China and the European Union have consistently strengthened their relationship across the financial services sector since the 2008-09 global financial crisis, according to a new study, and experts believe this trend will continue to accelerate in the post-pandemic era, despite the political strains between the two powerhouses.

A joint study conducted by Luxembourg for Finance center and PwC Luxembourg found that Chinese investment in Europe escalated from 6.1 billion euros ($7.42 billion) in 2010 to 79 billion euros in 2018, with financial services representing the second-largest investment sector.

The volume of European Union foreign direct investment in China still far exceeds China’s investment in Europe, growing at a compound annual growth rate of 6.7 percent since 2002, reaching 189.4 billion euros in 2018, with a notable increase in the EU’s FDI in China’s financial and insurance sector, according to the report.

Dariush Yazdani, head of the AM Market Research Centre at PwC Luxembourg, said, “The data showcases the evolution of financial integration between China and the EU and emphasizes the need for continued cross-border collaboration.

“The recent regulatory developments in China and the strong interest shown by global players in accessing the Chinese market and vice versa, strongly suggest that the financial sector represents a veritable opportunity to foster a lucrative, long-lasting financial relationship,” he added.

Bernard Dewit, chairman of the Belgian-Chinese Chamber of Commerce, said: “The figures can be understood by the impressive economic growth in China these last 10 years. This has had repercussions for EU-China trade and the growth of Chinese investments in Europe, which has contributed to Europe’s well-being.”

Despite an increasingly challenging diplomatic backdrop between the two economic powerhouses, Dewit said economic links between China and Europe will have to continue due to the size of both economies.

The report suggests that despite political uncertainties, bilateral trade activities are not slowing. Last year saw China overtake the United States as Europe’s largest trading partner, and the EU now holds a goods trade deficit with China of 164 billion euros.

Although there has been a notable decrease in overall outward mergers and acquisitions from China-with 83 percent of Chinese M&A deals in the EU expected to be scrutinized-the EU remains China’s M&A region of choice.

According to the report, bilateral portfolio investment-or investment in stocks, bonds and other assets, with investors not participating in corporate management-has increased by 10.4 percent from Europe to China since 2001, and 9 percent from China to Europe during the same period. European-domiciled investment funds now account for an increasing proportion of inward investment in China, rising from 33.1 percent in 2017 to 56.2 percent last year.

Post-Pandemic Recovery

While the pandemic has accelerated China’s rise to economic preeminence, Chris Rudd, deputy vice-chancellor and head of the Singapore campus of Australia’s James Cook University, said: “It is unthinkable that the EU can fail in developing closer economic ties as it looks to rebuild from COVID-19. One of the EU priorities post-Brexit will be to hold the bloc together and avoid the creation of a ‘Berlin Wall effect’, with the Central and Eastern European states aligning themselves more closely with Chinese interests and policies like the Belt and Road (Initiative) than the northern Europeans.”

Experts say bilateral relations between the EU and China are not driven by short-term electoral politics and both sides have long-term outlooks to embrace, whether it is collaboration on combating COVID-19 or climate change.

Nicolas Mackel, chief executive of Luxembourg for Finance, said, “The world must build back better after the pandemic, and the relationship already established between China and the EU in financial services will be a key factor.

“While the political overtones are sometimes challenging, there is a need to be pragmatic, and to find a productive way forward. Right now, the need for global cooperation and free-flowing capital has never been more critical to tackle the climate emergency,” Mackel said.

Rudd said it is clear that “recovery from the economic damage wrought by COVID-19 will be the first priority-Italy, France, and Germany have each taken big hits to their GDP and will be pushing for export-led growth in reconstructing a new, green economy.

“In this sense, the adults in the room will need to look beyond the short-term ‘tit-for-tat skirmishes and find a way to lubricate future trade, reversing the recent isolationist trends that have been evident elsewhere,” he added.

The European Parliament passed a motion on May 20 to formally freeze the EU’s investment agreement with China.

Dewit, chairman of the Belgian-Chinese Chamber of Commerce, said: “It is difficult to foresee the evolution of political relations between China and Europe. I hope that both sides will keep a pragmatic approach in their dealings with each other. One positive sign is the fact that the EU announced that the Comprehensive Agreement on Investment approval procedure is suspended but not definitely stopped,” he said.