FDI IN CHINA
Chinese investment in Europe is nine times greater than in the US. And this staggering difference is heavily influenced by the Trump administration as they tackle China economically, and as Beijing creates tighter capital controls.
China ‘going global’
China’s Going Global strategy of 2000 marked a turning point in outward foreign direct investment (FDI). Prior to this strategy, China promoted inward investments to help grow their economy, and outward flowing investments were very restrictive.
But times have changed, and they seek to become an innovation-driven economy over an investment-driven one.
This strategy has seen a revamp, labeled ‘going global 2.0’ where the focus has shifted from solving resource security and protecting the China model, to stimulating global demand and blending with local operators.
These changes brought an influx in FDI globally, and one point of focus has been the investment in Europe, specifically the peak of investment in 2016 of over EUR 35 billion.
In the beginning, larger economies in the EU were not too concerned about the influx of investment in the EU. But the recent (and rather large) increase in 2016 promoted EU powers to take a second glance at the ulterior motive of China.
The main reason for this skepticism comes as the reciprocity in FDI is lacking.
Investment from China in Europe remains relatively unblocked, but investment in China still contains roadblocks with tight capital control over specific industries meaning that inward investment remains difficult.
It has prompted the EU to take a closer look at these investments and acquisitions starting with a more thorough screening of Chinese investments, and in some cases, putting restrictions. For example, Germany, for the first time, blocked the sale of Leifeld Metal Spinning during the summer of 2018, sending a strong message.
In 2003 France introduced legislation allowing the government to veto FDI deals, with the scope of industries increasing as time has passed. But in Germany and the UK, screening process have only recently been adopted, with the UK focusing on “sensitive” industries.
And as of yet, only a couple handfuls of EU countries have adopted screening processes.
Because of the vast cultural, political and economic difference within the EU, it is difficult to strike a common approach to FDI, especially when it is coming from China.
And it is easy to view the deals in a pessimistic light, as China is constantly vilified in the news for their foreign investments.
The reality is that Europe is in need of investment, and there is a lot of potential for China to invest in European countries. The question is whether both powers will profit?
It could help to level the playing field if China is to take lessons from the developed economies that they are investing in.
To put it into perspective, the two have a strong relationship. The outward Chinese investment into Europe between 2009-2017 totaled approximately €300 billion!
Where are the investments going?
The Made in China (2025) policy has prioritized the development of sectors. The policy has set firm market share goals in software, intelligent manufacturing, and integrated circuits.
This is in an effort to assist in industrial development, but overseas expansion in ICT is proving difficult because of concerns over national security.
For example, the US banned components from Huawei, the Chinese technology company, in U.S. telecom infrastructure in 2012.
Even so, they will continue to acquire technology companies as they dominate the aerospace, robotics, and AI industries.
Investments in EU companies
To understand more, the table below details investments in European companies and startups. It answers questions like: where has the investment come from, who did the investment go to, and how much was invested?
It is evident from the data below that the majority of investments in Europe are being poured into Central Europe.
There have been a number of high profile companies that have received investments. For example, Spotify, Aston Martin, and Daimler to name a few.