China's Western Front
When visitors climb into one of London's famous black cabs, few realise the company that makes them is part-Chinese. Geely Autos makes the taxis in Shanghai and exports them around the world.
Last month China Investment Corporation (CIC) announced an investment of nearly Euro3 billion (HK$33 billion) in GDF Suez for a 30 per cent stake of its energy exploration and production business. 'It is our first sizeable transaction in Europe,' said Lou Jiwei, CIC's chief executive.
Both are signs of the accelerating flow of Chinese capital into Europe. While European governments have a single trade policy conducted by the EU, they compete fiercely with each other to attract this capital.
The investment is driven by a desire by Chinese firms to set up manufacturing, sales and R&D facilities in the world's biggest market, to cut their dependence on the US and take advantage of the opportunities presented by the financial crisis in 2008, which left thousands of firms in need of financial help - such as Ford Motor Company, which owned Volvo before it was sold to Geely.
Beijing is encouraging this move into Europe. It wants to invest more of its enormous foreign reserves in currencies other than the US dollar and diversify the risk and markets of its companies. It also sees European countries as more open and welcoming than the US, where anti-Chinese sentiment in Congress and among the public has torpedoed investment projects.
China's investment in Europe remains small compared to the amount it has sunk into natural resources projects in Asia, Latin America and Africa.
Europe also presents obstacles, in the form of different languages, national practices and regulations. This forces Chinese companies to take their time - it took food giant Cofco three years to negotiate the purchase of a French vineyard for Euro10 million (HK$113 million), a fraction of its annual turnover.
Britain has been the first choice for Chinese firms since 2007, when it overtook Germany and Russia. More than 500 companies have set up operations in Britain, the largest concentration of Chinese investment in Europe. According to the government agency UK Trade & Investment, China ranked seventh among foreign countries in the year that ended this March in terms of number of projects in the UK. It had 59 projects creating 1,471 jobs, behind France and Canada, but ahead of Spain and Australia. The US topped the list with 388 projects and 36,424 jobs, followed by Japan, with 105 projects and 5,508 jobs.
The UK is home to more European headquarters than all the other European economies combined. It has an FDI (foreign direct investment) stock of over US$1 trillion, making it one of the world's top two or three locations for FDI.
Chinese firms are following the path trodden by companies from the Americas and then Asia. They select Britain firstly as a headquarters for their European operations and secondly, to sell into the British market.
In 2004, telecom equipment giant Huawei moved its European HQ from Germany to the UK and now employs 500 people there. In 2005, China Telecom set up its European HQ in Great Britain and is expanding. In April 2009, Alibaba set up its European base there, and now has 400,000 customers in the UK.
Chinese financial institutions are expanding rapidly in Britain as they move into Europe. Chinese banks have bought or leased about 300,000 square feet of office space in the City of London. The Bank of China, in the City since 1929, recently moved into lavish new headquarters overlooking the Bank of England.
In King William Street, a short distance away, builders are working on the future home of Industrial and Commercial Bank.
What attracts Chinese firms is the sound tax and legal system, an efficient transport network linked to the rest of Europe, plentiful and skilled labour and a government - whether Labour or Conservative - that aggressively courts foreign investment.
Another key factor is English, the foreign language most popular with the managers who run Chinese firms, state and private.
Chinese investment in Germany has accelerated in the past two years. As of the end of 2009, it totalled Euro629 million, according to the Bundesbank.
Between 2003 and 2010, China ranked seventh in foreign investment projects in Germany in terms of number of projects, with 178, behind Japan and the Netherlands, but ahead of Sweden and Spain, according to the Germany Trade & Invest (GTI), the official body responsible for attracting foreign investment. Of the 178, 132 came in 2009 and 2010. As of the end of last year, 700 Chinese firms employed 6,600 people in Germany.
'Chinese firms focus on machinery and electronics technology, information and communication technology and renewable energy,' says Cao Yi, a spokeswoman for GTI.
She said that Germany was the largest single market in Europe and had a central location, with good access to western and eastern Europe. 'The 'Made in Germany' label is very attractive to Chinese firms, because it means good quality. They produce in Germany and sell all over the world,' she said. 'Since the research and development environment is very developed, many Chinese companies want to establish their R&D centre in Germany.'
The country has attracted some of the biggest companies, including Baosteel, which had a turnover in Germany last year of Euro453 million, Minmetals with Euro251 million and Huawei Technologies with Euro181 million.
France has been a beneficiary of Chinese investment, too, but on a lesser scale. The booming market for grape wine has persuaded Chinese firms to acquire French vineyards - six since 2008.
In March this year, state food giant Cofco bought Chateau de Viaud in Bordeaux, the first such purchase by a state company, for about Euro10 million. China has become the world's biggest importer of Bordeaux; France accounts for 50 per cent of China's wine imports, followed by Australia and Chile.
Chateau de Viaud has an annual output of 800-1,000 hectolitres, half exported to the US - but none previously to China. That is about to change. Cofco plans to leave management in local hands; it owns Great Wall, one of the most popular brands of wine in China.
According to official figures, over 100 Chinese firms have invested in France, creating more than 8,000 jobs and accounting for eight per cent of China's investment in Europe. In September 2009, Huawei set up an R&D centre in the Paris region, the first R&D of a Chinese firm in France. In November that year, ZTE announced that it would locate its European and North American headquarters to the Paris region.