The Flanders-China Chamber of Commerce organized a webinar focused on Financial Incentives for Investing in China on 2 December 2020.

Ms. Gwenn Sonck, Executive Director of the Flanders-China Chamber of Commerce and the EU-China Business Association welcomed the participants to the webinar, organized together with the Chamber’s structural partner Flanders Investment & Trade. 

Mr. Koen Van Loo, CEO, Federal Investment Corporation (SFPI-FPIM), presented SFPI-FPIM, which was founded in November 2006. It is a common wealth fund with 100% of the shares owned by the Belgian State and also a holding and national investment company. The corporation executes special assignments for the Belgian government, mostly in times of crisis. The focus is on Belgium-related projects, in Belgium, but also abroad if there is a link with Belgium. Focus areas are innovation or the new economy. The company has heavily invested in aeronautics – aviation and airports – which unfortunately has been heavily impacted by the Covid pandemic. The company also has positions in strategic networks. In Belgium there is a new focus on energy transition projects, mobility and social-impact investments. SFPI-FPIM had €2.4 billion of assets at year-end 2019 and €14 billion of assets under management for the Federal State. It has over 120 participations, about one-third of which are indirect investments through funds. Investment criteria include a ticket size for new investments of €5 million or more. There always is an equity part, but the company prefers not to be the lead investor but taking a minority share at the same time as the private investor under the same conditions to avoid state aid issues.

The company is actively looking for collaboration with regional investment companies in Belgium and has excellent relations with PMV, SRIW and Finance Brussels. It is a long-term investor, a so-called “patient capital” group, and also seeks to help Belgian companies grow internationally. It is a lean organization with only 20 staff members and 7 investment managers. Looking at the sectors, the company is active in real estate, finance, aeronautics and health. This year it added impact investing, energy & utilities, and transport & mobility, without abandoning its existing focus areas. The focus areas are built upon enablers, with the emphasis on innovation, even within traditional sectors, and also on sustainability. Current international activities are limited to the BRICS countries, although there has never been a deal with the Russian counterpart. In China, the company is active in two investment funds. The China-Belgium Direct Equity Investment Fund is very successful and is still investing. If there are Belgian or Chinese companies looking for private equity partners, they can contact the Fund. Those looking for venture projects can contact the other fund, Datang Venture Capital Fund. SFPI-FPIM is also active in Brazil and India and will position itself in the future more as a direct investor in the sectors mentioned, always together with a Belgian company. One example is the gas distribution company Fluxis investing in an LNG terminal in a Chinese port. The company has a 60%-plus share in SBI-BMI, which will be presented next and is very complimentary to SFPI-FPIM. 

Mr. André Deltenre, CEO, Belgian Corporation for International Investment (SBI-BMI), first presented the mission statement of SBI-BMI: to provide capital and know-how for international investments made by Belgian private sector companies. It is an outbound organization, investing abroad. SBI-BMI will next year be celebrating its 50^th anniversary. The company complements FPIM-SFPI’s global mission and focusses on Belgian companies which bring added value to the Belgian economy. It would not support delocalizations but rather support Belgian companies in their international strategy. The fact that SBI-BMI is a government-related institution creates a certain trust for Belgian companies as well as for the country where the investment is realized. The corporation does not bring diplomatic protection to the projects it is investing in, but it is good to know that the Belgian State is behind the investment. The main shareholder is FPIM-SFPI, but there are also private investors in view of the public-private partnership. SBI-BMI’s offer is to come in with two types of activities, first financing and secondly advisory. The company tries to bring in subordinated investment facilities or profit-participating loans, supporting Belgian companies investing abroad. It looks at projects in terms of value-added and generation of revenue to reinforce the own resources of the company. It is a provider of patient capital in projects of five to 10 years. Most of the time the structure and duration of the project is such that it does not have to reimburse its loans immediately. 

SBI-BMI is investing between €1 million and €10 million, basically for SMEs, but is now also looking to larger projects. It requests a matching contribution from the Belgian partner to have the same level of commitment. The second service is advisory. The company has almost 50 years of experience in worldwide operations in a wide range of geographies. The investment criteria are that there needs to be a Belgian partner, which has its headquarter and decision-making center in Belgium, but it does not need to have exclusive Belgian capital. The company can do greenfield projects, expansion of existing projects, and acquisition of shares in existing companies abroad. It has done projects in over 60 countries worldwide, which does not mean every country is available to invest in, such as countries under embargo or in conflict situations. Most of the time the company is coming in as a board member or observer in the board to monitor the project jointly with the Belgian company. Projects must adhere to internationally-accepted guidelines about governance, environmental protection and social standards. The company has done 350 projects of which 23% in Eastern Europe and 30% in Africa. It has an investment capacity of €85 million of which €52 million is invested and committed. Over the last decade, the company has financed 10 projects in China, being in the forefront of Belgian investments in China. A challenge has been the appreciation of the currency and salary costs in China, but even in times of Covid, the company concluded a new deal in China in early December. 

Mr. Paul Van Eynde, Senior Investment Manager, Capricorn Fusion Fund China, joined Capricorn Partners in October. It has invested €135 million in quest for growth and also through six investment funds. The Capricorn China Fund is the first non-sector-focussed fund. This does not mean a change of strategy, but if you want be a front-runner in tech investment, you need to work with China and its technology, as they are really state-of-the-art. Secondly, China creates a two-way opportunity that Capricorn is trying to exploit. The vocation of Capricorn is to bring European companies to China, which will be the world’s biggest economy in the near future. It also brings Chinese innovation to Belgium and Europe in a tailored way. The investment and the focus on R&D and the belief in innovation are so big in China that we really have to join them in their quest to become the leader. In China there are three times more patents granted on a yearly basis than in the U.S. and even four times more than in the whole of Europe, while 10 years ago there were an equal number of patents in the U.S. as in China. Now China is really leading. The focus today is on the opportunities for European and Belgian companies in China, where the majority of Capricorn’s investments will be. Twenty years from now, China will be the world’s biggest economy at 1.5 times U.S. GDP. The question is: does Capricorn wants to be part of that growth or not? The answer is very clear and Covid has not changed that at all. China just seems to do a better job at recovering from the virus than the rest of the world. China economically is already back at the end of 2019, while the U.S. will need another six months to get to that level and Europe will need a full year, recovering at the end of 2021. These two years of stand-still are a big contrast with China. 

Which companies does Capricorn Fusion wants to invest in? Companies that can take advantage of the huge and growing economy and fit well in a number of underlying trends: The Chinese consumer is changing dramatically. There are 800 million people in the working population, double the size of the U.S. and Europe combined, while 180 million people will move up from the low-middle income bracket to the middle-upper income one in the next seven or eight years, which changes consumption patterns and creates opportunities. The sheer numbers are staggering but the population is also greying. By 2027, 22% – or 325 million people – will be over 60, creating opportunities for example in the health care sector. The spoilt generation – born in the 90s and the beginning of this century, which has never seen poverty – is going to become an independent consumer. The Chinese population has gone from starvation to living luxuriously in a couple of decades. One of Mr. Van Eynde’s Chinese business partners said that China has gone from starvation to obesity in one generation. Concerning manufacturing capabilities, China has been the factory of the world in the last decades and will always be an important production force, but it will no longer be in cheap stuff but in production processes where value is added and technology and innovation play an important role. China is also home to the largest on-line community in the world. Urbanization is an important driving force of the Chinese economy. By 2030 three-quarters of the population will live in cities. That creates numerous possibilities such as for Punch Powertrain, which is not an investment made by the Fund, but in which Capricorn played an important role. It has become a blueprint for what Capricorn is looking for in companies. Punch Powertrain is a manufacturer of shiftless gearboxes. A few years ago, management and a number of investors decided to make China an important factor for Powertrain’s growth because of the sheer size of the Chinese market and the changing Chinese consumers. People that started driving a few years ago were first generation drivers, which found it rather convenient not to have to shift gears. By adding China into the mix, Punch Powertrain became immensely successful. A second example is Capricorn’s first investment – Xian Thiebaut. In the 80s Janssen Pharmaceutica saw the gigantic potential of China and its increasing focus on healthcare, and founded Xian Janssen. Tubes Souples was a manufacturer of aluminum packaging material and an important supplier to Janssen Pharmaceutica, which also decided to move to China. Tubes Souples in Belgium does not exist anymore, while Xian Thiebaut is a thriving company valued at €25 million. It is still a big supplier to Johnson & Johnson, but has added a number of companies to the list, including Bayer, Novartis and GlaxoSmithKline. It is a great example of how moving to China can change your destiny. 

Q&A: How has the current geo-political tension between Washington and Beijing impacted your investment decisions in China?  Mr. Paul Van Eynde: As long as the tensions are between Washington and Beijing, it has not influenced our investment decisions negatively and we do not expect it to be the case in the future. We hope that Europe will remain a force in itself and is becoming even stronger and not choosing sides. What would be the main challenge for foreign companies investing in China? Van Eynde: Being in the right network and making sure that you have the right partner is key. You need time in China and China cannot be a me-too activity of “my neighbor is in China and I have to be there too”. It has to be critical and fundamental for your company. It will require a lot of time and is not something that you take onboard as an extra. Ms. Sonck: Landing at the right location is also important and the Chamber has set up a big network in China also in second- and third-tier cities, such as Qingdao, Weihai, Shenyang, Chongqing and Chengdu, where there are development zones and wherecthe Chamber has built up a network with the foreign investment bureaus. When companies want to invest in China, the Flanders-China Chamber of Commerce can help them to localize and share the experiences from other investors. Mr. Van Loo: If you go to China, always be sure to team up with local investors. China is quite different and you need local input.