Investing in Europe

Asia, Europe and Africa are the top three destinations for China's ODI. But since the European debt crisis broke out, Europe has led the growth and will probably continue to do so.

In 2011, China's investment in the European Union jumped by 94 percent year-on-year to $4.28 billion. In Africa it increased 59 percent year-on-year, compared with the 1.8-percent growth in the nation's total ODI during the same period.

Recent research by the consultancy Rhodium Group and China International Capital Corporation showed that China's investment in Europe increased by as much as 200 percent last year to $10 billion.

China's investment scale is still quite small, but the nation is set to accelerate its overseas investment, and debt-stricken Europe will be a most attractive market for Chinese companies, the report said.

By the end of 2020, China's investment in the region will range between $250 and $500 billion, it predicted.

A recent example is Chinese construction equipment maker Sany Heavy Industry Co Ltd's announcement that it will pay 324 million euros ($426 million) for a 90-percent stake in Putzmeister, Germany's largest concrete pump maker.

"In the past, we had few Chinese clients, but the figure is growing, despite the high fees," said Tang from law firm Jones Day

"Africa, Latin America and Australia are their focus," she said. "But Europe also interests them greatly."

Since the second half of last year, Chinese officials have repeatedly said the European debt crisis provides huge opportunities for Chinese companies aspiring to invest overseas.

Premier Wen Jiabao said during his meeting with German Chancellor Angela Merkel early this year that China has neither the intention nor capability to "gobble up" the region.

During the past few months, many top Chinese leaders, including Wen and Vice-Premier Li Keqiang, paid official visits to a number of European nations, highlighting the importance that the Chinese government attaches to the debt-stricken continent.

During his 10-day official visit, Li witnessed the signing of a series of investment deals between China and European nations including Russia, Hungary and Belgium.

And in Belgium, China Investment Corporation, the nation's sovereign wealth fund, launched a mutual fund, the China-Belgium Mirror Fund, with a local investment company to help Chinese companies boost their investment in Belgium and throughout the European Union.

"Belgium will become a very important platform for Chinese companies to expand in all 27 member countries of the EU," said Li.

Hurdles ahead

China's overseas investment, by the end of 2010, mainly went to the manufacturing, retail, wholesale, commercial services and mining industries.

But Chinese enterprises are diversifying their overseas investment into industries such as culture.

In May, Dalian Wanda Group, China's largest entertainment group, agreed to buy AMC Entertainment Holdings Inc for $2.6 billion including debt, in a bid to expand into the US. The deal marks the largest-ever buyout of a US company by a Chinese firm, and also made Wanda the second-largest cinema operator in North America.

Although many foreign countries welcome Chinese investment, especially since the outbreak of the global financial crisis, there are still various restrictions.

Huawei Technologies Co Ltd, China's leading telecom infrastructure provider, early this year missed out on building a national broadband network in Australia after the Australian government said it had a responsibility to protect the "integrity" and information security of a "strategic and significant government investment".

Justin Knapp, director of China Outbound Practice with Ogilvy Public Relations in Beijing, said "there are two important lessons" for Chinese companies facing restrictions in the US.

"First, Chinese companies should avoid politically sensitive acquisitions in the US and consider pursuing minority stakes of solicited assets in a non-aggressive public manner. Second, Chinese companies must leverage non-government, third-party associations as much as possible to influence the US government and local communities in which they seek to invest," said Knapp.

Chen from the Ministry of Commerce agreed. "Chinese enterprises own capital, capacity and technology, but what is weak is their cultural responsibility and corporate social responsibility.

"China's ODI growth cannot be sustained if this problem is not solved."

Chen said many Chinese companies that own overseas business have set good examples.

Fujian-based Licheng Garment Co, which has a factory in Bangladesh, employs about 8,000 local workers. Every year, the company invests 5 percent of its profits in charity projects, including donations to schools and temples, said Chen.

Michel Wormser, vice-president and chief operating officer of the Multilateral Investment Guarantee Agency of the World Bank Group, said it is very important to create benefits for local people and local communities.

Contact the writer at dingqingfen@chinadaily.com.cn