Chinese investors warm to Europe as Brexit uncertainty eases

The speedy resolution to Britain’s leadership vacuum is seen as helping shore up confidence in the euro zone

PUBLISHED : Thursday, 14 July, 2016, 3:13pm
UPDATED : Thursday, 14 July, 2016, 11:03pm

The speedy appointment of Theresa May as British prime minister is likely to help limit uncertainty about the future direction of the European Union, which could have posed a risk to Chinese investment in Europe, according to a senior European Union official.

May took over as premier on Wednesday, following David Cameron, who announced his resignation after Britons voted to leave the European Union last month.

“The Chinese authorities are naturally interested in the situation regarding Brexit. After the UK voted to leave the EU there are lots of questions still up in the air,” said Jyrki Katainen, EU Commission Vice-President for jobs, growth, investment and competitiveness. “Overall, uncertainty is always bad for economic growth and investment.”

Katainen said the speed with which the leadership transition had been handled would help resolve some of the uncertainty. “The UK can now decide what it wants and then we can start negotiations with the UK on its relationship with the EU,” he said.

Katainen was speaking to the media in Hong Kong having been in Beijing to attend a trade and investment summit.

It is too early to tell what kind of an impact Brexit will have. The uncertainty might choke up the deal flow, but, as valuations are attractive,it may not have much of an effect
Frederic Neumann, co-head of Asian economic research at HSBC

Chinese investment into the European Union surged in the first part of this year. “There are three main reasons for this: the low euro means that valuations are attractive, Chinese companies are trying to acquire advanced technology from overseas, and most European markets are reasonably accessible, not just technology, but other areas like logistics and tourism,” said Frederic Neumann, co-head of Asian economic research at HSBC.

“It is too early to tell what kind of an impact Brexit will have. The uncertainty might choke up the deal flow, but, as valuations are attractive,it may not have much of an effect” Neumann said.

China was the first country to announce that it would contribute to the European Fund for Strategic Investment, a European Investment Bank initiative to provide funding for EU companies.

“It has been suggested that Chinese investment through EFSI could reach two billion euro (HK$17.2billion), but if things go well, there is no limit,” said Katainen.

The UK is also trying to build on its ties with China. On Tuesday, Nikhil Rathi, the CEO of the London Stock Exchange and Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC), discussed the Shanghai – London stock connect programme, a pilot scheme aiming to offer direct trading access to each other’s capital markets, according to an official announcement on the CSRC website published on Thursday morning.

Rathi said the programme “would have special meaning for London to consolidate its status as a financial centre against the backdrop of Brexit”, the announcement said.

Katainen added that the EU had raised concerns regarding China exporting excess industrial capacity in key industries, such as steel, and had put in place arrangements to try to address the concerns.

“If overcapacity is harming fair trade, it is very difficult to do free trade,” he said.

When pressed on the potential effectiveness of these mechanisms, Katainen said: “We have two options, either we try to solve the problems or we isolate China. Clearly it is better to try to solve the problems.”

Katainen also said that discussions on granting China market economy status were ongoing.


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