China launches €10bn investment fund for CEE

China launches €10bn investment fund for CEE
Prime Minister Li met leaders from across the region over the weekend
By bne IntelliNews November 7, 2016

China has launched a €10bn investment fund for Central & Eastern Europe (CEE), the Industrial and Commercial Bank of China announced at a China-CEE summit in Latvia on November 6.

The fund plans to raise €50bn in project finance for sectors such as infrastructure, high-tech manufacturing and consumer goods. However, it is not the first such venture to be announced in recent years by Beijing, and China tends to drive a hard bargain when it comes to actually spending the cash.

“China has the advantage of cost-effective equipment and capacity while Central and Eastern European countries need to raise the level of industrialisation," said Chinese Prime Minister Li Keqiang, according to Xinhua.

The announcement comes as one of the results of the summit of CEE states and China - called the “16+1 group" - that took place in Riga on November 5. China has long sought to strengthen its position in Europe and CEE is seen as a bridgehead. The region is also now central to the "New Silk Road" initiative, which seeks to development transport infrastructure to link Chinese factories to customers in Western Europe.

The China-Central Eastern Europe fund will be managed by Sino-CEE Financial Holdings, a company established by the bank earlier this year and officially launched by Li during the summit in Riga.

The meeting in Riga also resulted in a set of “Guidelines for Cooperation between China and Central and Eastern European Countries” seeking to strengthen economic ties between China and CEE. The document highlights especially the need to cooperate in transport and logistics, as well as industry, energy, science and technology. 

CEE countries are competing against one another in trying to take the most advantage of interest from China, which holds a giant war chest of reserves to spend and can offer cheap labour. However, despite several grand announcements in recent years, Chinese investment in the region is still somewhat subdued.

On top of Beijing's tough negotiating, the EU has presented obstacles on some projects. Meanwhile, China enjoys a large trade surplus in relation to all of the countries around CEE.

Still, the region remains keen to compete for the potential riches. Latvia hopes to become China’s terminal for goods transited by rail via Kazakhstan, Russia, and Belarus, and is pushing the port of Riga as an alternative to Lithuania's Klaipeda. Poland signed a strategic cooperation agreement with China in June, hoping to attract Chinese investment and boost exports.