Chinese investment in Europe triples
June 11, 2012 Category Foreign investment, Weekly
Chinese direct investment into Europe tripled in 2011 to USD10 billion, according to a new study that estimates Chinese companies are in the early stages of a global shopping spree that could see them spend as much as USD250 billion to USD500 billion in the region by 2020. Although total Chinese outbound direct investment (ODI) is still small compared to the size of its economy, most analysts believe the country is on the verge of ramping up its spending abroad, with Europe seen as one of the most attractive markets, according to a study by Rhodium Group, the Financial Times reports. Chinese ODI is expected to reach USD1 trillion to USD2 trillion between 2010 and 2020 and the study expects around a quarter of that will go to Europe through mergers and acquisitions (M&As) or greenfield investments. Chinese companies are most interested in buying European technology, brands and high-end manufacturing. Separate studies by A Capital, a private equity firm that helps Chinese companies invest abroad, support Rhodium Group’s estimate. “At current growth rates and without a change in Chinese government policy we expect an additional USD800 billion in outbound Chinese direct investment in the five years from 2011 to 2016,” said André Loesekrug-Pietri, Chairman of A Capital. Europe was the number two destination for Chinese outbound direct investment in the first quarter of 2012, after South America. Chinese investment to Europe reached USD1.7 billion in the first quarter and represented 83% of all outbound Chinese non-resources deals. “Our dataset shows a profound post-2008 surge [in Chinese outbound investment to Europe] which the official data sources are missing,” said Thilo Hanemann, Research Director at Rhodium Group and co-author of the report. “The absolute values remain small compared to Europe’s total inward FDI stock, but the change in trend line is what matters.” The report estimates that Chinese direct investment in Europe averaged less than USD1 billion each year from 2004 to 2008 but then tripled to around USD3 billion in both 2009 and 2010 before tripling again to almost USD10 billion last year.
State-owned companies accounted for 98% of all deal value in the first quarter, a new high and up sharply from 53% in the first quarter of 2011, A Capital estimated in its quarterly Dragon Index on China’s outbound investment. Resources and energy deals accounted for 92% of the total, up from just 24% a year earlier. The dominance of state-owned firms in the first-quarter figures “show more difficulties for private firms to seize large opportunities in an environment characterized by both volatility and strong competition for good assets,” A Capital said in the report. South America was the top destination for investment during the first quarter, at 43% of total foreign merger-and-acquisition activity by Chinese companies. So far, the top five Chinese private investors in Europe are Geely, Huawei, Lenovo, Sany and Wolong Group. Chinese investment has created 45,000 jobs in the EU.
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