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Chinese Direct Investment in the European Union

Chinese Direct Investment in the European Union. ECRAN Annual Conference, Brussels 12-13 June 2013. 1. Contents . Background and Introduction Growth in Chinese outward FDI and potential for a bigger EU role Stronger strategic partnership through an emerging two-way “FDI Street “

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Chinese Direct Investment in the European Union

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  1. Chinese Direct Investment in the European Union ECRAN Annual Conference, Brussels 12-13 June 2013 1

  2. Contents • Background and Introduction • Growth in Chinese outward FDI and potential for a bigger EU role • Stronger strategic partnership through an emerging two-way “FDI Street “ • Fostering a deeper and broader EU-China mutual FDI relationship • Cost of foreignness to Chinese firms • Role of Investment Promotion Agencies (IPAs) • EU’s leadership role • Conclusion

  3. Executive Summary • In 2011, Chinese firms invested € 57billion (US$ 75billion) overseas, of which 10% was in the EU • figures for 2010, were € 52billion (US$ 69billion) and 8.7%, respectively) • In 2012 the overseas total was US$ 77billion - up 28.6 % y-o-y. Q1 2013 was 24billion, up 44% y-o-y. • Although currently very small, the economic “footprint”, industrial diversity and impact of Chinese foreign direct investment in the EU is growing • The Treaty of Lisbon (2009) gives the EU competence for external FDI policy with third countries • EU already open to inward FDI – so main offer is protection and facilitation, in exchange for more market access in China • Two-way investment links: EU firms can gain partners in China (MOFCOM, 2011) 3

  4. Chinese global OFDI stock % Billion USD UNCTAD website 4

  5. China’s % of IFDI stock in EU-27 Source: Eurostat (2013) 6

  6. FDI flows to the EU, 2011 2.9% 11.7% 62.2% 5% 1.2% 1.3% Eurostat (2013) 6

  7. China’s share of EU-27’s OFDI stock Source: Eurostat (2013)

  8. Destination of Chinese Outward Foreign Direct investment stock, 2003-11 (€ billion, %) NBS, MOFCOM, SAFE (2013) 8

  9. % share of FDI flowinto China by selected economies NBS, MOFCOM, SAFE (2013)

  10. Ownership of Chinese acquirer of firms located in EU-27 Source: Thompson OneBanker (2013)

  11. Industry Distribution of Chinese OFDI and in the EU, 2009 (%) (-) denotes no data available; NBS, MOFCOM, SAFE (2011) 11

  12. Chinese OFDI in the EU, 2009 (€ mn) Source: Eurostat, NBS, MOFCOM, SAFE (2011) 12

  13. …on Chinese investments… • Welcoming Chinese investment • Direct benefits, e.g., employment, tax • Indirect benefits, e.g., access to Chinese market • Positive about the future • Taking the current low level of investment in the EU as a positive sign for further growth • A clear agreement on the motives of Chinese investors …‘anything to help them up the value chain’ • Access to markets • Technology acquisition and R&D capability development • Skilled labour • Develop capabilities to compete better at home 13

  14. …and how to attract Chinese FDI… • ‘Broad’ approach • EU member states’ embassy and consular staff represent general investment opportunities in their home economies, via trade fairs, and profile their homes at the government-to-government level • ‘Deep’ approach – more effective • IPA branches in China target and contact businesses directly and offer matchmaking services • Supported by dedicated investment promotion staff at embassies and consulates 14

  15. …while supporting them • Lack of understanding of local markets (pre-establishment) • Deters investment and leads to negative investment experiences • Regulatory environments can be a minefield for Chinese investors, particularly smaller ones and, of course, these differ between member states • Lack of skills and experience (post-establishment) • The capabilities of Chinese firms to organise investment abroad may be weak • This naturally can affect business performance • IPAs aim to work closely with potential Chinese investors to inform and educate them about the potential host economy • But still there may be gaps in firms’ underlying capabilities 15

  16. Investment Pattern • Observation by Sweden’s IPA • First-comers into the market are the small entrepreneurial type of firms • Followed by large state-owned enterprises • Large private firms enter last • Observation by UK Trade and Investment • Chinese firms follow incremental increases in market commitment, which is a common of all foreign investors 16

  17. EU Investment Policy after the Lisbon Treaty 17

  18. Opportunities to increase Chinese FDI in the EU • EU policy overhaul is very much needed as individual BITs focused on market access in China, not on Chinese FDI in the EU • Bilateral EU-China investment agreement needs to offer: • Market access to EU firms in China • In return for comprehensive investment protection across the EU • Chinese fear non-transparent national barriers and security concerns in the EU • Chinese firms, SOEs, POEs, all “buy in” to Chinese government policy to internationalise, even if not following the prescription on sectors and countries 18

  19. Opportunities to increase Chinese FDI in the EU • Strength of Chinese desire to invest abroad is a main bargaining chip for the EU • Chinese government feels that its firms are often poorly informed, and lack FDI capability • This could be assisted by establishing chambers of commerce • The EU can invest in investment facilitation • The ‘training’ of Chinese firms in how to do business • Bilateral agreement would help create a framework for supporting Chinese FDI, into which other initiatives can nest 19

  20. Conclusions • Targeting is the way ahead • FDI is a two-way relationship and IPAs have a crucial role • EU states’ BITs have historically focused on market access in China, not on promoting inward FDI • Chinese firms impacted by unfamiliarity, regulatory inconsistency and uncertainty across EU states • including indirect impacts, such as visas and work permits • The EU needs better FDI statistics • not just on quantity but on quality (operational data) – to gauge impact • Chinese firms bring enterprise as well as capital, and investment in R&D – but may need mentoring 20

  21. Contact details Professor Jeremy Clegg Director of the Centre for International Business Jean Monnet Professor of European Integration and International Business Management E-mail: ljc@lubs.leeds.ac.uk Tel: + 44 (0) 113 3434512 Dr Hinrich Voss Roberts Academic Fellow E-mail: hv@lubs.leeds.ac.uk Tel: + 44 (0) 1133432633 Centre for International Business (CIBUL) Leeds University Business School Maurice Keyworth Building University of Leeds Leeds LS2 9JT United Kingdom 21

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