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Chinese ODI in Europe: Trends and Implications for the EU

By Jess,Xufeng JIA

15 May 2015

China is steadily increasing its stock of ODI in Europe, from €6.1 to €27 billion between 2010 and 2014, a trend that is generally encouraged by EU governments affected by the financial crisis. The first quarter of 2015 witnessed a surge of Chinese ODI that suggests even stronger growth this year. Europe began to receive significant Chinese ODI from 2001, when China started to deregulate its overseas investment and to encourage its national champions to ‘go-out’. Chinese ODI in the EU can be roughly divided into the pre-crisis stage (2001-2008), the crisis stage (2009-2012) and the post-crisis stage. The first stage was the testing stage for Chinese companies and triggered by domestic deregulation and China’s accession to the WTO. The second stage started when the financial crisis hit the EU. The Chinese government encouraged and facilitated Chinese companies’ ODI ambitions in Europe and many member states viewed Chinese ODI as a potential economic saviour and competed to attract investment from China. The third and current stage sees a more selective approach from China focusing on quality infrastructure projects and brand names.

From 2013, with the new leadership changes in China, we see a significant rise in ODI as China pursues its goal of securing natural resources and diversifying away from its massive dollar holdings. Chinese ODI was also fuelled by slowing demand at home. In 2013 negotiations began on a Bilateral Investment Treaty (BIT) with the aim of providing more security and stability for both sides. It is likely, therefore, that we are moving to a ‘new normal’ as regards Chinese ODI in Europe.

Unlike the US, Chinese investors face few barriers in the EU. EU-China relations provide a conducive background to increased investment (absence of geopolitical rivalry, BIT, New Silk Road). The EU holds a leading position in terms of intangible assets such as technology, knowhow, and brand names. Although the EU market offers a lower rate of return, it is still the primary choice for many risk-averse Chinese investors. The current exchange rate is also favourable to China. Chinese ODI is supported financially through several government agencies such as MOFCOM, NDRC, as well as various state banks. Although China is not ‘buying up Europe’ it will be important to monitor the rapid growth in Chinese ODI for potential political and economic implications (16+1 group). It is an open question whether the EU should establish a screening process for ODI in sensitive sectors. A BIT will help address market access problems facing EU companies in China, but it will be of limited influence in attracting high quality Chinese ODI to the EU. In the long run, a tailored and EU-wide investment policy that helps Chinese investors overcome the hurdles they have in entering mature markets would be helpful in sustaining Chinese ODI flows.

The full report is as attached below.

 



Chinese ODI in Europe: Trends and Implications for the EU