Why Chinese companies are investing heavily in Europe
In recent years, Chinese companies have been significantly increasing their investments in the European Union. From Bordeaux vineyards to automotive manufacturers in Germany and construction machinery manufacturers in Italy, these companies have been on an unprecedented purchase spree of rations.
In the EU, rapid growth has feared the impact of these investments on Europe's long - term jobs, technology, and business potential, raising demands for greater control. In this context, some see the investment screening equipment that the EU introduced in 2019 as targeted at Chinese companies.
During the pandemic, growing concerns that vital European technology and knowledge could be vulnerable to foreign takeover due to the economic downturn gave the European Commission guidance issued to its member states. To further clarify the situation, the EU has negotiated a treaty with China - the Comprehensive Investment Agreement - to replace the current 26 individual country agreements between - all individual member states except Ireland.
The agreement is currently blocked for political reasons, following tattoo sanctions related to EU concerns over human rights violations in the Xinjiang region. But the debate on how best to adapt to this new context is unlikely.
Much of what we know about Chinese investment in the EU is big news. In a recent paper, my colleagues and I analyzed these investments using detailed Chinese data. Our work highlights the great diversity of Chinese investments in the EU, in terms of the types of businesses and companies involved and the incentives of different companies to invest.
Why China is investing in Europe
Our paper is based on a database covering nearly 800 Chinese investments in business sectors in Europe between 2006 and 2015.
Chinese companies need to report their foreign investments to the government and these tests provide valuable information as to where they invest and why. The determinations cover the country and industry in which they have invested and whether the investment involves supporting their sale to Europe, the manufacture of goods locally or conducting research and development.
Germany was the main choice for Chinese companies investing in Europe, followed by the UK, the Netherlands and Italy.
Over time, we found that investments for sale have fallen from 70% to less than half of total investments, while research and development and manufacturing have become more important. This shows that the idea that Chinese companies see Europe simply as a market, rather than as a basis for manufacturing and research, is clearly old - fashioned. Many Chinese companies invest in Europe for products there.
This type of investment is especially important for Chinese regions that already have high levels of investment at home. Companies that invest heavily in production in China tend to do the same in Europe, which could be sure of thousands of European jobs.
The role of the state
Given concerns about the Chinese government's role in the economy and industry, we also looked at whether we could see differences in investment behavior in industries where the state has a stronger position.
We found that sectors, where state-owned enterprises are stronger, tend to invest in manufacturing and research, and those in sectors identified as “business-driven”. with the government (a mixed group that includes textiles and civil satellites) more likely to invest in sales.
So the government's domestic policy seems to have an impact on the types of investments that Chinese companies make in Europe.
We also looked at how different types of Chinese and European businesses influenced the types of investments made.
In more traditionally established European industries and those with high growth rates, such as motor vehicles in the UK and Germany and chemicals in Hungary and the Netherlands, Chinese investors are more motivated by research and development than the market. Investments from Chinese high-tech sectors focused more on both research and development and manufacturing.
Wine and robots
It is difficult to generalize about Chinese investors and why they are investing in Europe. The wealthy person who buys a vineyard in France will have very different reasons from the company that buys the leading German manufacturer of industrial robots.
Even within regions, there are significant differences. My previous work on Chinese investment in the French wine sector found that the investment in some cases was a means of moving the vineyards to new levels of growth and internationalization, while in others there was conflict major cultural issues and management difficulties.
In this different context, it is difficult to make a complete judgment of the extent to which current and future Chinese investments may be difficult in the future. What is clear is that the more we know about these and other foreign investments in Europe, the better we will decide whether and how we should regulate them.
Article by Louise Curran, Professor of International Business, TBS School of Business
This article is republished from The Conversation under a Creative Commons license. Read the original article.