The European Union and China announced the political approval of a long-sought agreement to open the Chinese market further to EU investors, marking an economic victory for both sides.
The breakthrough in negotiations on an EU-China investment accord signals the bloc’s determination to focus on economic opportunities in Asia even amid criticism of Beijing’s record on human rights. The accord could enter into force in early 2022, according to EU officials.
The deal, in the works since 2013, is also a salvo against the “America First” challenge to the multilateral order by outgoing President Donald Trump. The EU has lambasted Trump’s confrontational tactics toward China, urging engagement with Beijing in a bid to strengthen global rules.
“We are open for business but we are attached to reciprocity, level playing field & values,” European Commission President Ursula von der Leyen said in a post on Twitter on Wednesday. “Today, the EU & China concluded in principle negotiations on an investment agreement.”
For the 27-nation EU, the pact expands access to the Chinese market for foreign investors in industries ranging from cars to telecommunications. Furthermore, the agreement tackles underlying Chinese policies deemed by Europe and the U.S. to be market-distorting: industrial subsidies, state control of enterprises and forced technology transfers.
For China, the accord bolsters the country’s claim to be a mainstream geopolitical force and may limit risks resulting from a tougher EU stance on Chinese investments in Europe. It also strengthens Beijing’s longstanding call for the start of negotiations on a free-trade pact with the EU, which has insisted on an investment deal first.
China ranked as the EU’s second-largest trade partner in 2019 (behind the U.S.), with two-way goods commerce valued at more than 1 billion euros (US$1.2 billion) a day.
The announcement on Wednesday represents a high-level political blessing to the investment agreement, which will also cover environmental sustainability. Both sides plan to put the finishing touches on it over the coming months.
The accord will then need the approval of the European Parliament, where some voices have expressed objections as a result of alleged human-rights violations in China. The deal includes Chinese pledges on labor standards meant to address such concerns, including in relation to ratification of related United Nations-backed conventions, according to EU officials, who asked not to be identified because of the continuing preparations.
“It’s not a given that the EU Parliament will give its consent,” Reinhard Buetikofer, a German Green member of the assembly, told Bloomberg Television on Tuesday. “We’ll give it a tough scrutiny.”
The incoming U.S. administration has also signaled reservations, at least about the timing of the agreement. Jake Sullivan, national security adviser to President-elect Joe Biden, on Dec. 22 urged “early consultations with our European partners on our common concerns about China’s economic practices.”
The developments highlight global cross-currents after Trump shook the post-war system over the past four years by sidelining the World Trade Organization, starting a tariff war against China and hitting or threatening U.S. allies in Europe with controversial import duties.
When the Trump administration in January 2020 struck a first-phase commercial accord with China that eased their economically damaging fight, the EU criticized the deal as a “managed-trade outcome” that might itself violate WTO rules and merit a legal challenge.
Following are some of the Chinese concessions to European investors in the agreement, according to an EU official who spoke on the condition of anonymity:
- Chinese market opening: improved access across industries including air-transport services, where joint-venture requirements for computer-reservation systems are being removed, and new opportunities in sectors including clean vehicles, cloud services, financial services and health
- Chinese state-owned enterprises: non-discrimination commitment when SOEs are buyers of services
- Chinese subsidies: enhanced transparency, notably for services
- Chinese forced technology transfers: prohibited
While the accord largely commits the EU to maintain its relative openness to Chinese investors, according to the European official, the deal offers greater access for them to the bloc’s:
- energy wholesale and retail markets (but excluding trading platforms)
- renewable-energy markets (with a 5 per cent cap at the level of EU countries and a reciprocity mechanism)
More China coal investments overseas cancelled than commissioned since 2017
More China-invested overseas coal-fired power capacity was cancelled than commissioned since 2017, research showed on Wednesday, highlighting the obstacles facing the industry as countries work to reduce carbon emissions.
The Centre for Research on Energy and Clean Air (CREA) said that the amount of capacity shelved or cancelled since 2017 was 4.5 times higher than the amount that went into construction over the period.
Coal-fired power is one of the biggest sources of climate-warming carbon dioxide emissions, and the wave of cancellations also reflects rising concerns about the sector’s long-term economic competitiveness.
Since 2016, the top 10 banks involved in global coal financing were all Chinese, and around 12% of all coal plants operating outside of China can be linked to Chinese banks, utilities, equipment manufacturers and construction firms, CREA said.
But although 80 gigawatts of China-backed capacity is still in the pipeline, many of the projects could face further setbacks as public opposition rises and financing becomes more difficult, it added.
China is currently drawing up policies that it says will allow it to bring greenhouse gas emissions to a peak by 2030 and to become carbon-neutral by 2060.
But it was responsible for more than half the world’s coal-fired power generation last year, and it will not start to cut coal consumption until 2026, President Xi Jinping said in April.
Environmental groups have called on China to stop financing coal-fired power entirely and to use the funds to invest in cleaner forms of energy, and there are already signs that it is cutting back on coal investments both at home and abroad.
Following rule changes implemented by the central bank earlier this year, “clean coal” is no longer eligible for green financing.
Industrial and Commercial Bank of China, the world’s biggest bank by assets and a major source of global coal financing, is also drawing up a “road map” to pull out of the sector, its chief economist Zhou Yueqiu said at the end of May.
(Reporting by David Stanway; Editing by Kenneth Maxwell)
Bank of Montreal CEO sees growth in U.S. share of earnings
Bank of Montreal expects its earnings contribution from the U.S. to keep growing, even without any mergers and acquisitions, driven by a much smaller market share than at home and nearly C$1 trillion ($823.38 billion) of assets, Chief Executive Officer Darryl White said on Monday.
“We do think we have plenty of scale,” and the ability to compete with both banks of similar as well as smaller size, White said at a Morgan Stanley conference, adding that the bank’s U.S. market share is between 1% and 5% based on the business line, versus 10% to 35% in Canada. “And we do it off the scale of our global balance sheet of C$950 billion.”
($1 = 1.2145 Canadian dollars)
(Reporting by Nichola Saminather; Editing by Leslie Adler)
GameStop falls 27% on potential share sale
Shares of GameStop Corp lost more than a quarter of their value on Thursday and other so-called meme stocks also declined in a sell-off that hit a broad range of names favored by retail investors.
The video game retailer’s shares closed down 27.16% at $220.39, their biggest one-day percentage loss in 11 weeks. The drop came a day after GameStop said in a quarterly report that it may sell up to 5 million new shares, sparking concerns of potential dilution for existing shareholders.
“The threat of dilution from the five million-share sale is the dagger in the hearts of GameStop shareholders,” said Jake Dollarhide, chief executive officer of Longbow Asset Management. “The meme trade is not working today, so logic for at least one day has returned.”
Soaring rallies in the shares of GameStop and AMC Entertainment Holdings over the past month have helped reinvigorate the meme stock frenzy that began earlier this year and fueled big moves in a fresh crop of names popular with investors on forums such as Reddit’s WallStreetBets.
Many of those names traded lower on Thursday, with shares of Clover Health Investments Corp down 15.2%, burger chain Wendy’s falling 3.1% and prison operator Geo Group Inc, one of the more recently minted meme stocks, down nearly 20% after surging more than 38% on Wednesday. AMC shares were off more than 13%.
Worries that other companies could leverage recent stock price gains by announcing share sales may be rippling out to the broader meme stock universe, said Jack Ablin, chief investment officer at Cresset Capital.
AMC last week took advantage of a 400% surge in its share price since mid-May to announce a pair of stock offerings.
“It appears that other companies, like GameStop, are hoping to follow AMC’s lead by issuing shares and otherwise profit from the meme stocks run-up,” Ablin said. “Investors are taking a dim view of that strategy.”
Wedbush Securities on Thursday raised its price target on GameStop to $50, from $39. GameStop will likely sell all 5 million new shares but that amount only represents a “modest” dilution of 7%, Wedbush analysts wrote.
GameStop on Wednesday reported stronger-than-expected earnings, and named the former head of Amazon.com Inc’s Australian business as its chief executive officer.
GameStop’s shares rallied more than 1,600% in January when a surge of buying forced bearish investors to unwind their bets in a phenomenon known as a short squeeze.
The company on Wednesday said the U.S. Securities and Exchange Commission had requested documents and information related to an investigation into that trading.
In the past two weeks, the so-called “meme stocks” have received $1.27 billion of retail inflows, Vanda Research said on Wednesday, matching their January peak.
(Reporting by Aaron Saldanha and Sagarika Jaisinghani in Bengaluru and Sinead Carew in New York; Additional reporting by Ira Iosebashvili; Editing by Sriraj Kalluvila, Shounak Dasgupta, Jonathan Oatis and Nick Zieminski)
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