Chinese investment in Europe is at record levels and 50% higher than the US level. With 153 different investments worth $ 18 billion last year, Europe has become one of the main destinations for foreign investment from China to worldwide. The UK is the main destination and $ 55 billion has been invested in Europe in five years, but IDA Ireland, the inward investment agency of Ireland, has not yet had an impact.
Baker & McKenzie, the global law firm, says that the use of a single database of acquisitions and investments in new facilities provided by research firm Rhodium Group, the new report, Reaching New Heights, paints the clearest picture so far of Chinese investment in Europe. The full report will be released in March with Chinese investment bank CICC.
Rhodium Group United States said last month that Chinese investment in the US Over the past 12 months was $ 12 billion, surpassing the mark of the $ 10 billion for the second consecutive year. The number of M & A transactions reached a new record high in 2014 as smaller deals and financial interests are becoming an important driver of investment activity.
Meanwhile, The Wall Street Journal reported today that US companies in China have expressed growing concern over what they see as a growing anti-foreigner sentiment and operating conditions increasingly difficult as the growth of jobs in the economy slower.
An annual survey released on Wednesday, about 500 members of the American Chamber of Commerce in China found that most companies believe that foreign companies have been the target of investigations of widely publicized government for a range of anti-competitive practices.
Many of those companies that see themselves as objective that it had reduced its interest in making new investments in China.
"The Chinese investment in Europe has become more diverse in recent years and now extends throughout Europe," said Thomas Gilles, president of the China Group EMEA and Baker & McKenzie. "What we're seeing is the maturation and standardization of processes of Chinese investment in line with the international economy."
In 2013 investment levels fell as energy supplies and materials were reduced. However, investment rebounded to record levels in 2014. While opportunities of crisis and low valuations still play a role, consistently high levels of investment in a growing number of sectors and countries in which the assets no longer look cheap suggests that Chinese FDI in Europe is a structural trend, not just a cyclical phenomenon.
Chinese FDI in Europe barely existed until 2004 and then an average of less than $ 1bn a year. Then in 2009, investment flows tripled to nearly $ 3 billion, three times before again in 2010 to over $ 10 billion. $ 55 billion has been invested since 2009.
How the Chinese are investing in the EU
The Baker & McKenzie report says that over the past decade, most Chinese enterprises have increased their presence in the EU market through greenfield projects and expansions (69% of all jobs). However, most investment value is attributable to acquisitions (86% of total value), as these transactions are greenfield projects and expansions generally more capital intensive.
In the last three years the average value of greenfield projects has grown. Previously mostly smaller administrative offices and operations, Chinese companies have begun to invest in new projects with large capital investments, including Scandinavia D research and development, food processing facilities in France, real estate developments in Britain, and machinery production in Germany. Companies have also increased spending on the expansion of existing facilities in Europe, including chemical plants, warehouses and other transport infrastructure.
The composition of mergers and acquisitions has also changed substantially since 2011. An important trend is the growing importance of small and medium mergers and acquisitions, often by financial investors. While mega deals over $ 1bn continue to dominate total investment of Chinese input, small deals (below $ 100 million) and transactions midmarket (between $ 100 and $ 1bn) grew particularly strong since 2011 . More importantly, they are less prone to annual fluctuations that large-scale transactions and provide further confirmation of the structural expansion of the private sector in China in Europe.
Gilles Thomas said: "The increase in venture capital funds and other financial investors in the Chinese space investments abroad is driving a change in investment strategy completely to hand the property as well as the finding that minority interests often can help preserve and create value for less experienced Chinese investors. "
Countries of choice: invest for the long term
Since the turn of the century, the four countries that have attracted more Chinese investment are the United Kingdom ($ 16 billion), Germany ($ 8.4bn), France ($ 8 billion) and Portugal ($ 6.7bn), followed Italy ($ 5.6 billion), the Netherlands ($ 4 billion), Hungary ($ 2.6 billion), Sweden ($ 2 billion), Spain ($ 1.5bn) and Belgium ($ 1.2 MIL).
While 70% of the investment in the last decade has been to economies that emerged relatively unscathed from the crisis, the last three years have seen a significant Chinese interest in the privatization of state-related industries, such as public services and logistics in countries like Portugal, Italy and Spain.
"Chinese investors are clearly taking the opportunities that might arise in markets go through difficult times, but also see great benefit in investing in the most stable countries, where there are strong economic ties with China through trade and existing tourism "said Zhang Danian, chief representative of the Shanghai office of Baker & McKenzie. "They are making a long-term bet on the European economy."
Ireland is not among the top 67 destinations of Chinese FDI issuer in 2014
Sector evolving and maturing
Chinese investment in the EU are spread across a range of sectors. Throughout the period 2000-2014, the main recipients of Chinese capital were energy ($ 17 billion), automotive ($ 7.7bn), agriculture ($ 6.9bn), real estate ($ 6.4bn), equipment ($ 5.3bn), and information and communications technology (3.5 million).
Toby Clark, director of Investment Banking CICC Europe, explains: "The mix of Chinese investors industries are interested in has changed rapidly, reflecting the changing position of Chinese enterprises in global value chains and the evolution of policy framework for China's outward FDI. "
Before 2011, the entrance to the EU market was motivated mainly by considerations of trade facilitation and the desire to access technology in sectors such as automotive and industrial equipment. In 2011-2012, the promotion of technology and other assets that foster competitiveness increased, but the energy and materials became the main drivers of investment activity since SOEs have seized opportunities to buy companies European mining, energy assets and utilities. In 2011 and 2012, Chinese companies spent a total of $ 11 billion on fossil fuels, renewable energy and utility assets in Europe.
We report says this changed dramatically in 2013 and 2014 as Chinese investment in energy assets collapsed to $ 5 billion for the two years combined as the appetite of SOEs on foreign energy assets decreased and radical changes in the intensive growth model of resources and renewable energy projects became less attractive due to cuts in feed-in tariffs in many European economies.
On the positive side, the commercial real estate has offset part of the investment of energy in decline. From virtually zero before 2013, Chinese investment in European commercial real estate rose to $ 2.8 billion in 2013 and US $ 3 billion in 2014, excluding future development costs. A drop in the Chinese domestic market in 2013 and 2014, and the rise of the Chinese population abroad during the same period - tourists, students and immigrants - were the main drivers of real estate outward FDI. The liberalization of policies for investments abroad by institutional investors such as sovereign wealth funds and insurance companies also contributed to increased investment in real estate.
Other industries that have shown above trend in 2014 compared to previous years are financial and business growth, agriculture and food, and transportation and infrastructure. Financial and business services in the EU received more than $ 2 billion investment, especially in the last two years, driven by financial liberalization in China and new business opportunities related to the internationalization of the Chinese currency, the renminbi (RMB).
"Although from a small number of basis, investments in the food more than quintupled in the past three years, with several large motivated by the desire to acquire know-how, technology and brands to feed the fast food market acquisitions growth in China. investment in transport infrastructure and also reached over $ 2.4 billion through the end of 2014. the increase in investments in air and port services business lines was driven by the increase in tourism, trade and Chinese business activities in Europe "