Figure 1. China

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

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Figure 1. Chinas outward direct investment and
cross-border acquisitions, 1982-2006(US
millions)
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Figure 3. Chinas outward non-financial FDI stock
by country and region, 2006
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Sectoral distribution of Chinese ODI stock,
20032006 (US millions)
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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 ?

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Chinese ODI in Europe

• Still relatively insignificant (1 per cent of
  Chinese outbound MAs)
• Greenfield more numerous than MAs but small in
  size
• Investment in RD rapidly rising

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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

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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 RD centers
• MAs 3 kinds of targets
• ailing or financially distressed firms
• competitive niche producers
• former partners or sub-contractors

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Drivers of Chinese ODI in Europe

• Market access ranks first among the motives for
  ODI,
• ahead of access to technology and brands

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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

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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

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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)

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Implications of Chinese Investment in Europe

• For China
• technology transfers unlikely
• parallel with inward direct investment

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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

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Conclusions

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