European market China is significantly reducing investments

Status: 16.06.2021 12:53 p.m.

China invested less in the European market in 2020 than it has for ten years. Great Britain was particularly hard hit. It’s not just the corona pandemic to blame. China significantly reduced its direct investment in the European market last year. According to a joint report by the American Rhodium Group and Merics in Berlin, direct investments by the People’s Republic in the EU and Great Britain amounted to around 6.5 billion euros in 2020. Compared to the previous year, a decrease of 45 percent. That is the lowest level in ten years.

June 16, 2021

Great minus for Great Britain

In the past year, even 77 percent less Chinese direct investment flowed into Great Britain. Even so, the UK remains one of the top three destinations for China’s investments in Europe – alongside France and Germany at the top. The three most important areas for Chinese investors were infrastructure, information and communication technology and electronics. Poland, promoted by a major acquisition, was a major new recipient last year.

01/14/2021

Stricter controls on Chinese purchases

However, many Chinese purchases are now being scrutinized more closely by the EU member states than in the past. Several planned takeovers did not materialize. In Germany, for example, the Federal Ministry of Economics stopped the planned sale of the radar specialist IMST from North Rhine-Westphalia to a Chinese company with links to the military. Several EU countries, including Italy, France, Poland and Hungary, had tightened their inspection mechanisms for direct investments from third countries last year. Investments continued to decline in the current year, according to the report. The reasons are the pandemic, high hurdles for capital outflows from China and tighter controls in the EU.

10/01/2019

Sanctions dispute exacerbates tensions

In addition, the tense relations between China and the EU are likely to play a role. That’s the way it is Investment protection agreements agreed in December between the EU and the People’s Republic is currently on hold and ratification by the European Parliament seems to be moving further and further into the distance. Another point of contention remains the human rights violations in China: In March, the EU Sanctions imposed on Chinese politicians and an organization for the first time in 30 years . The EU accuses China of violating human rights by suppressing the Uyghur Muslim minority in the Xinjiang region. As a result of the European punitive measures, China also reacted shortly thereafter with sanctions against European institutions and several EU politicians . With information from Ruth Kirchner, ARD Studio Beijing, currently Berlin

Despite the disruptions caused by the corona pandemic, the conversion of the energy supply to more sustainable resources has made progress. Last year almost $ 500 billion was invested in the energy transition worldwide, more than ever before. 92 of 115 countries examined have made progress since 2010, reports the Foundation of the World Economic Forum (WEF) in Geneva. Eight of the ten largest economies in the world have also committed to becoming climate neutral by the middle of the century, i.e. not emitting any more CO2 on balance. “All of the leading ten economies have significantly improved their ecological sustainability, especially when it comes to reducing the carbon footprint in the energy mix, supported by strong political commitment and investments in the energy transition,” writes the WEF. The number of people without electricity has decreased significantly since 2010.

Fossil fuels still dominate

But there is still a lot to be done. The authors of the study point out that in 2018 81 percent of global energy came from fossil fuels, and global emissions rose steadily in the period up to 2019. 770 million people around the world still have no access to electricity. The experts also note that the progress made in the energy transition is very uneven. High-income countries made more progress than emerging economies compared to the rest of the world. The world ranking of the countries with the greatest efforts in this area (“Energy Transition Index”) is headed by Sweden, followed by Norway and Denmark. Of the ten largest economies in the world, only Great Britain and France are in the top 10. They only cause around three percent of energy-related CO2 emissions and make up around two percent of the world’s population.

Germany does not belong to the top group

Germany does not belong to the top group. The Federal Republic has moved up from 20th place to 18th place in a year-on-year comparison, but this means that progress has been limited. The reason is the still high share of coal-fired electricity in the energy supply, while France and Great Britain benefit from the largely emission-free nuclear energy. The USA was in 24th place (after 32nd place in the previous year), China on 68 (78), India fell from 74 to 87. It remains to be seen whether the restructuring of the energy supply is really sustainable. The corona pandemic has questioned the resilience of the energy transition, the WEF states. Because many countries simply lack the necessary money to push ahead with the restructuring of their energy supply. Digitization poses a further danger for energy systems. This would create new risks that would jeopardize the “reliability, resilience and affordability” of future energy, according to the WEF. In this decade it is therefore important to guarantee the implementation of the energy transition and to push it further. For this to succeed, it is “of crucial importance” that politics work hand in hand with private actors in the economy. Of course, the prerequisite is that the global economy quickly gets back on its feet after the end of the pandemic. This is the only way to create a resilient energy transition.

National debt is growing rapidly in the pandemic. According to calculations by the employer-related Institute of the German Economy (IW), the federal, state and local governments will pile up around 650 billion euros in new debt by 2022. According to a new IW study, the debt level of the German state will grow to a total of 2.7 trillion euros by then. “Depending on what happens in the coming weeks and months, this number can get even bigger,” said IW Director Michael Hüther at the presentation. At the same time, economists are asking themselves: What is the best strategy to reduce this debt again and not to restrict the state’s scope for necessary investments too much despite high repayment burdens?

According to IW, the debt ratio in Germany will already peak at 75 percent at the end of this year. This ratio describes the relationship between debt and gross domestic product. According to the criteria of the EU Maastricht Treaty, it should be a maximum of 60 percent. In 2019, Germany just kept to this mark. In the US, the debt ratio was over 108 percent.

“Greatest Challenge of the Post-War Era”

“The corona pandemic was and is the greatest economic and socio-political challenge of the post-war period,” said Hüther. Never since 1945 has the state spent so much money in such a short time on a goal as to combat the corona pandemic. The question now is how the costs can be managed. The IW states that the state would have to repay 24 billion euros annually if all of Germany’s corona debts were to be repaid within 20 years, as the federal government is planning. As a result, the federal government would have to save elsewhere, so that the public sector would generate surpluses. According to IW, it could not be reconciled otherwise with the debt brake.

Scope for investment

“The current repayment plan is very sporty, but inconsistent and leads to unnecessary macroeconomic problems,” said Hüther. The economic experts at the IW are therefore suggesting that debt reduction should be avoided too quickly and that the public sector should rather be given leeway for necessary investments in infrastructure, for example. “Instead of 20 years as planned by the federal government, the debt should be repaid in 40 years,” the study says. In addition, the experts recommend “a moderate opening of the debt brake” in order to increase the federal states’ room for maneuver – and the establishment of a special fund for investment purposes. The debt ratio could fall from 75 percent in 2021 to 61 percent in 2035.

IW against higher taxes

Tax increases, as they are proposed in part in the upcoming federal election campaign, on the other hand, would slow down economic growth and weaken Germany as a business location, according to the IW experts. Rather, economic dynamism must be promoted. From the point of view of the institute’s experts, reducing the debt ratio after the crisis should primarily take place through economic growth. For this, in turn, attractive framework conditions are an essential prerequisite, not least in terms of infrastructure and taxes.

Germany Fund for Investments?

In order to address the existing investment deficits in infrastructure, climate protection and education, a Germany fund could also be set up, which could invest 45 billion euros annually in climate protection, education and infrastructure for ten years. Countries get into debt by issuing government bonds. Institutional investors such as pension funds, asset managers, fund providers, hedge funds, companies and banks, but also private individuals act as creditors. In view of the mass of bonds issued and the billions of dollars that governments need, private investors hardly matter.