China goes shopping in Europe

The strong spike in Chinese investment in Europe first began after 2008, after the global financial crisis had broken out. At that time, direct investment from China into Europe was less than US$1 billion per annum but by 2011 this had risen to $10 billion, mainly focused on the core EU countries, particularly Germany, Italy and France.

Analysing the pattern of investments, a depth and breadth of interests is revealed. The authors of the Rhodium Group conclude they were mainly driven by the need for innovation, the wish to break away from domestic competition in China and, perhaps, the desire to acquire a bargain.

Europeans possess the kind of advanced-economy workforce skills that are highly desirable in Chinese production chains (including environmental management and controls, quality assurance, design and innovation, and high technology). If these work processes are successfully adopted, these should help China gain positive economic momentum.

The top five private Chinese investors in Europe are: Geely, an auto-maker; Huawei, an ICT solutions provider; Lenovo, a computer company; Sany, a producer of construction machinery; and Wolong Group, a conglomerate with electricity and real estate interests. Although state-owned firms account for only one-third of deals, 72 per cent of the total $21 billion invested originates from state-owned enterprises.

It is worth noting that China’s investment in Europe is tiny compared with that of other major investing countries such as the United States, European countries and Japan; China’s investment in Europe amounting to less than 1 per cent of the total. However, it is often high-profile – for example, ports in Naples, Piraeus and Antwerp, a gas company in France and a water company in London, luxury brands such as Volvo, and high-tech and telecommunications companies.

The benefits for Europe include an injection of much-needed capital and perhaps access to the Asian marketplace, while the benefits for Chinese investors in Europe is that they will more easily be able to sell products in the world’s largest single market. They will also expand their global production chains and be able to tap into a rich base of technology, brands and human talent, all of which will help to boost the economy in China. 

China’s thrust into Europe certainly does not mean it is losing interest in Southeast Asia, where investment continues to grow annually at double-digit figures. The European investments will complement the Asian ones, which include resources and production facilities that support China’s supply chain. Infrastructure investment is a common theme to both Europe and Asia, which will help link markets across the globe.

One of the earlier Chinese investments in Europe was the 2010 acquisition by Cosco of the major container dock in Piraeus, just southwest of Athens. The new Chinese owners pledged to spend $700 million to construct a new pier and upgrade existing docks, investments, which will have long-term benefits for the Greek economy. 

Some observers also note that the investments in European ports are part of China’s vision to create a pan-Asian network of roads, pipelines, railroads and port facilities. This will be a modern-day Silk Road that will boost East-West trade and, clearly, it will be good for Asian exporting countries such as Thailand.