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Chinese investment across Eastern Europe, North Africa and Central Asia far exceeds investment from the United States, as Beijing looks for ways to circumvent U.S. trade sanctions, according to a new report.
Last year, the 36 countries in which the European Bank for Reconstruction and Development operates (ranging from Poland to Mongolia in the east and Morocco to Turkey in the south) received just under 39% of their total greenfield investment from China (up from 5.1%). The international financial institution reported on Wednesday that it was 0.6% in 2022, compared to just 0.6% 20 years ago.
“China is dwarfing direct investment from Germany and the United States,” EBRD chief economist Beata Javorcik told the Financial Times. The United States and Germany each accounted for just under 8% of greenfield foreign direct investment in regions covered by international financial institutions.
The surge is partly a sign that “China has been trying to diversify its production base in terms of potential trade barriers,” she said.
For example, China is leading investment in Morocco, which has a free trade agreement with the United States, allowing Morocco to export raw materials for electric vehicles without being subject to punitive tariffs and in exchange for U.S. renewable energy subsidies. subject to.
Last year, Chinese battery parts maker CNGR Advanced Materials signed a deal to build a cathode materials factory in Morocco to supply the US and European markets.
Javorcik said that with this type of investment, China also expects to take advantage of “extensive US subsidies.”
The U.S. government on Tuesday announced significant tariff hikes on Chinese imports, including electric vehicles, batteries and semiconductors, in a bid to protect American jobs.
But as the EU considers whether to follow suit, Javorcik said Europe should try to attract Chinese manufacturers rather than block them outright, just as the U.S. government encouraged Japanese automakers to open factories in the U.S. in the 1980s. He emphasized the possibility of She said the strategy would help “create jobs and ensure the EU remains a manufacturing hub”.
Chinese FDI lags behind the US and Germany in the EU’s Middle East member states as the Brussels government takes a stronger approach against Chinese companies that receive subsidies from the Chinese government and compete at lower prices in the internal market. ing.
The EBRD expects the region’s GDP to average 3% this year and 3.6% in 2025, up from 2.5% in 2023.
The countries in which the company operates have struggled to contain soaring inflation following the coronavirus pandemic and Russia’s full-scale invasion of Ukraine in 2022. Although the pace of deflation is “slightly faster than expected a year ago,” inflation still persists. According to the EBRD, it is about 2 percentage points above pre-pandemic levels.
The bank lowered its GDP forecast by 0.2 percentage points from its previous report in September, due in part to slower growth in Central Europe and the Baltic states, which are suffering from the effects of the war in Ukraine and a slowing German economy. “Germany’s 0.5% growth is tangible,” Jaworcik said.
The EBRD chief economist, who is Polish, also said that in contrast to the rest of the EBRD region, where risk premiums have returned to previous levels, countries in her region have lowered borrowing costs over the past two years. He pointed out that this continues to be hampered by the rise in Russian invasion.
“This is another way we can see the long shadow of war in this region,” she said.
