China-EU economic cooperation increasing amid COVID-19

Source:Global Times Published: 2020/5/19 20:34:21

Henry Tillman, founder, director and CEO of UK-based consultancy Grisons Peak Photo: Courtesy of Henry Tillman

Editor's Note:

Is the COVID-19 pandemic a game changer for China-Europe ties? As some observers claim the public health crisis is upsetting relations, economic and trade cooperation between the two - a crucial wind vane of their comprehensive relationship - is quietly increasing. Henry Tillman (Tillman), founder, director and CEO of UK-based consultancy Grisons Peak, as well as chairman and CEO of Grisons Peak's China Outbound Investments, shared with Global Times (GT) reporter Li Aixin his numerical evaluations of China-EU collaboration both during and after the pandemic. There are many people who are great at developing political arguments, he said, "but I choose to stay with facts."

GT: How do you evaluate the China-EU cooperation amid the novel coronavirus pandemic?  

Tillman: While much has been written about Chinese medical assistance with the virus and indeed outbound investment into Europe over the past decade, since 2018 our firm also began focusing on EU investment into China - where very little information has been published to date. We believe that this is a very important factor for China in light of its conversion into a consumer-led economy and the effects on its capital account. Beginning in 2018, we have seen substantial investment and pledges by many EU countries, including Germany - over 40 billion euros ($43.64 billion) pledged through 2022 - and France, the Netherlands, Spain, Belgium and Switzerland. In the first quarter (Q1) of 2020, European countries including the UK and Switzerland invested or pledged 4.5 billion euros in new investment (disclosed values only). Interestingly, when combined with Asia's 6.5 billion euros of announced Chinese acquisitions and equity investments, China's inbound [mergers and acquisitions (M&A)] surpassed announced Chinese outbound M&A.

The healthcare and pharmaceutical sector saw the greatest increase in Q1, rising from 15.4 percent of the Q4 2019 volume to 21.8 percent. China saw inbound healthcare investment from Belgium, Switzerland and Portugal and outbound investments into Germany, France, Sweden and the UK. China's initial focus was on Chinese medicine as an initial component of the Health Silk Road. This shows China can adjust promptly to changing conditions along the road and also embrace Western medicine.

On Sunday, China National Offshore Oil Corporation, the largest offshore oil and gas producer in China, and Royal Dutch Shell, the world's leading energy and petrochemical conglomerate, signed a strategic cooperation framework agreement worth $5.4 billion.

We continue to see additional future EU investments into China as China continues to expand its hybrid state-owned enterprise (SOE) privatizations - China Eastern Airlines Logistics and GREE to date.

GT: How do you think China-Europe trade ties will develop in the post-pandemic era? Will there be any change from trade ties before the outbreak? In which sectors will we notice the differences? And what will cause the change?   

Tillman: China-EU trade has been in the range of 13-14 percent of total Chinese trade since 2013, ranking No.2 behind only the US. This changed in 2019, when the US and the EU reversed places. However, in Q1 2020, ASEAN became China's largest trading partner, surpassing both the EU and the US. In Q1, ASEAN-China trade increased by 6 percent year-on-year to $140 billion, accounting for about 15 percent of China's total trade volume. Over the short term, this can in part be explained by the effects of the EU lockdowns and strong performances in growing major Southeast Asian economies. Longer term, China has put into place detailed plans to possibly double trading volumes between 2019 and 2025 with the ASEAN, Africa, Latin America, Russia and MENA regions.

GT: In your eyes, how will the change in bilateral trade ties affect general relations between China and Europe?  

Tillman: Despite the increasing trade growth in other regions, especially within the Belt and Road Initiative (BRI), the EU remains very important to China for numerous reasons. In addition to the increasing China outbound investments is a series of key Chinese investments which increase connectivity throughout the EU. In Belgium alone there is Zeebrugge, a key port for the Polar Silk Road; the China Belgium Technology Center, the first of its kind in Europe; and numerous partnerships in pharmaceuticals, chemicals and industrials. The same holds true for many projects and companies across Germany, France, Luxembourg, the Netherlands, Spain, Portugal and Switzerland. 

In the CEEC in Q2, China EXIM agreed to extend $1.85 billion to fund the long-discussed upgrade of the Budapest-Belgrade Railway, while CITIC Group just announced it has acquired a controlling stake in the Czech Republic's largest media group. 

In Mediterranean ports, you will find that China has either invested in, aided in the construction of or has operating partnerships with most EU ports, along all three EU seas.

So despite the virus, targeted financial investment leading to increased connectivity remains a priority.

GT: Some observers from the US and Europe recently voiced that in the post-pandemic era, Europe must decide between Washington and Beijing. What is your take on that view? Do you think it represents the current mainstream view in Europe?  

Tillman: Across the EU, European decision makers in the countries we are involved in realize that there has been substantial movement in the 70-year world order. It is too early to tell where this movement is heading as we are still in the early stages of the virus with some way to go before an effective vaccine is available. At the individual country level, there have already been a few recent US/EU 2020 vignettes worth highlighting.  

On February 7, CNBC reported that US Attorney General William Barr said America and its allies should take controlling stakes in Finland's Nokia and Sweden's Ericsson to "blunt" Chinese firm Huawei's "drive to domination."

On March 15, Reuters quoted the Die Welt am Sonntag German newspaper, which reported that US President Donald Trump had offered funds to lure CureVac to the US, and the German government was making counter-offers to tempt it to stay. The company's CEO Daniel Menichella was replaced unexpectedly by company founder Hoerr in the week prior, which followed Menichella's attendance at a US meeting with Trump to discuss COVID-19 vaccine development earlier in the month. A German Health Ministry spokesperson, confirming a quote in the newspaper, said, "The German government is very interested in ensuring that vaccines and active substances against the new coronavirus are also developed in Germany and Europe." On March 17, German biotech [firm] CureVac - which is developing an mRNA vaccine against the coronavirus - was granted up to €80 million by the European Commission.

On March 16, Fosun Pharma and Germany's BioNTech signed a partnership which involves both an investment in Shanghai Fosun Pharmaceutical (Group) Co (Fosun Pharma) as well as a distribution agreement. BioNTech will work with China's Fosun Pharma to commercialize the coronavirus vaccine in China and is in "advanced discussions" with existing partner Pfizer to do the same elsewhere.

On May 8, Der Spiegel cited a German intelligence report which cast doubts on US allegations that COVID-19 originated in a Chinese laboratory, and says the accusations are an attempt to divert attention from the US' failure to rein in the disease. The Der Spiegel report followed US Secretary of State Mike Pompeo's prior 5G threats to European allies warning them not to use Huawei.

GT: You once said that the China-proposed BRI is changing the world. In the post-pandemic era, what kind of role do you think the BRI could play in the global industrial chain?

Tillman: On May 14, MOFCOM released data showing China's trade volume with BRI countries from January through April 2020 was up by 0.9 percent, while overall Chinese trade had declined by 4.9 percent during the same period. Trade with BRI countries has increased annually, from 23.2 percent at the end of 2016 to 29.5 percent by the end of 2019. April 2020 data shows [trade with BRI countries] has increased to 30.4 percent.  

The pandemic has clearly emphasized the need for supply chain diversification. With air transportation and ocean freight affected, China-Europe rail freight has shown very strong growth. According to the China Railway Group, 2,920 trains operated between January and April, carrying 262,000 TUEs, up 24 percent year-on-year. May saw westbound volumes up 58 percent and eastbound volumes up 29 percent, totalling 88,000 TEUs. 

Longer term, a fully digitized SCO led by 5G, AI, blockchain, driverless vehicles and digital yuan currency will become even more important.

In Q2, QTTA - comprised of Pakistan, China, Kyrgyzstan, Kazakhstan and Uzbekistan - is planning to link ports among member countries, while the CPEC is planning a road route using the Karakoram highway to link the ports as an alternative route to passing through Afghanistan.

GT: You suggested UK investment has not been absent, but there could be much greater enthusiasm. What do you expect from China-UK collaboration under the BRI framework in the future? 

Tillman: Both announced Chinese outbound M&A and equity investments into the UK and UK announced M&A and equity investments have shown strong growth of late. In 2019, China made 37 investments in the UK, up from 34 in 2018. 60 percent were minority investments, up from 53 percent in 2018. Aggregate amounts were flat at around $5.5 billion. However, since announced China outbound M&A and equity investments declined from $110 billion in 2018 to $60 billion in 2019, the UK represented about 9 percent of aggregate, nearly double its 4.8 percent in 2018. The increased volume continued in Q1 2020, with 15 announced transactions, the majority of which were growth capital and under $10 million.

During 2019, we listed 18 announced investments or pledges in China by UK organizations and another four in Q1 2020. These include investments in energy, consumer, pharmaceutical, logistics and financial services by some of the UK's largest groups. In early May, HSBC entered into an agreement to acquire the remaining 50 percent equity interest in HSBC Life Insurance Company Limited, its life insurance JV in China, from the National Trust Limited, which should help contribute to this upward trend.

Brexit will lead the UK to also look to trade and FDI diversification, and China certainly represents a very viable option. China's leadership in high-speed rail could also be very helpful for the UK's infrastructure needs, especially in the north of England.

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