Euro China Investment Report 2013/2014: The Antwerp Forum 26.09.2013
Euro China Investment Report 2013/2014: The Antwerp Forum 26.09.2013
Euro China Investment Report 2013/2014: The Antwerp Forum 26.09.2013
Report 2013/2014
The Antwerp Forum
26.09.2013
Euro‐China Investment Report
A bi‐annual report on Chinese OFDI in Europe
Documents the Chinese economic presence in Europe on the
basis of Balance of Payment data
Offers a comprehensive and accurate account of Chinese
owned enterprises in Europe on the basis of firm level data
Discusses the significance of sister city relationships for the
location of Chinese enterprises in Europe
Objectives
Monitoring Chinese direct investment at the firm level
Providing background information and insights for the policy and
business decision makers
The First edition was published in 2011
Data coverage and main content
Unique characteristics of the
Location patterns Sector/industry study:
distribution
Pan‐European study based
on firm level data
Chinese
investment in Accounting data (instead of
Europe BoP‐figures or surveys)
Including all existing firms
7,148 FDI firms
208 portfolio
(instead of M&As and IPA’s
investments records of intentions)
Providing insights about
operational aspects, such
Entry mode and Performance and as ownership, management
management changes over time and performance
structure
Limitations
Outline
Chinese OFDI in Europe
Country‐level data
Firm level data
Europe‐China sister city
relationship and impact on
China’s OFDI
Implications and challenges
New developments in the Chinese economy
Switching from export/investment led to consumption
driven model
Slowdown in China’s economy (export and inward FDI)
Increasing demand for Western consumer products/services
Looking for opportunities abroad
Moving from low‐end market to “good enough” market
Increasing competition
Need for technological upgrading – “asset augmenting”
Facing the rise of trade and investment protectionism
Reduced competitiveness for large scale manufacturing
Moving production to the export market
China became the third most important investor
abroad in 2012
OFDI flows in US$ billion
350 329
300 Other rankings
Russia: 8
250
Belgium: 24
200 India: 29
150 123
100 84 84 71 67
50
‐
US Japan China Hong UK Germany
Kong
China inward and outward FDI flows (million US$)
(1982‐2012)
140,000
Inward FDI stock: 833 billion US$
120,000 Outward FDI stock: 509 billion US$
100,000
80,000
60,000
40,000
20,000
‐
Outward Inward
Geographic distribution of China’s outward FDI stock
(2011)
Oceania North America
3% 3%
Europe
6%
Africa
4%
Asia Latin America
71% 13%
China’s FDI outflows to EU‐27 (million Euro and per
cent), 2001‐2012
4,000 2.50
3,500
3,000 2.00
2,500 1.50
2,000
1,500 1.00
1,000
500 0.50
‐ ‐
(500) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
(1,000) (0.50)
China as % of extra EU inward FDI flows
Net FDI flows from China to the EU
China’s OFDI stock in the EU‐27 EU (million Euro and
per cent), 2001‐2012
16,000 0.45
14,000 0.40
12,000 0.35
0.30
10,000
0.25
8,000
0.20
6,000
0.15
4,000 0.10
2,000 0.05
‐ ‐
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
China as % of extra EU inward FDI stock China's OFDI stock in the EU
Europe became the most favored destination of
Chinese investors among developed countries
Tangible and intangible assets Market Resources
EU‐China cross‐border FDI flows (billion US$), 2003‐
2011
8.00
EU FDI stock in China: US$76 billion
7.00 China’s FDI stock in the EU: US$20 billion
6.00
5.00
4.00
3.00
2.00
1.00
‐
2003 2004 2005 2006 2007 2008 2009 2010 2011
EU FDI flows to China Chinese FDI flows to EU
New developments in China’s M&As Europe
Privately owned enterprises have surpassed SOEs to become the
most important players in China’s M&As in Europe
Chinese firms have emerged as important investors in East and
Central Europe to acquire production facilities and strategic assets
M&As as the mode of entry became a new landmark for Chinese
investment in Europe
Many Chinese firms target sectors in which European companies
have built up world‐class operational, managerial and innovation
expertise
An increase in investment by wealthy Chinese individuals or families
who look at Europe as a way to acquire the European distinction or
“cachet”
Outline
Chinese OFDI in Europe
Country‐level data
Firm level data
Europe‐China sister city
relationship and impact on
China’s OFDI
Implications and challenges
Identification method of Chinese enterprises in
Europe
Amadeus Dataset of this
database study 7,148 Chinese
enterprises or
19 million 7,356 Chinese subsidiaries
companies enterprises
43
registered in 35
registered in
208 Chinese
portfolio
European European investments
countries countries
Key indicators of Chinese investment in Europe
140000 123,780
120000
100000 87,800
80000
60000 48,210
40000 14,704 27,381
7,148 15,178
20000 8,865 4,525 8,406
0
No. of No. of Employment Assets Operating
Chinese Chinese (million Euro) revenue
investors companies (million Euro)
2011/2012 Report 2013/2014 Report
Profile of Chinese investors and their operations in
Europe
Typology of Chinese controlled firms
European subsidiaries/businesses
Typology of Chinese FDI investors in Europe
Type of shareholders of Chinese owned enterprises
in Europe (% of total number of firms), 2013
Government,
foundations and research
institutions
N=14,707 0…%
Industrial
Individual or companies
family 12% Financial
investors corporations
85% 2%
Unknown
1%
Type of Chinese owned enterprises in Europe (% of
total number of firms), 2013
N=7,148
State owned
enterprises
3%
Individual and Corporate
family investors investors Privately owned
82% 100% enterprises
15%
Year of establishment
At the beginning of the internationalisation process
Take‐over of (long) established European firms
Average age of Chinese companies in Europe:
9 years
2000‐2008, 2009‐2013,
58.62% 22.07%
Before 1990,
1990‐1999,
1.36%
17.95%
Business activities
Sector distribution
Level of technology and knowledge intensity
Sector distribution of Chinese enterprises in Europe,
2013
High‐tech
manufacturing
3%
Low‐tech
manufacturing
Less 3%
knowledge
intensive
Knowledge
services
intensive
86%
services
8%
Chinese less knowledge intensive service
companies (numbers) 2013
Chinese knowledge intensive service companies
(numbers) 2013
Sector distribution of Chinese manufacturing firms in
Europe, 2013
Transportation equipment 24
Textiles, clothing and footwear 58
Construction materials 13
Other manufacturing 33
Metals 37
Chemicals 40
Machine and electrical equipment 106
Wood and paper products 43
Food and beverages 17
Computer and electronics 54
Western
Europe
29%
Southern Eastern
Europe Europe
12% 55%
Northern
Europe
4%
More than half (54%) of Chinese firms are located in
10 European cities/urban centers
Bucharest
Belgrade
Budapest
Hamburg
Moscow
Dusseldorf
Frankfurt
Pancevo
Berlin
London
Wholly owned
50:50 JV subsidiary
15% 47%
Majority JV
18%
Entry form per type of firms
100%
10.88 9.60 15.81
90% 2.51 5.39
80% 18.83 15.48 18.46 Minority JV
70%
60%
19.82
50% 50:50 JV
40%
67.78 69.54
30% Majority JV
20% 45.91
10% Wholly owned
0% subsidiary
SOEs Private firms individual &
family
businesses
Entry form per type of industry
100%
90% 14.21 11.00 17.92
21.12
8.00
80% 17.44
9.11 13.21
70% 24.50 Minority JV
60% 13.95 19.65 19.34
50%
50:50 JV
40%
30% 55.81 56.50
20% 48.70 49.53 Majority JV
10%
0% Wholly owned
Knowledge Less High‐tech Low‐tech subsidiary
intensive knowledge manuf. manuf.
services intensive
services
Origin joint venture partners
With partners Unknown
from third 5%
countries
8%
With partners
from China
and host
country
12% With partner
With partner from China
from the host 51%
country
24%
Ethnic origin joint venture partners
Mixed
partnership
8%
Non‐
Chinese
partners
16%
Chinese
partners (from
Overseas mainland
Chinese China)
partners 50%
26%
Ethnic origin of partners of Chinese joint ventures in
Europe by type of company, 2013
100%
13.00 6.98
90% 11.01
27.78
80% Mixed partnership
70% 26.88
60% 58.82 Non‐Chinese
50% 44.44 partnership
40% Overseas Chinese
30% partnership
55.14
20% 18.06 17.65 Chinese partners (from
10% China)
9.72 10.53
0%
SOEs Private individual
Ethnic origin of Chinese joint ventures in Europe by
type of business activities, 2013
100% 6.12
90% 20.24 15.73 13.79
11.17
80%
Mixed partnership
70% 27.56 38.79
60% 53.93
47.22 Non‐Chinese
50%
partnership
40% 12.93
Overseas Chinese
30% 55.15
14.68 13.48 partnership
20% 34.48
10% Chinese partners (from
17.86 16.85 China)
0%
KIS LKIS High‐tech Low‐tech
manuf. manuf.
Operational performance
Productivity
Profitability
Profitability of Chinese owned enterprises in Europe per
type of investors (median), latest available year
45.00
39.60
40.00
35.00
30.00
25.00 23.59 23.24
19.04
20.00
15.00
10.00
5.00 2.51 2.62 2.95 2.91
‐
Gross Margin (%) EBITDA Margin (%)
SOEs Private individual Total
Profitability of Chinese owned enterprises in Europe per
location (median), latest available year
40.00
32.57
30.00 25.99
20.93
20.00 17.50
10.00
3.95 2.86 3.11
‐
Gross Margin (%) EBITDA Margin (%)
(10.00) (6.16)
Eastern Europe Northern Europe
Southern Europe Western Europe
Performance of Chinese owned companies in
Europe (latest available year)
47% have registered losses
53% had positive results
Proportion of Chinese owned firms with profits
before tax (%), latest available year
100.00
90.00
80.00 56.53 52.36
70.00 63.84 56.49 63.09
59.23 61.40 55.74 51.81 57.76
60.00 52.83 51.57 52.61 48.51
50.00
40.00 31.03
30.00
20.00
10.00
‐
Outline
Chinese OFDI in Europe
Country‐level data
Firm level data
Europe‐China sister city
relationship and impact on
China’s OFDI
Implications and challenges
Geographical distribution of number of Sino‐
European sister city relationships (August, 2013)
Sino‐European sister city relationships and
involvement of intermediate governments
40 European countries Chinese local government
provinces/regions
211 provinces, regions 232 SCR 30 provinces and 28
and counties in 26 counties
countries
478 SCR
435 cities in 40 216 cities
European countries
710 sister city relationship between China and Europe
Correlation between Sino‐European sister city
relationships and China’s OFDI stock in Europe
16.00
% of sister city relationshps (2013, August)
Russia
14.00
R² = 0.8022
12.00
France
Germany
10.00
8.00 Italy
UK
6.00
Spain Sweden
4.00
Netherlands
2.00 Hungary
Poland
‐
‐ 5.00 10.00 15.00 20.00
% of OFDI stock (2011)
Impact of SCR on China’s OFDI
A possible shortcut to get better access to:
Local administration
Favorable treatment
Investment incentives
A guaranty for:
Lower investment risks
Getting acquainted better with an unfamiliar market
Some recommendations for European local
administrations
Emphasizing people‐to‐people mutual understanding as the
fundamental ingredient of the SCR
Seeking support of the stakeholders in business circles and
educational and cultural organizations and encourage them to
integrate different priorities into a common framework in the
context of SCR
Providing tailor‐made instead of general information packages
to promote specific location advantages of their cities
Use of as a promotional tool by the trade and investment
promotion agencies at the national, regional and and city level
Outline
Chinese OFDI in Europe
Country‐level data
Firm level data
Europe‐China sister city
relationship and impact on
China’s OFDI
Implications and challenges
Overview of Chinese OFDI in Europe
Still limited, but increasing quickly
Driven by market seeking and asset augmenting motives
Especially in form of M&As
Covering more countries (less advanced European countries)
Covering more market segments (capital intensive sectors)
Acquiring brands, technology and other strategic assets
Positive impact on corporate restructuring
Capital injection
Valorisation of declining technology
Market expansion (China)
Location preferences of Chinese firms in Europe
Certain countries with knowledge intensive economy
e.g. UK, Germany, France, Sweden, etc.
Large countries
The EU is still regarded by Chinese firms as consisting of individual
countries with their own national policies
Trade activities are concentrated in countries with lower entry
barriers (e.g. flexible migration policies)
Traditional logistic hubs with centralised location, especially Belgium,
did not sufficiently benefit from Chinese investment in trading
activities
Types of investors
Contrary to the general perception and presentation in the
media, the majority of Chinese investors in Europe are
individual or family investors
Yet, the corporate investors, especially privately owned
firms, have a dominant position in terms of assets and
employment
Chinese subsidiaries and businesses in Europe
Mostly entrepreneurial firms
Small and medium sized
Quite different from multinational companies from other investing
countries
Yet, sometimes
”Hidden champions”
“Global niche players”
With an important business and industrial presence and background
in China
Sector distribution
Yet, capital intensive and manufacturing sectors
have become more important
E.g. Public utilities, infrastructure, real estate
Large manufacturing plans in consumer and industry goods sectors
Location
High concentration
But less pronounced as compared to the previous report
Geographical agglomeration
Capital cities vs. economic hubs
Eastern vs. Western Europe
Cities with sister city relationship with China
Entry mode
Depends on the firm specific factors
SOEs and privately owned firms prefer
sole proprietorship or majority owned joint ventures with
foreign partners
Individual and family investors are more inclined greater
willingness to establish
joint ventures with Chinese partners
Performance and future growth
Entrepreneurial firms and small firms recorded a
substantial decline in proportion for generating profits
Highly concentrated in Eastern and Southern Europe
Active in Less knowledge intensive services
As a result of the continuing economic and financial crisisare more
frequently
Yet, corporate investors have a higher profitability, especially in
Western and Northern Europe
Management
Small sized firms: mainly stand alone and family
controlled operations
Especially in Less knowledge intensive services
Little or no diversity among the members of the board in terms of
their professional, international, ethnic and gender background
The combination of investor and managerial functions –
entrepreneurial management ‐ occurs more often in small sized/Less
knowledge intensive services Chinese firms
Regional HQ have emerged, especially established by large
firms. Yet, post‐acquisition integration is still a
challenge
Implications and challenges (1)
Not a new phenomenon
American antecedents in Europe
Japanese antecedents in US and Europe
But, “this time it’s different”
Emerging economy
upstream investment
asset‐stripping
“reverse Marco Polo effect”
Massive and “silent” arrival of international entrepreneurs, i.e.
individual and family investors
Regulatory challenges
BITs: 26 BITs ‐> EU‐China BIT
Diversity/difficulty
New elements to be included, e.g. human rights and sustainable
development
Negotiation of an EU‐China Investment
Agreement
Pre‐establishment market access ‐> Post‐establishment
protection
Changing FDI position of China
State‐investor dispute settlement (international standard)
Policy challenges
understanding of these unconventional investors
A better
is important
not only for the government to update and implement its existing
policy and regulatory system,
but also for the local business communities to maximize the positive
impact from these investors.
Integrated and coordinated policy
By the national and regional authorities should try to optimize the
contributions of the Chinese entrepreneurial individual and family firms
that have spread all over Europe
Common EU FDI policy
Policy coherence (competence at the Commission level and member
state level)
Education programs organized by
the Euro‐China Centre Thank you
• Master degree program
• China‐Europe Business
Studies
• Executive programs
• Understanding China Contact
Prof. Dr. Haiyan Zhang
• Mastering global business:
Academic director / Euro‐China Centre
China Antwerp Management School
• Be Successful in Europe Sint‐Jacobsmarkt 9‐13
B‐2000 Antwerp
Tel: +32 3 265 46 97
Email: [email protected]
www.antwerpmanagementschool.be