Eurozone Unlikely to Benefit from China’s Investment Drive

Likely to the chagrin of Eurozone governments and investors like, analysts are predicting that 2012 will yield no discernible benefit to the cash-strapped Eurozone, and that Chinese investment funds will continue to flow to Africa and Asia. Over the past several months, and as the debt crisis has escalated, the Eurozone’s leadership has been actively courting $3.2 trillion cash-rich Beijing in the hope of currying favor.

China is seen as likely to contribute to the IMF’s special funds, but “direct” investment in the Eurozone’s various governments will be exceedingly selective. Beijing has been notoriously careful in choosing their investment vehicles, and very few of the Eurozone’s governments will be deemed as “worthy” of their largess. The Eurozone may be China’s largest export market but direct investment has lagged tremendously, and is estimated as less than 0.2%.

That doesn’t mean, however, that the Eurozone will be entirely neglected. It was recently reported that China’s Three Gorges Corporation bought a 21% stake in the Portuguese utility company, Energias de Portugal (EDP) SA, providing a much needed capital injection of some $3.5 billion for the financially troubled Eurozone nation. The sale of EDP by the Portuguese government was required in accordance with the terms of the E.U./IMF bailout agreement.

Analysts suggest that opportunities exist in the Eurozone’s technology and consumer products sectors, which could enable China’s private sector to build domestic market share. However, analysts point out that certain roadblocks exist, the largest of which is obtaining Beijing’s regulatory approval for investment. One analyst cites as an example the recent attempt by private Chinese investors to buy a stake in Swedish car maker Saab which was quashed by the Chinese government.

It is believed that Beijing is trying to keep political backlash to the barest minimum, thus denying any requests that they deem politically risky. The European Union’s leadership is currently in the process of designing a more protectionist trade policy which would counter-weight what they believe is a skewed playing field which favors foreign companies.

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