Chinese investments in Europe

Over the past 30 years, China has developed a very strong industrial culture, thus becoming the first industrial power in the world. This power provides China with legitimacy and confidence in its ability to manufacture almost all kinds of products at highly competitive prices. Nevertheless, the directors of Chinese firms do not know yet how to develop a brand culture.

Little by little, they begin to be aware of the gap existing between on the one hand their industrial strength and on the other hand their lack of competences in branding or retail.

From now on the Chinese must manage to go up in the value chain, so did Japan did in the 1980s and South Korea more recently. To do so, a lot of entrepreneurs have understood that buying an internationally well-known brand helped to grow quickly. Thus, the Chinese have started to buy some brands, including emblematic ones such as Pierre Cardin. If the latter has lost influence in France, it still keeps a strong presence in Asia.

Moreover, it exists a real fear of Chinese business managers, leading them to accelerate their investments out of their country. Indeed, they are scared of seeing their real estate and industrial patrimony confiscated by the Chinese authorities. This dread affects not only the European established in China, but also Chinese entrepreneurs, whose lightning enrichment may seem suspicious.

Thus a large number of capitals go out of China to be invested in Europe or the US. This trend has been accelerating over the past few years, particularly via the familial network. Indeed family often plays the role of bridgehead after identification surveys of potential targets. In most cases, these investments take the form of takeovers more than ex-nihilo developments.

Yet, a kind of misunderstanding related to these takeovers can exist. The Chinese are more European than us and have trouble understanding that Europe is made of several countries whose laws and tax systems can be very different, while they were expecting a unique market like in the USA…

As a result, facing this European complexity, the Chinese investor rather invests in the takeover of European brands to develop them in China.

Such factors enable us to think that the rise in Chinese investments in France is not an illusion and the recent official visit of the Chinese president Hu Jintao has revealed the ambition of China in France and Europe. Investments that particularly attract the Chinese are:

• traditional sectors such as nuclear and aeronautics,
• new sectors like environment and IT,
• top-of-the-line industries like the luxury sector,
• new energies and new materials.

In 2009, if the Chinese have invested 130 billion euros out of their boarders, only 2 billion of these investments have been given to Europe, thus letting a big growth margin for the future.

About BDC: BDC is a consulting firm in Business Development which supports the development in France and abroad of French, Chinese and foreign companies: development strategy, project management, structure creation, acquisition, search for subventions, top manager coaching…