ECONOMIC

Chinese Investment causing a

W
e are used to seeing headlines these days saying that the Chinese are coming to buy up the rest of the world. We see excitement about the purchase of well known European brands like Volvo and Weetabix by Chinese companies. This proves the trend that has been spoken about since 2007: that a rising China means the era of `Made in China is coming to an end, and that of `Owned by China is beginning. But perhaps we need to pause for thought. In 2011, there were over 300 US mergers and acquisitions in the UK. In the same year, there were only five by Chinese companies. As of 2012, of the stock of overseas direct investment (ODI) in the UK, 45 per cent is from elsewhere in the EU, 45 per cent from the US, and less than 1 per cent from China. While Japanese companies have a stock of capital in the UK approaching USD100 billion, the Chinese figure barely reaches two per cent of that The mystery in fact is not why so much money is coming from the worlds second biggest economy, but, in fact, why so little is. China is a multi trillion dollar sized economic entity. And yet it figures less on the global scale of investment than Germany, the UK or Japan. One of the reasons why Chinese outward investment creates a stir is that this is a new phenomenon. China has been sucking in large amounts of investment since the reform process started in the late 1970s, but as an outward deployer of capital it started late. Only since 2002 has there been a formal policy f rom the cent ral gover n ment of encouraging Chinese companies to go global. And only since 2007 when the Chinese Investment Corporation was established have there been significant increases in ODI. Then we have to accept that, based on off icial Chinese Minist r y of Foreign Commerce figures at least, the bulk of this ODI has gone into Hong Kong, or offshore destinations li ke the Br it ish Vi rgi n Islands. Mo s t of t h e r e m a i n i n g m o n e y goes to Africa and Latin America. Developed countries, for all that potential Chinese investors might say about their desire to put their money here, are a tiny proportion of what gets invested in at the moment. Fi nally, we have to u nder st a nd that the bulk of investment comes through state owned companies, into resources and service support for Chinese export markets, and from the centre in Beijing. The one thing that is new, however, is that Chinese ODI has massively increased in terms of proportion since the mid 2000s. Each year it rises by double digits. It easily doubled between 2009 and 2011. The rest of the world, probably rightly, sees this as a continuing trend, and one of the signs of Chinas rising e c o n o m ic i m p o r t a n c e. H av i n g an engagement strategy with this relatively new source of ODI seems to be the right thing to do. Within the EU, we can see that

Stir

Chinas economy is becoming more and more important on the world stage. The question is, why is so little money coming to the EU from the worlds second largest economy?
member states that have a positive strategy of engagement with Chinese ODI get the most coming to them. Germany, the UK and France, with investment offices in China, have received the largest amou nts of Chinese ODI. Theyve also leveraged off the diaspora of ethnic Chinese living in these countries, and the key sectors they are able to present for potential investment. One thing that EU countries do need to work out, however, is to get across a more consistent message about their real attitude towards having Chinese ODI. Political leaders across the EU freely state they are open to business for Chinese money, but this strikes against the various high profile cases in which Chinese companies have been blocked due to security or other constraints. Huawei, the telecoms company, is the highest profile case of this. We have to accept that, in taking Chinese investment, we are dealing more with inexperienced investors than with partners who have some grand overarching scheme to start dominating specific sectors. A more benign environment for them to invest therefore, particularly because the EU market is so important for them, is no bad thing. [Article released in January 2013] .................................................................. Author: Kerry Brown is Director of the Chinese Studies Centre at the University of Sydney and Team Leader of the Europe China Research and Advice Network (ECRAN).

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The British Chamber of Commerce Shanghai

Business Insights and Directory 2013