Charlotte Street Partners

DAILY BRIEFING

DAILY BRIEFING

Brussels bites back at Beijing

Written by Ian Ng, researcher 
Edited by Adam Shaw, associate partner
18 February 2022

Good morning,

When European commission president Ursula von der Leyen announced the ‘Global Gateway’ – the EU’s strategy for greater global connectivity – last September, it was widely perceived as Europe’s answer to China’s Belt and Road Initiative (BRI).
 
The importance Von der Leyen placed on human rights, transparency and good governance when investing in the clean energy and infrastructure that will form key planks of the Global Gateway stand in stark contrast to the BRI, which has been criticised as debt-trap diplomacy and for exploiting human rights.
 
“We want to create links and not dependencies!” von der Leyen said, in an unsubtle dig at Beijing.
 
However, despite these admirable values, The Economist criticised the EU plan for its vagueness, describing it as a “sprawling scheme” and pointing out that the €300bn earmarked for the project is “mainly a mixture of existing commitments, loan guarantees and heroic assumptions about the ability of the club to ‘crowd in’ private investment, rather than actual new spending”.
 
Furthermore, the €300 billion over six years pales in comparison to the BRI’s estimated spending of $1.2 trillion by 2027.
 
That’s not to say there isn’t opportunity.
 
Last week, it was announced during the European Union-African Union summit that €150 billion – half of the announced Global Gateway funding – would be invested in Africa.
 
China has invested heavily in Africa in recent years. However, many African countries are becoming wary of Beijing, and are watching Sri Lanka’s impending default on its Chinese loans closely.
 
Meanwhile, China’s financial commitment to Africa has dropped from $60bn to $40bn, the first time it has fallen in more than a decade, and local groups in Kenya rejected Chinese investment due to a failure to meet their environmental standards.
 
The EU leads the world in environmental standards and could certainly fill that gap.
 
It won’t be plain sailing, though. High EU standards in areas such as workers’ rights and environmental protections mean the Global Gateway will, for some, be less attractive than the BRI.
 
Nevertheless, it reflects the EU’s desire to counter the growing power and influence of China. The bloc can’t force China to abandon its practices, but it can offer a credible, values-based alternative.

News

A red weather warning is still in effect in the west of England and southern Wales as Storm Eunice, one of the worst storms in decades, hits the UK. Millions have been warned to stay at home, schools closed and transport systems have been suspended.
 
President Biden has said he believes Russia is on the brink of invading of Ukraine and will use a “false-flag” operation as an excuse to attack. This follows shelling in the disputed east of the country. Meanwhile, US secretary of state Anthony Blinken has agreed to meet his Russian counterpart, Sergei Lavrov, next week provided there is no invasion of Ukraine in the meantime.
 
The Home Office has ended the tier one investor visa programme in a bid to “crackdown on illicit finance and fraud”. Also known as the golden visa, it was introduced in 2008 to encourage wealthy people to invest in the UK.
 
France is to withdraw troops from Mali after nine years fighting Islamist militants. The French president, Emmanuel Macron, denied that the mission had been a failure but stated that France cannot remain militarily engaged alongside de-facto authorities who do not share aims with France. and continue in diplomatic talks. The prime minister’s statement comes after foreign secretary Liz Truss said the latest intelligence from Russia suggested it could “invade at any moment”. Yesterday, a Cobra meeting discussed the UK’s response if the situation escalates further.

Business and economy

Airbus delivered 611 commercial aircraft in 2021, up from 566 the year before, posting record net profit of €4.2 billion. Chief executive Guillaume Faury hailed the “remarkable results” as Airbus shifted from navigating the pandemic towards recovery and growth. The company predicted that it would deliver 720 commercial aircraft provided there were no further disruptions in 2022. 
 
Silicon Valley venture capital group Sequoia has announce plans to set up a $500mn new fund to invest in cryptocurrency. One-fifth of Sequoia’s investments in the US and Europe were invested in the cryptocurrency sector last year, with the company claiming that “the most opportunity for improvement” is in crypto. Meanwhile, the international Financial Stability Board called for “urgent” action to contain crypto risks, warning of the threat of adigital asset crisis spilling into the financial system.
 
Investors are being urged to vote against a £73m pay package for the CEO of Apple, Tim Cook. Institutional Shareholder Services said it has concerns over the size of the package, which up from $14.8m the year before. General Electric, IBM and Starbucks all failed to win a shareholder backing for executive pay in 2021.

Columns of note

Writing in the Financial Times, former prime minister Gordon Brown argues that finance ministers at the G20 summit should invest in vaccines using the burden-sharing agreement model that helped eradicate smallpox in the 1960s. He argues that a new mutation of Covid is most likely to emerge in countries with the lowest rates of immunisation. With Covax – the global body co-ordinating the supply of vaccines – left with insufficient resources, the most cost-effective investment in 2022 would be vaccine programmes, Brown says.
 
James Forsyth writes in The Times about how the West can counter Beijing and Moscow. He suggests further collaboration between democracies on technology and more spending on national defence. He argues that the Nato defence spending target of two per cent of GDP annually is insufficient and highlights that the majority of members do not meet the target.

Markets

What happened yesterday?

London stocks closed down yesterday, as concerns grow again over a potential Russian invasion of Ukraine. The FTSE 100 fell 0.87% to 7,537.37, while the FTSE 250 dropped 1.24% at 21,557.59. On Wall Street, the S&P 500 index decreased by 2.12%, the Dow was down 1.78%, and the Nasdaq shed 2.88%.
 
On the currency markets, sterling was up 0.28% against the dollar at $1.3624 but lost 0.39% on the euro, trading hands at €1.1991.

What’s happening today?

Finals
Natwest Grp
Pod Point
TBC Bank Group
Segro
Renewables Infrastructure Group
 
Interims
City of London Investment

UK Economic Announcements
(00:01) GFK Consumer Confidence
(07:00) Retail Sales
 
International economic announcements
(09:00) Current Account (EU)
(15:00) Existing Home Sales (US)
(10:00) Consumer Price Index (EU)

Source: Financial Times

did you know

Pixar nearly lost all the animation for Toy Story 2 after someone mistakenly deleted the files. Fortunately, the film’s technical director Galyn Susman had been working from home a lot on account of her newborn baby, so the files had been retained on her personal computer.

Parliamentary highlights

House of Commons

The House of Commons is in recess and will next sit on 21 February 2022.

House of Lords 

The House of Lords is in recess and will next sit on 21 February 2022.

Scottish parliament 

The Scottish parliament is in recess and will next sit on 20 February 2022.

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