peter Mandelson, who is in Beijing for three days of trade talks, yesterday praised the constructive approach taken by his new opposite number, Chen Deming, contrasting his willingness to listen with the obdurate stance previously taken by the mainland leadership.

'We want to remain open to investment by China but we have to be reassured that it is commercially motivated,' Mr Mandelson said in a radio interview with the BBC.

He said any investment by CIC in EU companies should be made on a long-term basis rather than for quick gains, and warned the mainland's sovereign wealth fund not 'to pounce on economic fat rabbits'.

Mr Mandelson was referring to a speech made by CIC chairman Lou Jiwei last month in Washington, where Mr Lou likened CIC's dual role as both passive portfolio investor and strategic investor to the job of a farmer tending his land. 'We are like farmers: we want to farm our land well. [But] if there is a big fat rabbit, we will also shoot it,' Mr Lou said.

Mr Mandelson, who spent 1 1/2 hours discussing CIC's role with Mr Lou, said sovereign wealth funds needed to show 'transparency and principles of governance' but praised their potential stabilising role in financial markets.

CIC was among a number of sovereign wealth funds that recently bailed out financial institutions reeling from write-downs on subprime investments, paying US$5 billion for a 9.9 per cent stake in Morgan Stanley.

However, it has yet to make any major investments in Europe.

Mr Mandelson had positive words for the approach of the mainland's new commerce minister. 'China is prepared to engage in a much better dialogue and discussion about the need to open up to trade,' he said.

Mr Mandelson's change of tone comes three months after he denounced the 'tidal wave' of counterfeits sweeping through Europe, the 'theft' of European intellectual property and Beijing's continued manipulation of the yuan.

The euro has risen 7.73 per cent against the yuan since Beijing revalued its currency in July 2005 while the US dollar has fallen 11.95 per cent.

Mr Mandelson confirmed that a 'high-level economic and trade mechanism', apparently modelled on the US-China Strategic Economic Dialogue, was expected to meet for the first time in April.

'The high-level mechanism is not a quick fix - it will map out the long-term strategic direction of our economic and trade relationship, and help smooth out issues we encounter along the way,' he said following meetings with Mr Chen.

Europe's trade deficit with China is growing at Euro17 million (HK$196.37 million) every hour, with last year's total deficit estimated at Euro170 billion.