Over the last decades, China has developed from a weakened emerging market to a strong world economy. The meteoric rise of many industries helped China in becoming an economic world power, leaving the U.S. behind. Consumers have gained momentum and Internet giants revolutionized everyday life with smartphones. But recently, the Middle Kingdom has been stumbling over its own ambitions. Their economic growth rate is decreasing; the Chinese economy is facing massive problems in terms of indebtedness. While the current development in the country looks quite gloomy, Chinese investors have discovered a new, promising way of making profitable investments: they invest overseas. Europe especially has experienced a somewhat overwhelming rise of Chinese investments in domestic companies. Nowadays crossborder business is nothing new, but China was not always such a frequent participant-until now.
Chinese Investors Are on Shopping Tour
A deal in 2015 brought public attention to Chinese investors: China National Tire & Rubber Company (which is part of the state-owned giant ChemChina) bought the old established Italian business Pirelli for $7.5 billion. Malicious gossip has it that this deal was only meant to serve ChemChina’s interests and they did not just want to buy the technology but also the international recognition. Pirelli is famously known for its tradition and quality-not necessarily for its Chinese ownership by now. But this takeover is just one on a growing list. Earlier this year, the very same company that bought Pirelli, agreed to buy KraussMaffei, which is one of Germany’s leading machine makers. The deal was worth $1 billion and currently the biggest acquisition of a German company by Chinese investors, according to Global Handelsblatt. Chinese companies create the impression of being on a shopping spree of well-known European brands and that brings some concerns on the scene.
It Is Not a Question of Money
Despite the fact that China is currently facing a setback in its economical growth, the country is still flush with money. Chinese investors were able to accumulate a considerable amount of money during the last few years, thus financial considerations scarcely play a role when it comes to purchase decisions. This involves certain risks for European firms. As Chinese investors are not keen on the idea of putting their money in greenfield projects, most Chinese investment in Europe goes into existing and established companies. Crossborder business is common these days, but as China is communist, different rules apply. When established European brands fall under the management of Chinese state companies, geopolitical facts also come into effect. Europe is an important market for China and by buying into existing structures the country also expands its global influence. Of course this is not necessarily a bad thing, as Chinese investors can bring new impetus to the acquired firms. But it should also be kept in mind, that openness to investment by Chinese state entities means indirect support for the Chinese government.
New Policies for Foreign Investment
While Europe is quite open to foreign investment and few restrictions apply, China’s government complicates market access. Usually, European investors in China are required to set up a Joint Venture with Chinese partners and have to face many difficulties in certain industries. Currently, the European Union is trying to negotiate for more openness, but remains at a disadvantage at the moment. Therefore, Europe needs to implement some hedging measures, in order to reduce the imbalance. A coherent policy for foreign direct investment is necessary to guarantee successful future company acquisitions and amalgamations. Clear guidelines for foreign investors are essential to secure the representation of the European Union’s interests.
China no longer wants to be the sweatshop of the world and invests in Western know-how in order to boost its domestic industries and adapt to international standards. At the moment China’s acquisition policy is not a problem. But if Europe misses the opportunity to draw up clear regulations and protection of intellectual property, China will benefit from the lapse.