China key to EU's job crisis

Chinese investment flows to Europe reached $12.6 billion last year

Last weekend witnessed the climax of yet another European Union summit. This time it was the turn of what has become the annual European Communication Summit, which took place in Brussels on June 27 and 28.

While the annual event is billed as a "central peer-to-peer platform for in-house communication professionals throughout Europe", it also allows Europe's political leaders to tackle the major social and economic challenges facing the continent.

Unsurprisingly, therefore, youth unemployment and help for the multitude of credit-starved and cash-strapped European small businesses topped the agenda.

Surprisingly though, no discussion appears to have taken place of China and the rising sums of investment from the country into an ever increasing array of European industries. Equally incredible, given the "communication" theme of this particular summit, was the apparent absence of any representation from Chinese industry or government.

Rising unemployment, coupled with no signs of growth, continues to provide little in the way of optimism among European consumers and businesses who remain in a somber mood and decidedly downbeat about the future.

However, this apparent vote of no confidence stands in stark contrast to the waves of investment that continue to roll in from China, wave after wave of which now washes up on European shores.

Investment flows from China into Europe last year reached a total of $12.6 billion, an increase of 21 percent year-on-year. Even more encouragingly for Europe these sizeable and growing sums are not just targeting natural resources and acquisitions of leading-edge technology but a vast array of business opportunities right across the manufacturing sector from industrial to consumer goods brands and services.

Last month, the Hong Kong-based Goldin Group snapped up three of the most prestigious Bordeaux chateaux: Bertineau St Vincent, Bon Pasteur and Rolland-Mallet. The sum paid remains undisclosed but it is believed to be around the $10 million mark. Also recently China's Fosun International Ltd , investment arm of a major Chinese conglomerate, and its French partner, Axa Private Equity, appear to be in the process of a $700 million buyout of France's Club Med. It's easily the biggest Sino-European deal in recent years.

What makes this even more encouraging for Europe is the strategic nature of many of these investments. Chinese companies appear not to be seeking to secure a quick, short-term financial kill via some acquisitive asset-stripping M&A strategy. On the contrary, in many instances European management remains entirely in place and long-term expansion of the European business across China appears to be a key part of any deal's rationale. Hence, the rhetoric from Fosun on growth opportunities of the Club Med brand in China.

Youth unemployment averages over 20 percent across the EU. A frightening figure but nothing compared with the whopping 55 percent reported in Spain and Greece.

As a result, the scourge of unemployment, and youth unemployment in particular, is now seen as one of the major obstacles to economic growth across the EU and the summit provided yet another golden opportunity to address the underlying causes and to recognize and promote decisive action that could contribute to a lasting solution.

Sadly, all we've seen is agreement on the allocation of about 6 billion euros ($7.8 billion) from the EU budget as investment funding for a new EU "youth employment initiative" that aims to offer people under 25 a promise of a job, training or apprenticeship within four months of leaving education or becoming unemployed.

While the initiative and the funding is to be welcomed warmly, it does little to provide any credible path toward substantial and sustainable job creation for the EU's increasingly lost generation of young people.

First, the sum is a drop in the ocean given the size and growth of this army of long-term, young unemployed. It also remains unclear whether this sum or part of it, will be targeted where the levels are most severe. Youth unemployment across Germany, the Netherlands and Austria lies at only about 8 percent, a far cry from the levels in Spain and Greece.

Second, and fundamentally, when and where this money will be spent remains undisclosed and probably even undecided; and crucially any causal relationship between government funding and job creation has not been presented.

However, it is of course, investment from business, and mainly private industry, that always spearheads any lasting decrease in unemployment with the creation of jobs that are based on genuine business and market expansion.

EU inward investment from China, therefore, represents the real, and possibly only, hope for lasting improvement in unemployment across the continent. Furthermore, these investment levels are set to continue, with the EU favored in many cases over the United States by many of China's cash-rich companies.

In consequence, it is vital that all future EU summits ensure that inward investment from China is one of the most important agenda items and that key representatives from Chinese industry and government are present and heavily involved in any summit dialogue.

European companies and consumers should hold no fear of the rise of China and Chinese industry. It is the invisible hand of Chinese investment that could act as a catalyst to EU economic revival.

http://www.ecns.cn/business/2013/07-02/71122.shtml