Outbound Chinese Capital Spurs European Economy
The distribution of Chinese investment in Europe covers almost all the fields that agriculture, industry and service encompass. Within the EU industrial structure, the service industry accounts for 71 percent, industry for 27 percent and agriculture for two percent. Service and manufacturing are consequently the focus of Chinese investment in Europe. In 2012, the three sectors in the EU in which China held the highest FDI stocks were the rental and commercial industry, finance industry and manufacturing industry, according to Ministry of Commerce statistics. To be specific, China’s direct investment stocks in the rental and commercial industry stood at US $9.667 billion, accounting for 30.7 percent of the total, mainly distributed in Luxembourg, the U.K. France, Germany, Sweden and the Netherlands. FDI stock in financial industry amounted to US $6.638 billion, accounting for 21 percent of the total, mainly distributed in the U.K., Luxembourg, Germany, France, Italy and Hungary. And at US $6.302 billion, manufacturing industry FDI stock accounted for 20 percent of the total, mainly distributed in Sweden, the U.K., Germany, the Netherlands, France, Italy, Spain, Austria and Hungary. It is notable that although the EU has limited natural resources, certain transnational mining companies either go public or set up their headquarters in Europe. Cooperating with those companies has given Chinese enterprises the chance to invest in the mining sectors of EU countries. In 2012, therefore, Chinese FDI stock in EU mining sectors reached US $3.793 billion, accounting for 12 percent of the total, mainly distributed in France, the U.K., the Netherlands and Luxembourg.
The two broad divisions of international FDI consist of establishment of new overseas subsidiaries (greenfield investments) and acquisitions of controlling stakes in existing companies (mergers and acquisitions – M&A). China’s investments in Europe have mainly been the latter. From 2000 to 2011, China’s FDI in the EU totaled US $20.958 billion, greenfield investments accounting for US $5.307 billion, or 25.3 percent, and M&A for US $15.65 billion, or 74.7 percent of the total, according to Rhodium Group statistics.
The types of Chinese investors in Europe include state-owned enterprises, mixed ownership companies, private companies and individuals. As regards investment scale, state-owned enterprises and state-owned holding companies are at the higher end. From 2000 to 2011, China’s FDI in the EU’s 27 countries totaled US $20.958 billion, among which US $15.151 billion was from state-owned enterprises and sovereign wealth fund, accounting for 72 percent of the total, as compared with US $5.807 billion from private enterprises and private holding companies, accounting for 28 percent. Since the establishment of the socialist market economy, Chinese private enterprises have grown stronger and played a more important role in China’s FDI. Private enterprises and private holding companies completed 573 investment deals in the EU from 2000 to 2011, making up 63 percent of the total, according to Rhodium Group statistics.
Impact on the European Economy
The outbreak of the global financial crisis and the European debt crisis dramatically reduced European enterprises’ liquidity. Chinese enterprises, however, bucked the trend by significantly stepping up their investments in Europe, so alleviating to some extent European companies’ financing difficulties and liquidity shortages. From 2009 to 2011, China’s FDI in Europe steadily climbed, reaching US $2.966 billion in 2009, five-fold that in 2008, and hitting US $7.561 billion in 2011.
Statistics from various sources show that China’s investment has expanded employment opportunities in European countries. Chinese Ministry of Commerce statistics show that by the end of 2012 China’s FDI in the EU had set up around 2,000 enterprises employing 42,000 locals. By the end of 2012, Chinese enterprises in Europe had grown from 4,525 in 2010 to 7,148. Jobs for locals consequently soared from 27,381 to 123,780, according to the Euro-China Investment Report 2013/2014 released by the Antwerp Management School. An analysis of these figures from an investment theory perspective shows that jobs resulting from M&A projects are on a smaller scale than those from greenfield investments. But what must be taken into account is that Chinese enterprises conducting M&A deals usually allow companies to retain their original operational systems, and never lay off employees. On the contrary, after expanding the operational scale, they add new positions. For instance, in 2010, China’s Geely signed a purchase deal with Volvo worth US $1.8 billion. Geely both preserved the existent 16,000 jobs and boosted investment in relevant industries in Sweden and other European countries, so creating new jobs. It is a fact that small European enterprises that have either merged with or been acquired by Chinese enterprises enjoy improved business and expanded scale, and hence hire more workers. For example, after its takeover by the Beijing No.1 Machine Tool Plant the German mechanical manufacturing company Waldrich Coburg increased its employees from 500 to 800.
In recent years, domestic and external factors have caused lackluster industrial competitiveness and declining labor productivity in European countries. Since the European debt crisis, Europe has experienced slowing economic growth and serious social problems that have impeded development of its advantageous industries. A typical example is that of depleted traffic in the Port of Piraeus, Greece’s largest container port.
On June 12, 2008, the China Ocean Shipping Group (COSCO) won the privatization tender for a 35-year concession to run Piers 2 and 3 at Piraeus Port for a price of € 3.4 billion. After signing the relevant agreements with the Piraeus Port Authority, on September 30, 2009, COSCO started managing the two container terminals. The group provided retraining for Greek port workers that streamlined their efficiency, enabling them to up their rate of loading and unloading from six to 22 standard containers per hour, so surpassing the European port average. Dora Bakoyannis, then Greek Minister of Foreign Affairs, said in an interview with Xinhua News Agency that COSCO’s operation of Piraeus Port in the coming 35 years is expected to earn Greece €4.3 billion in revenue and create about 1,000 jobs, as well as achieving a 2.5-fold increase in the port’s handling capacity.
China’s investments thus help European companies to expand their share in the global market. In August 2012, China’s Sany Group bought the world famous German engineering machinery manufacturer Putzmeister, established in 1958, a company whose concrete pumps had sold well around the globe since the 1970s. In 2009, Sany Group surpassed Putzmeister to become the world’s largest concrete machinery manufacturer in terms of sales volume. After completing the acquisition, Sany Group helped Putzmeister expand its scope of products from concrete pump vehicles to mixer vehicles and cement mixers, so extending the product line. As Putzmeister CEO Norbert Scheuch said, “The acquisition has perfectly enriched our product combination.” KHL Group, a world leading supplier of international construction information, also believes that the acquisition has enabled Putzmeister to expand its influence in the global concrete machinery market.
Chinese investments are conducive to raising the asset value of European enterprises. Market rules stipulate that prices climb as demand increases. Although the European debt crisis lowered the stock price of certain European enterprises, the arrival of Chinese enterprises on the continent raised the demand for European assets and consequently their price. Governments of European countries having the advantage when selling the stock equity of public sectors, transactions are completed at a higher price.
