A report by the Rhodium Group, an economic consultancy that specialises in Chinese outward direct foreign investment, predicts that by 2020 China would have invested between $250bn and $500bn in Europe. Europe has become the second most important destination for Chinese direct foreign investment after South America.

When the process of globalisation started a few decades ago, it initially saw China becoming a formidable manufacturing base. It enabled consumers in all Western economies acquire all kind of products at very reasonable prices – products that previously most families with average income could barely afford. This, of course, had a negative impact on manufacturing jobs, especially in Europe and the US that had become uncompetitive because of their high labour costs.

A new phase of globalisation has now started as Chinese state and private companies are adopting the zou chu qu, or ‘going out’ strategy as it is known in Chinese. There are various reasons for this change in strategy. According to a survey released by the European Union Chamber of Commerce in 2013, “Chinese investors perceive the EU as a stable environment with advanced technologies, skilled labour and a transparent legal system”. The chamber expects Chinese companies operating in the EU to increase their investments in order to serve the European market and to acquire technology, brands and expertise.

Some EU political leaders fret about the political significance of this massive investment by the Chinese in Europe. But in 2012 in his speech EU-China Investment: A Partnership of Equals, European Commissioner for Trade Karel De Gucht highlighted the benefits of foreign direct investment for both Chinese investors and recipient countries. Increased productivity, increased trade and access to capital to finance growth and restructuring are just some of these benefits. With admirable candidness for a politician, he said: “In Europe today, let us be frank: we need the money.”

In the case of Malta, the recently accelerated progress in economic relationships between China and Malta is indeed good news. What initially was an important breakthrough in attracting direct foreign investment to upgrade the technical, economic, and management set-up of Enemalta, has now evolved into a much wider programme of investment in green and blue industries that should be the source of much-needed jobs and economic growth.

More enlightened leaders see Chinese investment as a solution to Europe’s fragile economies

Like many other EU countries, Malta still faces substantial public finances challenges. Rating agencies keep harping on the need for structural reforms to modernise our economy and make our public services like education and health – which are free at the point of delivery – sustainable. The significant public debt prohibits the government from getting more involved in infrastructural projects that are essential for our economic growth, but which cannot be financed without a further knock to our national debt.

The friendly political ties that have existed between Malta and China since the 1970s must have had some influence on the quick evolution of economic interest of China in the miniscule Maltese economy. But it would be a complete fallacy to equate this interest to sentimental political considerations on the part of the Chinese.

China has massive trade surpluses. As one would expect they want to optimise the returns that they get from their investments of these surpluses. China wants to diversify its $3.2 trillion in foreign exchange reserves away from low-yielding investments like US Treasuries and into more tangible assets. As a recent article in the Financial Times says, “China is trying to switch paper into hard assets and that process is accelerating”.

The financial crisis in Europe that started in 2007 has given extra impetus to Chinese investment in the EU. While some EU politicians may want to consider this as a predatory strategy on the part of the Chinese, more enlightened leaders see Chinese investment as a solution to Europe’s fragile economies. No wonder that Britain’s David Cameron and Germany’s Angela Merkel, as well as our own Prime Minister, see the potential of Chinese investment as a solution to Europe’s insufficient economic growth and persistent unemployment.

Malta’s potential as a hub for maritime services in the Mediterranean remains one of our key competitive advantages for future economic growth. So is our strategic geographical position to service utilities and oil and gas companies operating in the Mediterranean and North Africa. Joint ventures between local and Chinese companies can exploit these opportunities as long as they follow good business practices that guarantee long term economic success.

Malta, like the rest of Europe, should welcome Chinese investment.

johncassarwhite@yahoo.com

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