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This Week in Asia - Business

France battles with neighbours for Chinese business

The country has been slower than Germany and Britain to ratchet up trade with Beijing, but Chinese interest in French aerospace, alcohol, cosmetics and luxury goods is growing

PUBLISHED : Monday, 08 August, 2016, 8:27am
UPDATED : Monday, 08 August, 2016, 3:24pm

France is at the crux of a European Union-wide battle for business and finance from China. It has been a little slower than Germany and Britain to ratchet up trade with Beijing, but Chinese interest in French aerospace, alcohol, cosmetics and luxury goods is growing. A major priority for the French government in recent years has been balancing out the large gap between French investment in China and vice-versa.

China is the second-biggest goods trading partner outside the EU for France, after the United States. However, France's top trading partners remain other EU countries, some of which it lags in terms of buying from China.

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Nonetheless, HSBC forecasts China will become France's third-largest export customer by 2030.

"France has lagged some other euro zone countries a little in expanding its export trade into emerging markets, but we expect that to gradually change," the bank said in its Global Connections Trade Forecast on France.

France's exports to China were worth US$22.4 billion in 2014 and were dominated by the aerospace sector, according to MIT's Observatory of Economic Complexity. Other major imports included wine and spirits.

HSBC sees China as the second-biggest importer of French goods by 2030.

The competition among EU states for Chinese capital has intensified
The Mercator Institute for China Studies
 

The French government has worked to reduce the trade gap with China, which is a major contributor to its overall deficit. Chinese Premier Li Keqiang told a news conference that China was "not purposely pursuing a trade surplus with France", after the French prime minister visited in 2015, according to media reports.

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As one of the largest economies in Europe, France has benefited from China's move to deploy capital outside its borders from the 1990s onwards. More recently, the euro's weakness has boosted the appeal of investing in Europe. 2015 was a particularly successful year for the region for Chinese Foreign Direct Investment (FDI), due to a number of big-dollar deals.

France was a notable beneficiary, attracting US$3.6 billion in Chinese FDI, more than double the previous year, according to law firm Baker & McKenzie. This made France the second-most popular European country behind Italy for Chinese FDI last year.

"The competition among EU states for Chinese capital has intensified, which already weakens European leverage vis-a-vis China on important strategic questions," the Mercator Institute for China Studies in Berlin said in a report in February.

 

France-China deals last year included the purchase of Groupe de Louvre and its subsidiary Louvre Hotels Group, the second-biggest hotelier in Europe, for 1.3 billion euros (US$1.4 billion) by Shanghai Jin Jiang International Hotels Development Co. Plus, a partnership including the China Investment Corporation purchased a portfolio valued at over 1.3 billion euros of French and Belgium shopping malls.

These deals were dwarfed however by ChemChina's 7 billion-euro purchase of Italian tire producer Pirelli, highlighting a challenge for France  China's increasing interest in Europe beyond the "big three" countries of France, Germany and Britain.

French investment in China is a tricky issue, due to concerns about unequal market access for European companies, the predominance of state-backed enterprises and possible bias by the Chinese legal system against foreign firms.

China enjoyed total FDI amounting to 781 billion yuan (US$117 billion) in 2015, of which US$1.22 billion came from France, according to Invest in China, a government department. This was roughly similar to the flows from Germany and Britain, but behind Singapore, South Korea, Japan, Taiwan and the U.S.

"The new record figures for Chinese FDI in Europe are in stark contrast with stagnant or even declining FDI by European companies in China, which further increases the risk of imbalances in two-way FDI patterns," Mercator said.

Chinese students are now the largest foreign student group in French universities and colleges, numbering over 25,000, according to statistics from the United Nations. However, the U.S. remains by far the most popular country for Chinese people to study, with over 260,000 tertiary-level students there.

 

Mandarin Chinese is now widely taught in France and 100,000 secondary students studied the language in 2015, according to the French foreign office. However, its popularity as a language to learn is dwarfed by English and other major European languages.

The Centre Pompidou, Paris's flagship modern art museum, has long aspired to a presence in China, but plans to open a branch in Shanghai never materialized. Instead, the museum hopes to open a "pop-up" temporary exhibition space in the city in 2018, according to media reports.

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