The EU and China have consistently strengthened their relationship across the financial services sector since the 2008-9 financial crisis, according to a joint study conducted by Luxembourg for Finance and PwC Luxembourg.

The report entitled: ‘Beyond the challenges: the strength of Sino-European ties’, finds that Chinese investment into Europe has boomed from €6.1bn in 2010 to €79bn in 2018, with financial services representing the second largest investment sector. Meanwhile, the volume of EU foreign direct investment (FDI) into China still far exceeds China’s investments into the Europe, growing at a compound annual growth rate (CAGR) of 6.7% since 2002, reaching €189.4 billion in 2018, with a notable increase in the EU’s FDI allocation to China’s financial and insurance sector.

The study argues that despite an increasingly challenging diplomatic backdrop between these two economic superpowers, the route to a more productive and stable relationship could be built around urgent shared goals, such as tackling the climate emergency and pandemic recovery, which must be underpinned by free-flowing global capital.

Some of the key findings included the fact that last year saw China overtake the US as Europe’s largest trading partner. The EU now holds goods trade deficit with China of €164bn. Despite political apprehension, this is not slowing.

Furthermore Despite a notable decrease of outward M&A from China – with 83 percent of Chinese M&A deals in the EU expected to be scrutinised – Europe remains China’s M&A region of choice.

Nicolas Mackel, CEO 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 have never been more critical to tackle the climate emergency.”