#21 event report: China’s Investments in Europe

November 20, 2012, Bridge Café (Wudaokou)

Speaker: Dr. ZHAO Changhui 赵昌会, Senior Country Risk Analyst, China ExIm Bank


Dr. Zhao opened his lecture with an overview of the state of the global economy in 2012. His main impression is that overall, most of the countries are having difficult time to recover from the recession. He argued that the gloomy reality and the pessimistic prospects for the future are especially the case in Europe, which has been severely affected by the global economic crisis.

Dr. Zhao believes that the financial crisis, which he stated explicitly as originating from US and Europe, is changing the world we’re living in and the ways we think and act in terms of economic policy. The economic policies in Europe have been predominantly focused on overcoming the crisis. The outcome of this has been the adoptions of policies that are not always popular or efficient, such as austerity programs; unconditional and unreasonable revenues imposed on citizens and companies. The problems are especially severe in Greece and other peripheral economies where the “workforce wants to evade responsibility” and “the government is confronted with severe constraints” and can’t spend additional money on bailouts.

In this respect, the Sino-European economic ties have been as well primarily focused on engaging in joint efforts to alleviate the effects of the crisis, especially in the countries of the Eurozone.

Dr. Zhao briefly discussed the example of the way the US deals with the crisis, which he vaguely defined as increased public spending through printing money.

He also discussed the intellectual contributions by leading economists such as  Joseph Stiglitz and Paul Krugman – especially the former being a sound critic of both the US and EU policies, arguing for stimulating public spending and praising the Chinese way of dealing with the crisis. Dr. Zhao tends to agree with this view, arguing that a damaged economy first needs recovery, and as a follow-up, pursuit of growth, or to cite him: “when you are seriously ill, it’s important first to recover, and then to do body building.”

In this sense, he believes that the pro-austerity economic policy of crisis-struck Europe is a mistake – the austerity freezes economic activity and has long-term repercussions. This, in his estimation, will lead to a decade-long recovery for many countries in the Eurozone – even authoritative leaders such as the German chancellor Merkel by now admit that it will take at least five years for Europe to bounce back.

These developments in Europe, as Dr. Zhao puts it, are an obvious problem for China. The government is eager to take action towards helping Europe to recover, but its options so far remain very limited. It also has its own interests when it comes to investing in Europe – China wants to spend its surplus fast, because of potential depreciation of the renminbi for instance – hence trying very hard to push its investment to go global.

One of the main problems of the Chinese government and investors is that they don’t really know European countries or are not interested in them – which as Dr. Zhao said, might sound shocking to the European audience, given the historic importance of Europe. The reason for this is that in the aftermath of the crisis Europe is not in the center anymore. Hence, China first needs to realize what is going on in Europe – both in terms of different individual countries and on the level of the European Union.

Dr. Zhao pointed out that there is the problem of protectionism mushrooming in the core European economies. He ironically noted that free trade in today’s world remains illusion, as we can’t just hop on a plane on to go and do business. The Doha round has lost its steam – as nobody really is pushing for advancement of the free trade talks. Protectionism is a major bottleneck for the trade volume even for the major trade partners in the world, China and the EU. Protectionism, Dr. Zhao noted, remains an internal European problem, as even within EU, some of the peripheral countries can’t sell whatever they want and they want in the rest of the Union. Protectionism in times of crisis is related with the increased level of nationalist sentiments and the return of geo-economic reasoning.


In the Q&A session, Dr. Zhao discussed a question on the strategy of the Ex-Im Bank and whether it follows purely economic reasoning or it also follows political interest and connections. He argued that political connections have little value, especially compared to the past – China is growingly careful where it invests and its strategists are more market savvy. In the aftermath of the Libya crisis, where China had invested based on political ties, it suffered huge loss – this and similar cases only perpetuated the trend of moving beyond politically motivated investment.

Dr. Zhao defended the strategy of China to deal with the crisis via stimulus package. He also argued against the danger of growing inflation in China, and characterized China’s strategy as sustainable.

The speech started with a half hour delay, however, the turnout was excellent; the convivial activity afterwards was a great success and the speaker enthusiastically participated.

(Report by Anastas Vangeli)