Romano Prodi:CMIG may Guide Chinese Companies to Invest in Europe

Romano Prodi, former President of the European Commission, former Prime Minister of Italy and CMIG's Global Expert Advisor, visited Beijing once more, coinciding with the arrival of spring and the tw o events, i.e. the National People's Congress (NPC) and the Chinese People's Political Consultative Conference (CPPCC). Mr. Prodi, now in his 70 s, began concentrating his attention on the Chinese economy when he was back in Europe. February 18 of this year, he published a signed article on La Stampa, an Italian new spaper, suggesting that "China's economy is embracing a new era." Mr. Prodi frankly said tha t "Chinese development could not continue on a two track course" any more. Specifically due to the fact that China has become a middle income economy. Due to increases in the cost of labor, China can no longer exclusively produce low value-added simple products. Some sectors are suffering from severe over-capacity, such as steel and cement.

Mr. Prodi argued that the Chinese economy must eliminate excess production capacity and focus on more innovative industries for economic restructuring. China should further modernize, so as to change the driving force of its economy.

"To keep 6% or 7% growth rate in this situation is a miracle", said Prodi. Enhancing inter-economy investments may be an excellent way to address the global economic downturn. Chinese companies are boosting their investments in Europe. Statistics show that in 2015, Chinese enterprises' investments in Europe totaled 20 billion Euros exhibiting rapid growth. As a huge proponent of this development, Mr. Prodi has said in multiple occasions that "the entirety of Europe welcomes China", and "the 'New Silk Road' will not only benefit China, but also Europe and the whole world."With the flood of investments in Europe made by private companies, a new problem emerges, i.e. how to minimize possible risks and protect Chinese companies' investments.

According to Mr. Prodi, large private institutions like CMIG may jointly formulate guidelines alongside European experts in order to select the best practices required for investing in Europe. They have the ability to guide Chinese companies outward investment in Europe. So the more experience you have in doing so, the better advice you can give. Mr. Prodi said that "CMIG can become a leader in this sector."

CMIG New Times: Hello, Mr. Prodi! I'm glad to see you again.

Prodi: Hello, everyone. It's a pleasure to meet you all. CMIG is one of the instruments to link greater China with the outside world, and in this particular case, with Europe. So I think that in the time being, CMIG is a fantastic platform. Not only for economics, but also for developing future working relationships .

CMIG New Times: Given that many Chinese private companies are investing in Europe now, what is your opinion on their investments and development in Europe?

Prodi: First of all, I do think that Chinese companies are, in a phase, in terms of technology, obliged to be global. I mean obliged. If they do not become global, they will disappear. To be global, you must enter the European or American market, of course.

But the European market is easier, in the sense that their government’s policies, the European Union’s policies, are not so strict compared to America’s. In America, there are many industries that are forbidden from being acquired by foreign companies. In Europe, you have a wider selection of choices. For example, if you need a factory with a low cost of labor, you go to Albania; if you need chemical specialists, you go to Germany; if you need wrapping mechanic machinery, you go to Italy. You have a lot of choices in term of costs and in term of skills that you do not have in the United States.And of course, your question is not only if Chinese companies are accommodated, but if they are generally welcome. This depends.

In most circumstances, we have no position, but any operation must be done with intelligence and prudence. Sometimes, the result has not boded well, especially when the Chinese company did not take enough care to fully understand a country and the environment in which their investment was made. The result is that these Chinese companies’ investments and their subsequent companies are not performing well.So, our focus, in my opinion, is that the Chinese are welcome in Europe, but they must really place high levels of energy, brainpower, and exploit local resources. You know, quite a few Chinese companies previously did this well. So you have examples of both companies that have flourished and companies that have suffered in Europe. And really the difference is how much attention has been paid to the local environment and local human resources.

CMIG New Times: As is known to all, CMIG is co-founded by 59 private companies. They have formed a group to make foreign investments. What's your opinion on such a model?

Prodi: This is very Chinese. CMIG is in the best strategic position to give good advice, because its investors are from a variety of different fields. And so CMIG is taking advantage of these opportunities, in conjunction with European experts, to formulate guidelines and select best practices that are needed in Europe so that it can be a leader with the necessary experience and prudence, which is needed in underway. At the end of the day, I just think that this is a great proposal for China. One condition that we have already spoken about is that in addition to dedicating our energy to this project, we must also provide the technical expertise. Now the dilemma is not to wait too long before starting the concrete plans; otherwise, people will think, look, this is mainly Chinese propaganda.

But it is not. You must give them evidence that it is not such as the creation of sufficient industrial zones in between, making experimental quick channels from China to Europe, and demonstrating that things are changing at a rapid pace.

CMIG New Times: In fact, CMIG has been actively participating in the "Belt and Road" initiative, such as the Indonesian industrial park we saw in the news.What's your opinion on CMIG's investments, as one of its global advisors and in house experts?

Prodi: This is what we expect from the "Belt and Road". For us, relations with China are very important. But there are no convenient methods of trade at the moment between China and Europe. We need continuity of development. Therefore, we are really in favor. I participated in starting CMIG investment in Indonesia and the size and impact is substantial. I expect the same thing happening in other regions. Maybe Iran, Kazakhstan or some European countries can concentrate on some specific activities. However, we do have political obstacles, clearly. You know, this is a great challenge to the Silk Road Economic Belt portion of the "One Belt One Road" strategy. It passes through countries in which you have political turmoil. The land track is different from the sea track. On the Maritime Silk Road you can connect with Europe without any problem. On land, you need cooperation in diplomacy and you need peaceful resolution because even one bureaucrat can damage or stop trade. It is very delicate from this political point of view. Of course, the Chinese attention to this matter is well-known, but do not forget that, I repeat, land transportation is a much more complex job than sea transportation, even if the time of travel is much shorter.

With the more experiences you have,the better advice you can give. CMIG has the ability to speed up this process of internationalization and globalization. This is absolutely necessary for the advancement of Chinese companies. CMIG has made great achievements over the past year. Now is the perfect time for it to accelerate its development.

CMIG New Times: In your opinion, how will CMIG's acquisition of some European ­financial institutions affect China and Europe's economy?

Prodi: The influence is important because of knowledge and experience. CMIG has enough experience to offer the right guidance and choices in terms of nation, enterprise and cooperation.But there are cases in which to exploit better investments, you need to have European partners, local partners, at least in the beginning of the process to guide the process in order to avoid costly mistakes. And this is another situation in which CMIG is in a perfect position in the sense that it can advise how, when and with whom to invest.

CMIG New Times: Given that your expertise covers both the European economy and nations across the world, do you think Europe will strengthen its cooperation with China, as China proposes the "Belt and Road" strategy?

Prodi: I am personally working on this project. We will have had a very productive conclusion to this question by next July with not only the Chinese and Europeans, but also with Pakistanis, Kazakhstanis, Iranians, and other Middle Eastern countries. In theory, the "One Belt One Road" proposal is indeed a link between Europe and China, however it is much more. Certainly it is the link between Europe and China, but to be successful, you need to integrate many of the countries in between. I know that already in Pakistan and Iran, they are making investments in trade ports and reinforcing roads in these surrounding areas in anticipation of a concrete link with the "One Belt One Road". This is really the importance of the event to link Europe and China. A the moment, I think it is wise to keep the current anticipation of this proposal in check while the work gets.

CMIG New Times: Some European and American media are now bearish about China's economic prospects. What's your opinion?

Prodi: Well, I have never felt that Chinese development could continue more than a decade at the level of two figures.For this reason you can’t do what happened in the beginning of 2011 when you become a middle income economy. Now, China is a middle income economy. Therefore, China can no longer produce cheap, simple goods because of the increases in the cost of labor. Second, you already have advanced technology that needs a world market. And then you have a terrible overcapacity in sectors, such as steel and cement. Clearly you have to close a lot of plants, specialize in others, and change the driving force of your economy. China recently released its 6% ~ 7% growth target. If you can keep this rate, then it is a fantastic achievement. Also, you have to move dozens of millions of people, or hundreds of millions of people from the countryside to urban cities to increase productivity. Otherwise, the demographic situation is similar to ours.

You cannot grow if you do not have this new labor supply from the rural countryside. This requires many changes in your cities. This involves mobilization of the entire society. Simultaneously keeping 6% or 7% development in this situation, believe me, is a miracle.

CMIG New Times: Some see a potential for another global economic recession on the horizon. What do you think?

Prodi: Look, I have only nightmares that it technically is called secular stagnation. Let's say that in a long period of time, in which savings exceed consumption, you will have overcapacity and over-savings. And you have lots of that. Because all the central banks, Japanese, American and European central banks went to extraordinary lengths to increase their supply of money and to lower interest rates. But now it is not working anymore, because when you artificially hold the interest rate below zero, what do you do?

So we must enter a period in which we have to back intensive government action in infrastructure spending to push up demand. So in the long term, in my opinion, if we want to avoid a world of stagnation, market regulation alone is not enough. If we want to avoid a world of stagnation, we need more active government policy in infrastructure and education spending, etc.

CMIG New Times: Even though China is under huge economic development pressures, companies like CMIG still are making great achievements. As an economic expert, would you please offer some advice to private companies like CMIG on how to deal with the economic environment this upcoming year?

Prodi: I have talked about this before. CMIG has a wide variety of choices. It should compare them, give advice and utilize the right people. I think that because of its past experiences, CMIG will find it easier to find good business. There is no general negative reaction to CMIG's investments in Europe provided that they develop the companies and do not close them.So I think that CMIG is in a fairly perfect position to give good advice, but they must go out to enlarge their field of experiences to have people who know not only the advantages, but also the pitfalls of investing abroad.