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European Firms Snatched Up As Chinese Foreign Investment Goes Upmarket

In 2011, Europe replaced the United States as China's biggest overseas investment for the first time ever. European companies have caught the eye of a Chinese economy that is rapidly moving into more advanced sectors.

A wind park operated by Portugal's EDP, a now partially Chinese-owned power company (EDP/Adelino Oliveira)
A wind park operated by Portugal's EDP, a now partially Chinese-owned power company (EDP/Adelino Oliveira)
Gabriel Grésillon

PARIS - Chinese investments in Europe were the talk of the town during the E.U.-China summit held last week in Beijing. China's interest in Europe has recently been confirmed by an exhaustive study: in 2011, for the first time since Chinese companies have started taking an interest in firms overseas, Europe has become China's top investment destination.

Thanks to their strong financial resources, Chinese companies have acquired stakes in the London water supply system, in the production of electricity in Portugal, in Norwegian chemicals (Elkem), German machine-tools (Putzmeister), and Italian luxury yachts (Ferretti). Overall, Europe has managed to attract about $10 billion of Chinese investments, which represents 34% of China's foreign M & A's in 2011 -- before Asia (27%) and North America (21%).

This is one of the conclusions reached by the teams of A Capital Investment Fund. After identifying every Chinese investment abroad since the beginning of 2010, A Capital ranked them by region, type of company (public or private), activity, etc.

Dragon goes global

Looking back over the last decade, the quarterly Dragon Index that was recently launched by A Capital shows that even if China only started making a move toward European companies around 2007, the country's investments abroad now account for about 5.3% of its GDP, compared to 2.6% 10 years ago. Still a far cry from the average 27% of OECD countries –which gives reason to think that the trend is going to accelerate in the future. In 2011 however, the index declined –because of exchange rates, granted, but also because investors "are cautious about several failures that happened during the first wave of investments," says André Loesekrug-Pietri, the founder of A capital.

Something else has changed: natural resources now only account for half these investments, compared to 75% one year ago: Chinese companies are now also focusing on technologies and brands. The new objectives of China's current five-year plan (eco friendly cars, renewable energies ...) resonate with Europe's production system. Looking at China's new top sectors of activity, everything becomes clear: investments in chemicals, but also especially in industry, are what made Europe so attractive for China.

This strategy of internationalization has allowed private companies to finally break through. In 2010, they accounted for 17% of China's investment volume –this number went up to 28% in 2011. "Unlike large state enterprises, private companies seem less threatening, especially when they take minority shareholdings in the firm's capital," says André Loesekrug-Pietri.

With the notable exception of the coup carried out by the China Investment Corporation (CIC), a sovereign wealth fund: the CIC managed to take –without causing any outcry-- 30% of the GDF Suez subsidiary in charge of exploration and production. A minority holding, strategically interesting for both parties -- and strategically announced in the middle of August.

Read the original article in French

Photo - EDP/Adelino Oliveira

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