Chinese Investment In Relation To Europe Essay

Question:

Discuss about the Chinese Investment In Relation To Europe.

Answer:

For years, China has been identified as a destination for FDI (foreign direct investment) as multinational companies flocked there in order to establish export platforms and take undue advantage of its enhancing market structure. The increment in China’s direct investment in Europe is a major concern in this scenario. Based on the recent report by a law firm named as ‘Baker and McKenzie’ and Rhodium Group (consultancy), the net stock of Chinese investment in European countries has increased almost ten-fold from the US $6 billion in the year 2010 to US$ 55 billion in the year 2014. Besides, in the year 2015 alone, the OFDI on the part of China in Europe enhanced by forty-four percent through deals like Italian tire manufacturer Pirelli’s takeover by ChemChina valuing the US $7.7 billion. The total flow of US$ 23 billion surpassed China’s investment in the United States that was US$ 17 billion in that same year (Brookings, 2017). Moreover, based on the analysts, the present year could witness an enhanced increment if ChemChina’s proposed takeover of swiss agro-technology valuing US$46 billion firms (Syngenta) is granted approval by the regulators (Davies & Crawford, 2012).

The major reasons why investors of China have favored Europe in the past few years are first, that the issue of foreign direct investment on the part of China is less politicized in European countries. However, a handful of high-profile investments through China in the US have been restricted for political issues, and the process of a national security review of Committee on Foreign Investment in the US poses a hurdle for fewer types of acquisitions done by Chinese SOE’s (state owned enterprises) (Rossi & Burghart, 2009). In relation to Europe, it lacks an equivalent procedure and this describes why such SOE’s depict nearly seventy percent of Chinese OFDI in Europe. Secondly, the continuing financial and economic hurdles since the GFC of 2008 means there has been a huge desire for Chinese cash to finance the infrastructure or bail-out firms that are debt-ridden (Carol et. al, 2016). Nevertheless, even though the flows are impressive, yet it is significant to remember to take into account that on a stock basis, China’s average investment in Europe is still moderate in nature. Moreover, by the end of 2014, the cumulative OFDI of China reflected only 3-4% of all the foreign direct investment in Europe, and the workforce directly influenced by such Chinese FDI was a petty two percent of the number of Europeans operating in American-owned European firms (Brookings, 2017). The increasing trend of such Chinese investment, however, raises few interesting political and economic questions for the leaders of Europe. The wave of Chinese investment establishes various challenges for the European companies and other policy-makers. For firms, the immediate emergence of hungry and adequately-financed Chinese acquirers has allowed incumbent organizations to step up their efforts of mergers and acquisitions in order to maintain their firmness on the market. The attempts into the European market by the leading construction firms of China most likely played a key role in prompting the purchase of Finnish (crane company) Konecranes by its rival company Terex based in America. Similarly, an unexpected bid by ChemChina for Syngenta has resulted in a disquiet among the chemical firms of Europe.


In relation to policy arenas, there are two major issues standing in this scenario. The narrower one is associated with reciprocity wherein Chinese firms are free to purchase companies in any European sector without prevention, foreign companies are prevented from investment in a host of Chinese sectors including insurance, banking, construction, media, and healthcare. One significant solution is to incorporate provisions in China-EU bilateral investment treaty under account. Overall, the recent shifts in Chinese OFDI patterns in Europe not only depict how altering sectoral strategies affect where investment will progress, they also state that such wave of Chinese investment in Europe is driven by economic motivations instead of political considerations (Bodie et. al,, 2014). Companies from South Korea, Japan, and Taiwan before them, firms of China are now creating business affairs in potential export markets and establishing their international brands, thereby creating firm-specific benefits and competitive positions. In relation to the current scenario, such trend will further decrease China’s historic importance on investment of resources. Even though present levels of OFDI through China may still be too petty to attract the attention of huge MNC’s, the establishment of a powerful network of business operations in the key markets of China will ultimately assist more Chinese companies to establish direct connections with sellers and buyers. FDI into China has assisted in a rapid growth in its exports over the last twenty years. This is the reason why Chinese companies are gearing up for an enhanced approach that can provide them better control over their supply chains, sales, and marketing abroad (Seaman et. al, 2017). This long-term approach may contrast with their strategy just after China joined the WTO when fewer Chinese companies were curious about their survival and rushed to purchase foreign brands (Backaler, 2015). Overall, going by the scenario and expectations of the Chinese officials, additional USD one trillion dollars in OFDI is decided to be invested into foreign companies of Europe. Even though this enhancement in investments is a mere structural story and there is a basic expectation that so-called purchasing spree of China will increase, there are various downside risks for such Chinese outbound investments that have emerged in the current years (Carmichael & Graham, 2012).

Nevertheless, the belt and road initiative of China has assisted it to enhance connectivity betwixt Europe and itself but with such connectivity, there comes an enhanced flow of Chinese goods and a flood of low-priced items from its excess capacity industries like building materials and steel (Seaman et. al,, 2018). In response to such apparent dumping of Chinese goods in Europe, the EU adopted a non-binding resolution to reject China’s claim to market economy status in the WTO. In the present, the Commission now faces the choice of rejecting China’s claim (an action that can cause economic issues from Beijing) or accepting it (detrimental to producers of Europe). A feasible midway in such scenario will be to identify China’s market status but to design a variety of expectations to safeguard significant industries of Europe.

References

Backaler, J. (2015) China goes West: The globalization of Chinese brand [online]. Available from: [Accessed 17 April 2018]

Bodie, Z., Kane, A. and Marcus, A. J. (2014) Investments. McGraw Hill

Brookings. (2017) China abroad: The long march to Europe [online]. Available from: [Accessed 17 April 2018]

Carmichael, D.R. and Graham, L. (2012) Accountants Handbook. Financial Accounting and General Topics, John Wiley & Sons.

Carol, A.A, Brad, P , Prakash J. S. and Jodi Y. (2016) Exploring the implications of integrated reporting for social investment (disclosures). The British Accounting Review, 48(3), pp. 283–296

Davies, T. and Crawford, I. (2012) Financial accounting. Harlow, England: Pearson.

Rossi, V. and Burghart, N. (2009) Chinese investment in Europe : A shift to services [online]. Available from: [Accessed 17 April 2018]

Seaman,J., Otero-Iglesias,M. and Huotari, M. (2017) Chinese Investment in Europe A Country-Level Approach [online]. Available from: [Accessed 17 April 2018]

Seaman,J., Otero-Iglesias,M. and Huotari, M. (2018) Sizing up Chinese Investments in Europe [online]. Available from: [Accessed 17 April 2018]

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