Experts explain China’s billion-euro shopping spree in Europe

3/1/2018 1:55:00 PM

Chinese companies are truly expanding on a global level. The large number of takeovers of international companies and brands by Chinese enterprises have attracted attention. In 2016, China has invested over €200 billion all over the world of which €74 billion was poured into Europe. Club China looks into the reasons behind the ‘shopping spree’ and lists the most high-profile deals of 2016 and 2017.

In a joint report by the Mercator Institute for China Studies (MERICS) in Berlin and Rhodium Group, researchers conclude that China’s total global outbound foreign direct investment (OFDI) jumped to almost 200 billion US dollars in 2017. The European Union continues to be a favorite destination for Chinese investors, with Germany as the largest recipient.

Why are Chinese investing heavily in their international footprint? Some experts point at China’s geopolitical strategy. By 2050, it aims to be four times larger economically than in 2000, making it by far the largest economy in the world. Growth must be achieved by two means.

‘One belt, One Road’ and ‘Made in China 2025’

Other experts point to the fact that China is building its own trade routes - the so-called One Belt, One Road programme of six corridors for trade with China. In Asia, the main focus is on building infrastructure; in Europe, China buys existing strategic infrastructure, such as the port in the Greek city of Piraeus. Roads, tracks, electricity, gas, gas and internet networks and power stations have already been purchased. Moreover, China's programme ‘Made in China 2025’ does not want to become dependent on western technology in the long run. The country wants to move towards an economy that produces its own high-tech goods and sells them worldwide.

As the initial report by MERICS was compiled earlier this year, Club China asked Max Zenglein, research associate in the economy & technology program at MERICS, for an update.

What is, in your opinion, the driving force behind the strong growth in Chinese investments outside China? “Chinese companies are expanding their global footprint, which in comparison to Western companies is still very low. Another driving factor is the desire to acquire foreign knowhow and technology through acquisitions.”

Is the study still relevant? “The study of Chinese foreign direct investment is still highly relevant. The EU is currently trying to find ways in establishing mechanisms for screening investments.”

What is the current situation, has it changed much since January? “The Chinese government has established a number of guidelines for overseas investments by Chinese companies this year.  As a result, investments into vanity objects such as football clubs or real estate have been discouraged. This has resulted in a steep reduction of investment volume. However, investments into strategic areas including finance or high tech, for example semiconductors, continue to see high activity.”

Is outbound investment from China keeping the same pace? “Outbound investment dropped by 41.9 percent in the first three quarters 2017 compared to the same period last year.”

High-value and high-profile acquisitions

The MERICS report lists some of the high-value and high-profile acquisitions: Tencent’s €6.7 billion acquisition of Finish gaming firm Supercell; Midea’s acquisition of German robotics company Kuka for €4.4 billion; HNA’s acquisition of Irish aircraft leasing firm Avolon for €2.3 billion; Shandong Ruyi Technology’s €1.3 billion investment in French fashion company SMCP Group; and Wanda AMC’s acquisition of U.K Odeon & UCI cinema group for €1.1 billion. Have a look at this list of other eye-catching investments by China in the West, in 2016 and 2017:

  • Chinese household appliance maker Haier acquires General Electric’s appliance unit for a staggering $5.4bn
  • China National Chemical Corporation acquired the KraussMaffei group, that is widely recognised as one of the leading manufacturer of machines and systems for plastic and rubber production and processing.
  • Dalian Wanda has taken over Hollywood-based Legendary Entertainment for $3.5bn (£2.5bn), the largest Hollywood takeover to date by a Chinese company.
  • For €320 million, China’s State Grid buys a 24 per cent share in the Greek high-voltage grid operator IPTO, owned by the Greek state company PPC.
  • China’s CMEC constructs a €1 billion power plant in Greece, following an agreement with PPC.
  • China Cosco Holdings Co. buys 51 procent of Piraeus harbour, the largest harbour in Greece.
  • For €830 million, China’s State Grid attempts to buy 14 percent of Belgium’s gas and electricity system operator Eandis. The deal was cancelled.
  • Chemchina buys Syngenta, the Swiss specialist in crop protection and genetic engineering, for €36.6 billion.
  • For €1.4 billion, Beijing Enterprises Holdings buys Germany’s energy and waste company EEW.
  • Jin Jiang Hotels buys 15 percent of the French hotel company Accorhotels.
  • For €1.2 billion, China Three Gorges Corporation buys 80 percent of German Wind MW.
  • For €925 million, Chemchina and Guoxin buy injection moulding company Kraussmaffei.
  • For £1.4 billion China’s Ctrip buys the British air travel website Skyscanner.
  • China General Nuclear invests £18 billion in a 33 percent share of a nuclear power plant in Somerset (UK), from French enterprise EDF, plus the right to build a second nuclear power plan in Bradwell (UK).

2017

  • China’s CC Land buys skyscraper Cheesegrater in Londen for £1 billion.
  • China’s Yitai Capital buys UK microchipmaker Imagination Technologies for £550 million.
  • Beijing Capital Agribusiness Group (Sunlon) and CITIC Agriculture buy UK agritech enterprise Cherry Valley Farms.
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