Investment in Europe from China surges

Financial crises and the desire of Chinese companies to build a wealth of technical knowledge draw mainland investors West

PUBLISHED : Monday, 24 September, 2012, 12:00am
UPDATED : Monday, 24 September, 2012, 11:38am

A combination of financial woes and China's desire for European know-how is accelerating mainland investment in Europe.

"China believes it can get cheap assets in the European Union with this EU debt crisis. Chinese companies are waiting for assets like ports in southern Europe because they hope to get them cheaper," Bernd-Uwe Stucken, a partner at British law firm Pinsent Masons, said.

Debt-ridden EU nations, including Portugal and Greece, were required to sell state assets as part of their economic plans, Stucken said.

Chinese investment in Europe reached US$5.1 billion in the second quarter, double that of the first quarter and also double the figure from the same quarter last year, according to A Capital, a venture capital firm helping with investments in Europe.

The surge in investments in Europe in recent quarters has occurred because the debt crisis mired the region in low growth, making firms there much more open to Chinese money, A Capital chairman Andre Loesekrug-Pietri said.

The second quarter saw a big increase in Chinese investment in European services and utilities, including the acquisition by the operator of the Three Gorges Dam of 21.35 per cent of Energias de Portugal (EDP), Portugal's biggest power producer, A Capital reported.

China Three Gorges, China's biggest hydropower developer, bought the stake for €2.69 billion (HK$27.06 billion), according to the state-owned firm's website.

In June, national sovereign wealth fund China Investment Corporation (CIC) acquired 7 per cent of European satellite operator Eutelsat from Albertis, a Spanish infrastructure firm, for €385.2 million, according to a statement from Albertis.

"Notwithstanding concerns over transparency, the prospect of increasing investment by Chinese sovereign wealth funds is welcomed by the cash-strapped EU states," according to a paper by the Europe China Research and Advice Network (Ecran), a body that advises the EU on China.

"We would not have seen such deals two or three years ago. More Chinese investors are acquiring minority stakes in EU firms. This is a very smart approach as they lower their risk, gain support with local partners and learn how to operate a foreign company," the report said.

Loesekrug-Pietri said: "The best firms are not for sale. Acquiring a minority stake can therefore be a very efficient way to enter a company that would not be accessible otherwise."

The global financial crisis of 2008 boosted Chinese investments in German firms, Stucken said.

German banks that provided loans to finance acquisitions of German companies by US private equity firms sought to clean up their balance sheets after the financial crisis by seeking buyers for those German companies. To that end, they turned to China.

"Chinese companies have the resources to buy these companies. I was told by financial advisers to these deals that if they had no Chinese and Indian potential buyers, they would not be retained," he said.

Stucken also said that in the car and machinery sectors, Chinese companies were buying German firms.

"Chinese companies are attracted by technology. The motive of Chinese investors in Europe is to transfer these technologies back to China. Chinese companies want to know and learn, but not produce in Europe," he said.

Acquiring European technology would have a long-term positive effect on China, Stucken added, citing Zhejiang Geely's US$1.8 billion acquisition of Swedish carmaker Volvo.

The motive for Geely's acquisition was not to sell cars in Sweden, he said, but to acquire Swedish know-how to produce and sell cars in volume markets such as Iraq.

"Dutch companies have technology but need money and markets. Chinese companies need technology and European markets," Guy Wittich, China executive director of the Netherlands Foreign Investment Agency, said.

He said there were currently 322 Chinese companies in the Netherlands.

"Chinese firms are looking to move up the value chain. They face strong competition in the domestic market," Loesekrug-Pietri said.

"Acquiring foreign brands and technology helps them become more efficient, and acquire differentiation factors in their home market that helps improve their margins and competitiveness."