Surging Chinese investment in European Union set to continue
Surge in investment in Europe in first quarter signals ongoing trend buoyed by weak euro and likely unification of bilateral treaties
There were 11 announced Chinese deals in the EU totalling US$9.6 billion during the first quarter, an increase of 31.2 per cent from the first quarter last year, which saw seven Chinese deals totalling US$7.3 billion, according to Mergermarket, an international analysis firm that monitors deals.
"We are quite bullish as far as this trend is concerned. The trend of growing Chinese investments in the EU is bound to continue. I'm doing a lot of work on Chinese investments into the EU," said Thomas Gilles, chairman of the EMEA-China group at Baker & McKenzie. "However, the trend of rapid growth of Chinese investments in the EU may possibly be arrested if the EU economy further deteriorates," Gilles said.
The base of investors in China that are willing to enter Europe with large-scale investments is expanding
A large chunk of the first quarter's investments came from China National Chemical Corporation's (ChemChina) €7.1 billion (HK$59.8 billion) acquisition of Pirelli, an Italian tyre maker.
Chinese investments in the EU doubled to a record US$18 billion last year, according to a report by Baker & McKenzie, an international law firm. Given that Chinese investment in the EU was roughly US$9 billion in 2013, this means that in the first quarter alone, the value of such investments equalled the whole of those made in 2013 and half of those made last year.
"Chinese investments into Europe are likely to increase again in 2015. The base of investors in China that are willing to enter Europe with large-scale investments is expanding," Edward Freeman, a Hong Kong-based partner at international law firm Freshfields Bruckhaus Deringer, said.
Simon Weller, a Hong Kong-based partner at Freshfields, added "the value proposition for investing in Europe is strong right now. Chinese buyers are in a good position because of current exchange rates".
The yuan-euro exchange rate has fallen from over 7 yuan per euro in February to 6.7 yuan last Thursday. Currently, China and the EU are negotiating a bilateral investment treaty that Gilles estimated would be signed in 2016. "Currently China faces 26 different bilateral investment treaties with individual EU member states," he said.
"A unification of these treaties would enormously facilitate Chinese investments into Europe and, hence, increase the investment flow."
The China-EU investment treaty would continue the reduction of Chinese government approvals necessary for Chinese firms before they invested in the EU, Gilles explained.
This would provide more clarity for selling EU assets to Chinese investors since the chances of a deal being blocked by Chinese authorities would recede, he said.
