Chinese FDI Activity in Europe: Trends, Impacts, and Challenges

Chinese FDI Activity in Europe: Trends, Impacts, and Challenges

Amir Manzoor (Bahria University, Pakistan)
DOI: 10.4018/978-1-5225-2361-1.ch014
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Abstract

Today, China has become one of the major exporters of capital in Europe. It is expected that China's liberal policy and growth model will soon make China a major provider of cross-border investment. This process is expected to have significant impact on host European countries of Chinese investment. Europe needs to change its policies and position itself strategically to not only reap the benefits of this massive influx of Chinese investment but also minimize potential risks that European countries face due to their historical linkages with China for trade and investment. The objective of this chapter is to review Chinese FDI in Europe to identify its impact on Europe's economy and suggest some measures for European economies to optimize the benefits of Chinese FDI for their national competitiveness and economic growth.
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Introduction

China’s outbound foreign direct investment (ODI) may exceeded inbound foreign direct investment (FDI) for the first time in 2014, making China a net exporter of FDI. This is surprising given the country’s stage of development as well as its relatively low share of global ODI stocks. Figure 1 shows the trend of Chinese ODI by July 2016.

Figure 1.

Trends of Chinese ODI

Source: (American Enterprise Institute, 2016)(Figures are in Millions of US dollar)

It appears that a very significant portion of Chinese ODI is focused on developed world. Out of top twenty recipients of Chinese ODI, eleven were developed countries. Figure 2 shows the top recipients of Chinese FDI. It seems that focus of Chinese ODI is not the region but the sector-wise strategic priorities. Within the same region, the amount of Chinese ODI in various countries varied significantly. One good example is middle-east region where Qatar received the least amount of Chinese ODI. The Figure 3 shows the countries that received the least amount of Chinese FDI.

Figure 2.

Top 20 Recipients of Chinese ODI

Source: (American Enterprise Institute, 2016)(Figures are in Millions of US dollar)
Figure 3.

Bottom 20 recipients of Chinese ODI

Source: (American Enterprise Institute, 2016)(Figures are in Millions of US dollar)

The increasing influx of Chinese FDI continues to impact European economies. The amount of Chinese FDI in Europe has exceeded $100 billion per annum and quickly shifting its focus towards more advanced European economies. Some of the most attractive sectors for Chinese investors include energy, transport, real-estate and technology. Both private and state-owned enterprises of China are actively making significant investments in Europe. Germany ranks no. 2 in the list of Chinese FDI recipients with total Chinese investment of €6.9 billion by the end of the year 2014 (UNCTAD, 2015). The advanced manufacturing capabilities of the more developed European economies are the major focus of the Chinese investors. The total Chinese investment in automotive and industrial equipment sectors of Germany alone accounts for more than two-third of the Chinese investment in Germany. With time, Chinese investment portfolio has diversified to include IT, finance, and consumer products sectors. In more developed European economies, the focus of Chinese investment is small-to-medium sized takeovers.

The objective of this chapter is to provide a comprehensive analysis of the outward direct investments by Chinese companies in the Europe region. After introduction, section 2 provides a discussion of the existing landscape of Chinese FDI in Europe. Section 3 discusses how new Chinese FDI would impact European economies and possible responses of European economies towards this FDI. Section 4 would discuss various concerns of stakeholders with respect to emergence of China as a new major FDI provider for Europe. Section 5 provides implications and recommendation for European policymakers for maximizing the benefits while addressing concerns discussed in section 4. Concluding remarks are provided in section 6.

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Existing Landscape Of Chinese Fdi In Europe

During the last decade, Chinese FDI has focused on European nations especially the Southern and Eastern European nations(Le Corre, 2016). Figure 4 shows distribution of Chinese FDI.

Figure 4.

Region-Wise Distribution of Chinese ODI

Source: (American Enterprise Institute, 2016)(Figures are in Millions of US dollar)

Key Terms in this Chapter

China: It is a populous nation in East Asia whose vast landscape encompasses grassland, desert, mountains, lakes, rivers and more than 14,000km of coastline. The country is one of the highly emerging countries in the world chasing United States in its GDP and per capita income.

European Union: The European Union is a politico-economic union of 28 member states that are located primarily in Europe.

Economic Development: Economic development is the process and policies by which a nation improves the economic, political, and social well-being of its people.

FDI: Its full form is foreign direct investment. It is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country.

Global Markets: A global market refers to the activity of buying or selling goods and services in all the countries of the world.

Investments: Investments are the action or process of investing money for profit.

Global Integration: Global integration can involve the processes of product standardization and technology development centralization.

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