Can We Do Without Chinese Capital
In 2016, Chinese foreign investments (FDIs) set a new record of nearly US$200 billion. This is about one-sixth the total global FDI. China’s foreign investment now exceeds the amount of money that multinational companies from other countries invest in China.
Investors from China initially focused on natural resource in particular in Africa, and developing countries. However, their focus is now shifting to manufacturing and service in Europe and America.
Europe is the main focus of Chinese investors, particularly Italy, France and Germany. Chinese investments in Europe grew by more than twofold between 2014 (EUR14billion) and 2016 ($35billion). No sector is immune. From tourism to real estate, cars, food, fashion and energy.
China is on the verge of surpassing the US in terms of the global economy. Petar Kudjundzic/Reuters
What is the Chinese company looking for when they acquire?
They first seek patents and brands, then know-how. This is in line with the ” made in China 2025 ” plan that was adopted by the government in 2015. The main goal of Chinese companies is to increase their supply in the domestic market, where foreign brands are in demand, and meet a growing middle class, which is more demanding in terms of safety, quality, and image. The powdered-milk factory, currently being built in Brittany and whose production is all destined for China is an example.
Does this activism cause concern?
Yes, quite a few. There is particular concern over the role of state owned enterprises which are viewed as a tool for political pressure. Europeans are concerned about the possibility that China could control major infrastructure such as electricity distribution or sensitive technologies.
The European industrial system is also threatened by the fear that these companies will transfer their production to China, where there are few social protections and where labour standards and environmental standards are not respected.
Finally, there is outrage over the asymmetry between the European market, which is open to Chinese companies, and the difficult-to-penetrate Chinese market. China’s investments in Europe have soared, while Europe’s in China are stagnant.
What is the cause of this anxiety?
Germany and China are the two countries where tensions are most prominent. Berlin has blocked the purchase by two German high-tech companies at the end of 2016. Aixtron is a semiconductor equipment manufacturer and Osram Lighting, a subsidiary.
There’s nothing comparable in France. Chinese acquisitions have multiplied since Dongfeng Motors purchased 14% of French multinational automaker PSA in 2014. China Investment Corporation also bought 30% of French utility GDF-Suez. In 2015, Chinese companies acquired the Toulouse Airport, the Louvre Hotel group and the French resort group Club Med.
In the last year, we have seen the growth in Chinese capital, both in hotels (Accor Hotel) and leisure properties Pierre & Vacances as well as in the acquisition of a major stake in the SMCP fashion group (Sandro Maje Claudie Pierlot). The operations were met with mixed emotions, ranging from satisfaction to mistrust. They also prompted the authorities to be more vigilant.
Qi Ji (left) and Sebastien Bastien Bazin, CEO of French Accor, pose in Paris on December 15, 2014. Philippe Wojazer/Reuters
In Italy the phenomenon is less controversial. However, Chinese investments are significant in many sectors. They control Pirelli as well as several high-priced fashion or machinery firms. Furthermore, they have a significant stake in the energy sector (40 % of Ansaldo Energia, 35 % of CDP Reti).
How do we encourage reciprocal openness in Europe and China?
The first step is to implement reliable and transparent global rules that guarantee equal treatment for all companies, local or foreign. This is not the case at present in China.
Second, we should establish common European principles. What can be done if an investment is motivated by aggressive industrial policy and supported by public subsidies? How can we prevent a race to the bottom between EU member states, where each lowers the requirements facing Chinese groups wanting to set up in Europe?
As we’ve seen, the rise of China’s overseas investment is a manifestation of its growing economic power. It has caused many to be concerned. For European companies, it’s a source of funding that allows them to grow. The closing of borders could lead to an escalation, especially at a moment when Donald Trump repeatedly said the US and China were in a war.
Unquestioning optimism also isn’t the best thing. France, like many other European countries such as Germany, has legal protection against certain foreign investments. The lack of a European-wide policy on this issue will likely give the Chinese the upper hand.