Chinese direct investment in Europe

China’s foreign direct investment in 2016 reached US $ 170.1 billion, an increase of 44.1% compared to 2015. We can see that China’s overseas direct investment is in a period of rapid growth.

As Michael DeFranco, global head of M&A at Baker & McKenzie, mentioned, more than 50% of the China FDI in Europe happened in the past three years, as a result of globalization and the development of Chinese economy. In the article Inand Outflow of Foreign Direct Investment, we already mentioned that China’s FDI in Europe mainly started during the 2007/08 financial crisis, as many European companies, which got into trouble then accepted capital from China’s enterprises. It also mentioned that in 2012, “the acquisition of the German manufacturer of concrete pumps Putzmeister by China’s SANY Group in 2012 marked the beginning of increased M&A activities of ailing SMEs as well as family-owned businesses in Europe with market leading technology.”

Nowadays, Chinese investment in Europe mainly focuses on the access of world leading production technology, and in North America mainly focuses on IT technology and products. But for Europe, 2016 is a record year as Chinese investment in Europe in the IT sector outstripped North America as the main investment destination, although North America is historically the world leading region in the IT sector. Not only was there a heat of IT deals in Europe, but China also invested in communication technology, transportation, utilities and infrastructure in Europe in 2016.

China’s FDI mainly focuses on Germany, Switzerland and the UK. In Germany and the UK, Chinese investment accounted for 46% of all the European countries. According to statistics from the Chinese Ministry of Commerce, China invested 2.945 billion US dollar in Germany in 2016, that is 258.6% more than 2015. In 2015, the YoY increase of Chinese investment in Germany was even 351.3%. Whereas China’s investment in the UK increased by 130% in 2015.

Chinese direct investment in Switzerland almost quadrupled from 2015 to 2016 from 1.3 to 4.8 billion Francs. Even though in Europe, Germany and UK are the biggest recipients of Chinese FDI in 2016; Switzerland could have been the biggest one if the acquisition of Switzerland’s Syngenta Basel agrochemical group by ChemChina would not have been delayed. For 2017 it is very much possible for the small country of Switzerland to be the top destination of Chinese FDI in Europe.

In recent days, the main reason for Chinese investment in Europe is to get access to advanced technology, brands as well as supply and sales channels from European enterprises in order to increase its domestic and international competitiveness and to enhance the company image. Among all the European countries, Germany’s high-tech technology is the most popular in China. China’s investment in Europe is mainly focused on M&A, but recently greenfield investment is also growing rapidly. According to the German foreign investment report of 2016, China has become the largest source of greenfield investment in Germany for the third consecutive year. Chinese enterprises in the Greenfield investment in Europe are mostly concentrated in the machinery manufacturing industry and the automotive industry.

For the future development of China’s investment in Europe, Professor Dr. Pi from the University of Nanjing mentioned that the selection of different types of investment into Europe should be base on the characteristics of the enterprises. The “Geely case” is a typical example. The car manufacturer Geely Auto combined M&A and greenfield investment in their investment in Europe. After they have accessed the technology from the acquired company, a technological production base was set up by Geely in Europe which has achieved remarkable success.

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