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Chinese Direct Investment in Europe: Motives, Strategies, Implications

Chinese Direct Investment in Europe: Motives, Strategies, Implications. Françoise Nicolas Ifri and Paris-Est University Stephen Thomsen OECD. Trends, patterns and policies. Dynamic but still modest Heavily skewed towards Hong Kong and tax havens

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Chinese Direct Investment in Europe: Motives, Strategies, Implications

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  1. Chinese Direct Investment in Europe: Motives, Strategies, Implications Françoise Nicolas Ifri and Paris-Est University Stephen Thomsen OECD

  2. Trends, patterns and policies • Dynamic but still modest • Heavily skewed towards Hong Kong and tax havens • Concentration on services and natural resources • Different sectors are relatively important in different regions

  3. Figure 1. China’s outward direct investment and cross-border acquisitions, 1982-2006(US$ millions)

  4. Figure 3. China’s outward non-financial FDI stock by country and region, 2006

  5. Sectoral distribution of Chinese ODI stock, 2003–2006 (US$ millions)

  6. The role of the state • Three phases: • 1979 - 83: restricted ODI • 1984 - 98: gradual opening • 1999 - present: « go global policy » • How important is the state behind SOEs ’ strategies ?

  7. Chinese ODI in Europe • Still relatively insignificant (1 per cent of Chinese outbound M&As) • Greenfield more numerous than M&As but small in size • Investment in R&D rapidly rising

  8. Which sectors in which countries • Germany: electronics and machinery industries • United Kingdom: automotive sector • France: wide variety of sectors • New Member States: consumer electronics and white goods industries • Combination of opportunism and maximization of local strengths + cluster

  9. Modes of entry • Different modes of entry tend to be relatively more important in different areas • Greenfield investments: • trade representative offices aimed at supporting existing activities • common in the telecommunications industry as well as in the service industry and for the establishment of R&D centers • M&As: 3 kinds of targets • ailing or financially distressed firms • competitive niche producers • former partners or sub-contractors

  10. Drivers of Chinese ODI in Europe • Market access ranks first among the motives for ODI, … • ahead of access to technology and brands

  11. Pull and push factors • Circumvention of European import quotas, response to actual or threatened protectionism • Government policies • Overcapacity and high market shares at home • Specific competitive advantages of Chinese investors

  12. Performance of Chinese Investment in Europe • Low profitability • Post-acquisition problems • Failures (problem of selection) • Success stories • sectors where Chinese have a competitive edge • sectors where European targets are strong leaders or niche producers

  13. Implications of Chinese Investment in Europe • For Europe • Little impact • Possible positive effects (restructuring, access to the Chinese market, possibility to discharge underperforming assets, capital infusion) • Possible risks (competitive threat, lack of transparency, unfair competition, technology leakages)

  14. Implications of Chinese Investment in Europe • For China • technology transfers unlikely • parallel with inward direct investment

  15. Conclusions • Le défi chinois ? Pas encore • Caveat emptor • Acquisition of existing brands: short cut to competitiveness or dead end • For every buyer there is a seller • Old wine in new bottles

  16. Conclusions • Visible or invisible hands ? • Risk of capital misallocation • Chinese ODI as a sign of weakness, not strength

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