Chinese takeovers and direct investments are increasing drastically in Europe
In the last year they reached a new record mark (with a volume of around 14 billion Euros). Nearly on a weekly basis new investment projects are being announced. There are many factors that indicate this trend will continue. China is becoming a driving force for global capital flows and already today is one of three biggest foreign investors worldwide. According to forecasts China’s current global assets will treble by 2020 up to nearly 18 billion Euros. In their latest study Thilo Hanemann and Mikko Huotari analyse on the basis of a unique data base the newest trends of Chinese direct investment in Germany and the EU.
Rapid growth of investments in Europe
Between 2000 and 2014 the 28 EU countries in total recorded more than 1,000 Chinese newly established companies, mergers and takeovers. These amounted to a total figure of 46 billion Euros. The Chinese government had gradually over the last years relaxed the rules for foreign investment which paved the way for Chinese companies to expand their global business activities. Whilst at the beginning the focus of the investors was on commodities now a diverse mix of technology, brands and consumer goods is sought after. From a Chinese perspective in Europe the energy, automobile, food and real estate sector are the most attractive industrial areas. Western Europe was particularly the focus of Chinese investors but recently South and Eastern Europe have been able to up. In Europe the UK remains the number one destination followed by Germany and France.
Investments in Germany flow into a number of industrial sectors
Since 2000 Chinese companies have invested around 6.9 billion Euros in Germany. Worth noting is that annual investments rose significantly in 2011 and since then remained relatively stable around the 1-2 billion Euro mark per year. Recently the interest has increased in IT technology, finance and corporate services as well as consumer goods. Some of the most prominent takeovers have been the acquisition of the concrete pump manufacturer Putzmeister by Sany in 2012 or the electronic enterprise Medion by Lenovo in 2011/12. Currently the bidding process of the Chinese insurer Anbang for the Hypo Real Estate Core Banking System is in the final stages. The old West German states are especially popular with Chinese investors with North Rhine-Westphalia, Hesse and Bavaria leading the way. Up to now Chinese companies have invested 1.8 billion Euros in North Rhine-Westphalia.
What distinguishes China from other investors
Size, growth and complementarity of the Chinese economy offer Europe unique opportunities. On the other hand, many governments fear a greater interdependence with
China. This is because there is the real danger that China will continue to distort competition by subsidising own companies whilst putting up barriers for foreign enterprises. Furthermore, there is the expectation that the decision-making processes will remain aligned to the authoritarian political system. In addition to this one is able to observe that China is shutting out a number of industries from foreign direct investment.
At the same time China has over the last years been able to disprove some preconceptions: Chinese investors are by no means just interested in subtracting know-how. They are quite willing to invest in infrastructure as well as in research and development. The analysis of around 1,000 projects across Europe didn’t confirm the fear that Chinese investments would have a negative impact on the domestic employment situation or the innovative capability.
A robust bilateral investment agreement is urgently needed
The new wave of Chinese investments offers exceptional opportunities for Germany and Europe in a phase of economic change. This potential is particularly highlighted by China’s intention of participating in the new infrastructure fund of the European Union. In order to capitalise on the opportunities and minimise risk it is vital to set the right political framework. In the run-up to the EU-China Summit on the 29th of June in Brussels Mikko Huotari and Thilo Hanemann argue the case for the speedy conclusion of a robust bilateral investment agreement (BIA) which amongst other things removes existing imbalances in respect to market access. It is important that the principle of freedom of investment is upheld.