China to launch $10bn CEE infrastructure fund

By bne IntelliNews April 27, 2012

Tim Gosling in Prague -

Beijing plans to open a $10bn fund to finance joint projects in infrastructure, high-tech and green energy in CEE, Chinese Premier Wen Jiabao said on April 26, as a flock of regional leaders traveled to Warsaw to meet with him. The Chinese leader also promised to redress the imbalance in trade between his country and the region as part of a plan to boost total trade volumes to $100bn by 2015.

The leaders of 15 CEE countries came to the Polish capital attracted by China's massive currency reserves, which total over $3 trillion. Wen responded by announcing that Beijing is to launch a dedicated fund for projects in CEE. The new fund, which will be seeded with $500m initially, will offer loans on favourable terms to infrastructure and other joint projects, the Chinese premier said, according to AP.

That doesn't sound terribly different from the current relationship, in which Chinese companies - financed by state banks at home - have been pushing hard on price to win state contracts in CEE. Whilst Polish Prime Minister Donald Tusk and his hosting committee won't have mentioned it, that's a sensitive issue in Poland right now, with one of the country's major road projects for the Euro 2012 football championships to miss its deadline after a cheap Chinese road contract had to be scrapped.

However, Warsaw also faces a huge task to develop its power sector infrastructure in particular, and is reported to be hoping China will help finance that drive.

Swap shop

Speaking at an economic forum, Wen also pledged to open the Chinese market to goods from Poland and elsewhere from Central Europe to balance trade, which he said could build to $100bn by the end of 2014. "China will work with countries in Central and Eastern Europe to mutually open the markets and to increase the trade exchange to $100bn before 2015," Wen was quoted by Reuters as saying, adding: "The Chinese side understands concerns among Eastern European countries over trade imbalances and will boost imports from those countries.

China, which has been campaigning to reduce the role of the US dollar as a global currency in recent years, will also seek to seal currency swap agreements and conduct trade settlements in local currencies within CEE, Wen said.

The Chinese premier ends a week-long tour of Europe in Poland, after visiting Germany, Iceland and Sweden. He will be followed by other senior officials from Beijing the following week, with Moscow, Budapest and Brussels on the itinerary, as China apparently senses that now is the time to leverage its financial advantages.

The Asian country has long seen CEE as a bridgehead into the wider EU, with Western European markets still its biggest trade and investment partner. However, administrative and other barriers to Beijing's financial muscle persist. It has been pushing for these to be dropped, and for it to be granted a larger say in the global financial system - for instance via the weight of its representation in international institutions such as the International Monetary Fund - in return for helping to shore up the struggling Eurozone.

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