EU sees record-high investments from China

12 January 2017   Category: News, Asia, China, Europe, Germany   By Asia Asset Management

The European Union (EU) saw more than 35 billion euros (US$36.9 billion) in outbound foreign direct investment (OFDI) from China in 2016, up 77% from 2015, with Germany being the largest recipient of investments from China.

According to a report published by the Mercator Institute for China Studies (MERICS) and Rhodium Group, China’s total OFDI last year reached a record-high of almost US$200 billion, with the EU maintaining its position as a favourite investment destination for Chinese investors.

The report added that in 2016, Chinese investors realigned their focus towards the “big three” European economies – Germany, the UK and France – which accounted for 59% of the country’s total outbound investment value in Europe. Out of the three countries, Germany accounted for more than 31% of total European investment from China with more than 11 billion euros in completed deals.

The sectors most popular amongst Chinese investors investing in Europe were technology and advanced manufacturing assets, as illustrated by Tencent’s 6.7 billion euros acquisition of Finnish gaming firm Supercell and Midea’s acquisition of German robotics company Kuka for 4.4 billion euros.

However, the report’s authors, Thilo Hanemann and Mikko Huotari, raised concerns that the current pace of expansion could be slowed down in 2017 due to the Chinese government’s efforts to stem the outflow of capital, as well as growing fear amongst Europeans that companies might sell off their core technologies to China.

“The only way to ensure that the European business community, government leaders and the broader public continue to welcome growing Chinese investment in Europe is to make real progress on reforms that increase the role of markets and level the playing field for foreign companies in China. A breakthrough in bilateral investment agreement negotiations would also be a powerful signal”, the report claims.

In contrast to the sustained rise of Chinese investment in Europe, the report stated that European FDI transactions in China continued to decrease in 2016 for the fourth consecutive year, to roughly 8 billion euros – mainly due to the persisting hurdles with regards to accessing the country’s markets.

However, there is the prospect of China further opening up to global investors via “D-shares”. Chinese companies could soon be able to sell their shares in Germany via the issuance of D-shares, which are essentially Frankfurt-traded shares sold by China-registered firms, according the Shanghai Stock Exchange (SSE). The proposal is now being studied by the Frankfurt-based China Europe International Exchange AG (CEINEX).  

The initiative, however, is still pending approval from Chinese and German regulators. If approved, CEINEX will initially look to invite blue-chip companies currently listed on China’s A-share market – especially manufacturing firms with clear international strategies – to issue D-shares, says the SSE.

CEINEX was jointly set up by the SSE, the Deutsche Borse AG and the China Financial Futures Exchange in 2015, with the vision of offering a trading platform for offshore RMB-denominated products, including stocks, bonds and exchange-traded funds.