China investment in Europe the lowest in a decade
China’s investment in Europe fell to a 10-year low last year, according to a joint report from research groups Rhodium Group and MERICS.
They said increasing EU red tape was making Chinese investors more cautious, and they urged the EU to work more closely with China to boost bilateral cooperation in sectors such as the green economy and the digital economy.
Chinese foreign direct investment (FDI) in Europe was €7.9bn (£6.85bn) in 2022, down 22% year-on-year, according to the report.
The fall-off took Chinese investment back to its 2013 level, mainly due to a lack of Chinese merger and acquisition activities, the report showed.
“A major reason for the drop is that the EU has been tightening scrutiny of Chinese investment and setting barriers on normal business cooperation,” said Yang Chengyu, an assistant research fellow at the Institute of European Studies of the Chinese Academy of Social Sciences.
However, Europe has become a key region for China’s electric vehicle investment. Driven by electric vehicle battery factories, Chinese greenfield investment in Europe overtook M&A transactions for the first time in 20 years, reaching €4.5 billion or 57% of the total, according to the Rhodium-MERICS report.
Yang said that China may increase investment elsewhere this year, including in countries in South-east Asia and the Middle East.
China’s trade grows 8.9% in April
China’s total trade rose by 8.9% year-on-year in April, slowing from March but still beating market expectations, according to analysts.
They predicted that trade will continue to recover in the coming months with the approaching end of the US rate hike cycle, which will help boost market demand.
The Chinese Customs service recently reported that exports grew 16.8% in April, although imports fell by 0.8%.
In April, export growth slowed from 23.4% in March, but the rate was significantly faster compared with the 0.9% growth in the first two months of 2023.
Total trade grew by 5.8% year-on-year to about 13 trillion yuan (£1.5 trillion) in the first four months, up from 4.8% in the first quarter, according to the customs data.
Hu Qimu, deputy secretary general of Forum 50, said China’s trade had surpassed his expectations; he had previously estimated that first-quarter trade growth would be in line with GDP growth of 4%-5%.
He said: “I think that the trade situation is a reflection of China’s supply chain resilience. China hit the brakes on production last year due to Covid-19. Now, the production side has rebounded at a fast rate, faster than demand.”
Overseas demand may have risen as a result of Chinese firms actively seeking export orders, he said.
Industry experts said the slowdown in April was unlikely to set a precedent. Zhou Maohua, an economist at Everbright Bank, said that slower import growth in April might have reflected lower prices for bulk commodities.
“Although exports are facing headwinds in the second quarter, improvement is expected in the second half, mainly due to the gradual end of interest rate hikes in Europe and America,” Zhou said.
ASEAN trade grows
Customs data also showed the diversification of China’s trade sector as demand from many developed nations declined.
Trade with Association of Southeast Asian Nations (ASEAN) economies rose by 13.9% to 2.09 trillion yuan in the first four months of 2023, while trade with the US dropped by 4.2%.
Zhu Qiucheng, CEO of Ningbo New Oriental Electric Industrial Development, an exporter of pet furniture and home furnishing products, said that the export market is changing, as US-bound exports face pressure, while demand from ASEAN and markets along the Belt and Road Initiative increases.
With China’s trade sector expected to recover further, it will become a powerful driver of economic growth, Zhu said, adding that a 5% GDP rise should be “quite easy to achieve in 2023”.
