New Surge in Chinese Outward Direct Investment to Europe
The development of China as the second most important economy in the world has been demonstrated most strikingly in recent years by the surge in outward direct investment (ODI).
Previous activity in developing countries; Asia, Africa and, most recently, South America; has been noted for at least a decade. In Europe and the United States, however, direct Chinese investment has grown significantly only in the last couple of years. In 2009, new Chinese projects in Europe jumped by 30%, albeit from a low base.
According to reports by the Chinese Ministry of Commerce, the growth of ODI stemming from China has averaged 49.9% worldwide for the last nine years.
In 2010, the country accounted for 5.2% of global capital flows and surpassed both Japan and the United Kingdom as source of ODI. It is now the 5th largest in the world, though 5% is still a relatively low figure.
Estimating the exact scale of outward flows is difficult. Many Chinese companies operate through financial centres such as Hong Kong and Grand Cayman, which makes transactions difficult to track. However, it is generally agreed that the number of investments is rising rapidly. The Heritage Foundation’s China Global Investment Tracker estimates that China’s non-bond investments in Europe have shot up to a total of $35 billion. In the USA by contrast, the figure is $28 billion.
Chinese investment in Europe
Ailing economies in Europe have been quick to recognise China as a source of investment. During the 2010 Universal Expo in Shanghai, trade missions flocked to China in a bid to tempt Chinese entrepreneurs.
Previously, Chinese investments have largely been concentrated in energy resources and metals. In Europe, however, the picture looks somewhat different: Chinese businesses tend to prefer investments in fields such as automotive, general manufacturing and IT industries. The Chinese have also indicated an interest in sustainable energy.
From the Chinese point-of-view, investing in Europe is motivated by the need to acquire technological know-how, as much as the desire to capture new markets. Chinese companies wish to move beyond low-cost manufacturing and enhance capabilities in research and development. In 2008, the Chinese wind-turbine manufacturer Goldwind bought the German designer Vensys, with the express aim of improving domestic models.
Struggling to develop internationally recognised brands, Chinese businesses have also resolved to pursue iconic industry take-overs. They are typically looking for bargains; for companies in financial trouble, but with good brand recognition. In March 2010, the Chinese carmaker Zhejiang Geely paid $1.8 billion for Ford’s struggling Volvo unit. In 2005, Nanjing Automotive acquired the British car manufacturer MG Rover.
What is key is being at the forefront of technological development. “I couldn’t sell BT,” says a spokesman for Eli Capital, the company that guided Geely’s transaction in Europe. “It’s too old-fashioned.”
In the pursuit of technological expertise, Chinese companies are likely to seek established clusters. London, for instance, has become the primary target for financial institutions. Indeed, both Britain and China have suggested plans for London to become a major offshore trading centre for the Chinese currency.
China has signed commercial agreements with countries such as the United Kingdom, Italy, France, Portugal, Greece and Ireland, including a string of different investment projects. In Italy, the agreements included substantial Chinese investment in solar energy. The Chinese company Cosco is also expanding the port of Naples in order to cater for Chinese companies exporting to Europe. With the French, the Chinese signed a deal to cooperate, among other sectors, in cellular telecommunication. With Portugal a joint construction of optical fibre networks has been established between Huawei and Portugal Telekom. Ireland, on the other hand, seeks to create a Chinese manufacturing hub in Athlone, in central Ireland.
In Eastern Europe Chinese activity has been relatively marginal, though the Wanhua Industrial Group acquired full control of Hungarian isocyanate maker BorsodChem in February 20011. Across the European continent, the largest investors are CICC (finance), China Telecom and Huawei (telecommunications).
