June 7 (Bloomberg) -- China should invest more in the European Union as the bloc struggles with a spreading recession, financial-market instability and political uncertainty about how to battle the debt crisis, EU trade chief Karel De Gucht said.
“We need the money,” De Gucht said in a speech today in Brussels. “On the one hand, as member-state governments privatize in response to the crisis, they need investors to buy what they are selling. On the other, new capital is the basis for new growth.”
China, which became the world’s fifth-largest foreign investor in 2010, will invest between 800 billion euros ($1 trillion) and 1.6 trillion euros abroad in the decade to 2020, according to a Rhodium Group study published today. China invested more than 7 billion euros in the 27-nation EU last year, up from an annual average of 1 billion euros between 2003 and 2008.
Still, China represents only 3.5 percent of total foreign direct investment in Europe, while the U.S. accounts for 21 percent, according to De Gucht. Europe spends just 2 percent of its FDI in China, compared with almost 30 percent in the U.S., he said.
“Obviously, this is below potential considering we are two of the world’s largest economies,” the EU trade commissioner said. “And that means there is work to be done: We have to jointly clear the way for our investors so we can take full advantage of the possibilities before us.”
An ambitious investment agreement between China and the EU is one answer, De Gucht said. The two governments agreed in February to pursue negotiations toward an accord that he said should consolidate existing bilateral investment protection treaties into a single framework, address the question of a level playing field and keep markets open.
“Europe is committed to openness in foreign investment because we believe in its benefits for our economy,” De Gucht said. “At the same time we need to make sure that other countries, including China, increase their openness as well.”
The Chinese government, which the Organization for Economic Cooperation and Development says has the most restrictive regime for foreign investment in the Group of 20, impedes European efforts to make new investments in China, De Gucht said.
“Obstacles range from the mandatory joint ventures that apply to cars to the outright bans on foreign ownership in large parts of the postal-services market,” he said. “In some cases, the right to invest is conditional on forced technology transfer. When all of these issues combine you get a perception that the climate for foreign investment in China is getting worse not better.”
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