Mark Hedley this week looks at the news of Saab’s acquisition by Chinese-Japanese consortium and how it is just the latest example of the increasingly global aspirations of Chinese companies.
A recent report by Rhodium Group suggested that Chinese outbound FDI could reach $2 trillion by 2020, with Europe being the favoured investment destination.
In spite of a difficult global economic climate, Chinese corporations are taking advantage of Europe’s economic woes by actively investing in ailing European businesses and manufacturing plants. Investment into the E.U. by Chinese companies increased threefold between 2006 and 2009, and then tripled again between 2009 and 2011, with rapid increase both in both greenfield investments and merger & acquisition (M&A) transactions across a variety of markets and segments. The automotive and technology segments in particular have been attracting significant levels of Chinese investment, with major investments in Europe by major Chinese corporates such as Geely, Lenovo, Huawei and ZTE.
Although outbound Chinese investment is hardly a new phenomenon, interestingly the report found that investment in Europe in being driven overwhelmingly by commercial motives. Whereas in years gone by, a significant share of Chinese overseas investment was driven by political imperatives, such as seeking natural resources for China’s development, these factors are no longer the primary reasons why Chinese firms are appraising opportunities in the European Union. The mix of industries investments are occurring in, the large number of investments by private companies and the competitive behaviour of these firms suggests that profit is the main motive behind Chinese investment in Europe.
Exploring this profit-seeking behaviour, the report also highlights the fact that Chinese companies have found that the acquisition of higher-value overseas brands, gaining technological edge and growing the business in a more regulated market environment are some of the key elements for breaking away from a fiercely competitive domestic Chinese market. For other Chinese investors, the crisis in Europe and an increasingly strong Renminbi, are enabling Chinese investors to acquire high-value assets at knock-down prices. For Chinese contract manufacturers of the labour intensive products Europeans consume, defending market share increasingly means expanding market presence. A final key driver is the need for Chinese manufacturers to tap into Europe’s pool of human talent and research infrastructure by establishing R&D centres in Europe.
Although the upwards growth trend in Chinese investment in Western markets looks set to continue, it is also worth noting that the total value of investment is small when compared to other major economies such as the U.S. and Japan. For example, per capita overseas investment by Chinese citizens was $227 in 2010, compared to an average of $15,600 for every American, and against a worldwide average of $3,200.
As the level of Chinese investment continues to rise in the future, there will be both benefits and drawbacks for European consumers and businesses. On the one hand Chinese investment is helping to revitalise many ailing businesses in Europe and is resulting in more competition, greater choice and lower prices for European consumers. At the same time, greater completion represents a threat to businesses in certain sectors, particularly at a time of economic instability and faltering consumer demand.
The original article can be found by clicking here.
