Chinese companies are increasingly buying into European companies. The German medium-sized companies are also in the focus of the state-owned companies from the Middle Kingdom. However, they are still far behind the Americans.
China and Europe have long been reliable trading partners. What has changed over the past decade is China’s growing presence in European investment. Chinese direct investment in the European Union (EU) has grown nearly 50-fold in just eight years, from less than $840 million in 2008 to a record high of $42 billion in 2016as from the Rhodium Group statistics emerges. However, China’s global overseas M&A activity fell to a 13-year low in 2020 as completed merger and acquisition (M&A) a total of were only 25 billion euros, down 45 percent from 2019. The current situation reflects a paradigm shift in Sino-European relations that needs to be carefully assessed in terms of its economic and geopolitical implications for Europe.
China’s interests in Europe are diverse – from access to new technologies, high-tech resources and knowledge to broader commercial access to the European market and access to third markets (such as the United States) through European business networks. Chinese investors are looking to brand names to improve the marketability of their products, both domestically and internationally, playing a key role in integrated regional and global value chains. China is aware that it can increase its political and diplomatic influence in Europe by taking strategic steps to become a major economic player in the wider region.
More than 350 European companies taken over by China
While European investment flows to China have historically outpaced Chinese investment flows abroad, the tide has turned rapidly since 2014, driven by Chinese foreign direct investment (FDI) in the EU. In 2016, Chinese new investment in the EU was more than four times (reaching a record €35 billion) European FDI in China (€8 billion). Total Chinese investment in Europe, including mergers and acquisitions (M&A) and investment in new companies, was $348 billion in 2018, and China has taken over more than 350 European companies in the last 10 years.
Of course, China’s share of direct investment in Europe is still small at 2.2 percent compared to the market-leading 38 percent of the United States. Also, EU countries’ share of total foreign direct investment in China was only 4 percent in 2016, compared to 36 percent of total foreign direct investment in the United States. Although Chinese investment in the EU is still comparatively low, it is rapidly evolving and growing at unprecedented rates.
In the eyes of Chinese investors, Europe is divided into three distinct zones: West, South and East, which differ in terms of economic prosperity, technological advances, geographical location and institutional framework. This perspective leads to a diversified strategy for Chinese investment in Europe, with an emphasis on equity investment in the core of the EU complemented by large infrastructure development projects in the outskirts.
In Western Europe, Chinese investors are targeting Europe’s strategic assets and research and development networks, with the largest and wealthiest European countries attracting the most investment. The UK (US$70 billion in Chinese direct investment), Italy (US$31 billion), Germany (US$20 billion) and France (US$13 billion) accounted for 75 percent of China’s total investment in the EU market each year 2017
In southern Europe, Chinese companies have used the economic crisis and its aftermath to focus on large-scale privatization processes and post-crisis restructuring. In Italy, Chinese direct investment has skyrocketed since 2014 and stands at nearly 5 billion euros ($5.7 billion), about 10 percent of total Chinese investment in the European stock market. In 2015, China’s acquisition of Pirelli made Italy the top destination for Chinese direct investment in Europe. This gave China access to one of the world’s major car tire manufacturers and entered the replacement tire market – a segment that until recently was dominated by the major European and Japanese brands. However, ChemChina reduced the shareholding again after two years under 50 percentto meet the concerns of Europeans. In Greece, the Chinese state-owned company COSCO Holdings Company has acquired a 67 percent stake in the port of Piraeus, Europe’s largest passenger port. With Piraeus now considered China’s “Gateway to Europe”, shipping times for Chinese goods have been cut by a week.
In terms of inflows of investment per capita in Europe, Portugal is the main recipient of Chinese investments with an inflow of almost 9 billion euros. China got involved in Portugal after the 2010 financial crisis, investing in a wide range of strategic assets such as power, transportation, oil, financial services, insurance, healthcare and real estate.
In Central, Eastern and Southeastern Europe, China operates the “16+1’ (formerly 17+1 or CEEC+China), which brings together a very diverse group of EU and non-EU members. In this region, purchase prices are lower, demand for concessional loans is high, human capital is cheap, and concessions for Chinese investors are simplified. But above all, the strategic location is perfect. Central and Eastern Europe is an ideal match for China’s key targets: transport networks for the Belt and Road Initiative and investment targets for further capital expansion in the EU. However, Chinese investment in the region is a small percentage compared to the core EU countries.
China is not exactly an easy partner for the EU. Controversial issues include intellectual property rights, price distortions due to subsidized dumping, unequal conditions for market access and discrimination against EU companies in Chinese government tenders. There is also the question of reciprocity, where sectors such as finance, telecoms, logistics and public procurement are reserved for foreign investors in China but open to Chinese investors in the EU. This reinforces the political aspect of asymmetric market access. The sheer volume of investment — more than 70 percent coming from Chinese state-owned companies backed by the government — overwhelms and confuses policymakers to see the implications for European sovereignty and security.
Many European economies, which have still not fully recovered from the eurozone crisis, have viewed Chinese investment positively as a source of financial capital and hence a means of growth, tax revenues, employment, infrastructure development and market opportunities. Only in recent years have some concerns emerged as European capitals struggle to strike the right balance between core principles of economic openness and security concerns related to the growing Chinese presence in Europe. Concerns include the perceived role of the Chinese state in the economy, the lack of reciprocity and fair competition, the risk of losing national competitiveness and technological leadership, and more traditional security concerns related to critical infrastructure, strategic goods and defense technologies. But the transfer of knowledge and technology via the patents of the companies taken over also plays a certain role.