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Czech News in English » Business » HN: No big wave of Chinese investment comes to Czech Republic

HN: No big wave of Chinese investment comes to Czech Republic

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Prague, April 3 (CTK) – One year after the Prague visit by President Xi Jinping it is clear that the Chinese investment wave in the Czech Republic has the form of unfulfilled promises and “the purchase of attractive trophies,” economist Lukas Kovanda writes in financial daily Hospodarske noviny (HN) yesterday.

He says Chinese companies put aside their capital rather than make investments, and Beijing has started taking steps against capital exports.

Direct Chinese investments in the European Union were 35 billion euros in 2016, which is 77 percent more than in 2015. However, a U-turn came at the end of last year, due to which Chinese investments will decrease not only in the EU but also all over the world. By March, the volume of China’s foreign mergers and acquisitions fell by 75 percent year-on-year, Kovanda writes.

But these general trends do not concern the Czech Republic. The volume of Chinese investments is so low that one or two big transactions can totally change the statistics, and such investments are expected to be made, he writes.

In the long term, nevertheless, the situation in China will also influence the Czech Republic, he adds.

China’s currency yuan weakened and Beijing is trying to more and more prevent the outflow of finances from the country through stricter control of capital, Kovanda writes.

Acquisitions that Beijing tolerated until recently, such as “trophy assets” or assets that are unrelated to the business of the Chinese firm that made them, such as football clubs, breweries and historical buildings, may not be permitted anymore, Kovanda says.

He says a number of the Chinese recent investments in the Czech Republic were trophy assets, motivated primarily by fear of a further drop of the yuan.

With lowering foreign exchange reserves, it is no wonder that the Chinese authorities are less ready to tolerate capital outflow. This is why the Chinese are failing to complete the purchase of the Italian football club AC Milan, announced last year, Kovanda writes.

As a result, the character of Chinese investments is to markedly change as of this year: the acquisitions will be more “serious,” he says.

Since these investments will be made especially in the fields of industry and IT, potential Chinese buyers will be critically checked by U.S. and EU authorities. In 2016, the U.S. administration of Barack Obama blocked a Chinese purchase for security reasons. President Donald Trump and his team is likely to be even stricter, Kovanda writes.

Both the United States and the EU call for China’s investment reciprocity: Western investors have far more worse conditions in China than Chinese investors have in the West, he writes.

If Chinese companies really are to invest the volume of money that was promised during Xi Jinping’s visit to the Czech Republic last spring, the Czechs should demand clear guarantees of Chinese reciprocity. They should take a lesson from the mistakes of other countries, such as the neighbouring Poland. It is in the interest of Czech trade, Kovanda writes.

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