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Chinese ODI

Trends in Chinese ODI in Europe: A New Stage?

20 May 2015

The EU-Asia Centre and the Brussels Institute of Contemporary China Studies (BICCS) hosted a panel discussion on ‘Trends in Chinese ODI in Europe: A New Stage?’

 

Fraser Cameron, Director, EU-Asia Centre said that as China’s economy has grown, so too has its stock of ODI. According to some figures its outward investment now exceeds its inward investment. But how is this trend affecting Europe? How should the EU react to the surge in Chinese ODI?

 

Xufeng (Jess) JIA, Research Fellow, EU-Asia Centre gave a brief summary of her report on Chinese ODI in Europe (available at here) Chinese ODI was not encouraged before China joined the WTO. Traditionally ODI has been focused on natural resources but this was now changing. The EU was not an easy market for China and there was evidence of many failures by Chinese companies in Europe. But it was a relatively risk-free environment and there were no restrictions on ODI. The growing bilateral relationship also helped the mutual investment climate. A successful BIT would further enhance this trend. From the business perspective the EU holds a leading position in terms of intangible assets such as technology, knowhow, brands and international market channels which Chinese companies can use to access the EU market. The current RMB-EURO exchange rates also helps promote Chinese ODI in Europe.

Chinese companies further benefit from various incentives from Beijing. Chinese ODI in Europe was thus set to continue to grow.

Duncan FREEMAN, Senior Research Fellow, BICCS, noted that one had to exercise caution with Chinese statistics. It was not really the case that Chinese ODI was greater than inward ODI. China was certainly not ‘buying up Europe’ although media attention on some high-profile deals could give this impression. China’s share of total ODI in Europe was quite small – under two percent. He agreed that many Chinese firms found the EU market too complex with different legal requirements, customs and languages. China was, however, interested in possible synergy between its own New Silk Road plans and the Juncker plan for infrastructure investment.

Antonio PARENTI, Deputy Head of Unit, DG Trade stressed the statistical problems of monitoring Chinese ODI as much was conducted through Hong Kong (plus Luxembourg). There were many grey areas. The EU welcomed increased Chinese ODI but trade was still by far the major component of the bilateral relationship. A successful BIT would be welcome but would not be a game-changer as regards ODI. BIT was also an essential stepping stone towards an eventual EU-China FTA.

Wen Jun CHOU, Managing Director, SERES Group said that the growth in ODI was largely due to internal factors. A more difficult and challenging domestic environment meant that Chinese companies had to take a more pro-active role in seeking overseas investment opportunities. Lower end manufacturing was being replaced by higher value products, often with an international dimension. Chinese managers and workers were becoming better educated and it was easier to obtain visas which also helped the overseas trend. Sometimes local subsidiaries required an overseas presence. Branding was an important motive for ODI. Most Chinese firms were pro-ODI but cautious in their approach.

XIE Wei, Economic & Commercial Counsellor's Office, Chinese Mission said there were three major aims in the BIT negotiations: market access, legal protection and sustainable development. Market access was the priority and the first time it had been included in a BIT. He also considered that changes regarding the rule of law in China would help European investors. He agreed the European market was not easy but Europe had many attributes of value to Chinese companies.

 

In the discussion period a number of questions were raised:

Why were Chinese companies coming to Europe? The panel considered that apart from the domestic reasons there were short-term intangible assets and longer-term market shares.

Asked if there was discrimination in how the EU dealt with the US compared to China the panel responded that the negotiations (TTIP) were different as the US-EU relationship was on a different level. The US stock of ODI in Europe was vastly superior to the Chinese.

In response to a question about public perceptions that China was indeed buying up Europe eg in Portugal and Greece, the panel said there should be more objective information about the role of China.

Asked about the possible impact of BIT on Chinese domestic legislation the panel considered that it was possible but for now too early to say.

Questioned about the impact of 16+1 arrangements, the panel agreed that China and the 16 would have to respect EU rules on issues like procurement.