Thrills - and some spills

Updated: 2010-12-01 14:43

By Andrew Moody (China Daily)

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Eric Thun, lecturer in Chinese business studies at the Said Business School at Oxford University, says Europe is often more attractive than the United States for this type of investment.

"Europe tends to be a better match in what Chinese firms are focusing on. They are interested in capital-intensive manufacturing processes and countries like Germany are world leaders in this area," he says.

"You see a number of Chinese companies setting up research and development facilities in Germany because they want to be in industrial clusters where they have access to highly skilled labor, research institutes and training facilities."

When it comes to investing in research and development facilities in China by European companies, the elephant in the room remains intellectual property protection.

Despite government efforts, counterfeiting is a feature of the Chinese economy and many companies are nervous of the risk of having their intellectual property exposed to the risk of being copied.

Current European Chamber president de Boisseson believes the problem can only get better over time.

"It can't really get worse because it is starting from a very low point. Our concern that it is not getting significantly better and that is the point we make to our Chinese interlocutors," he says.

"There are many good words about IP protection but the reality is quite different from those words. Our members on the ground say the law is good but the way it is applied in a particular province is not always that good."

Acquisition trail

Chinese companies are increasingly becoming acquisitive in Europe. Apart from Geely buying Volvo, Shanghai industrial conglomerate Fosun acquired a 7.1 percent stake in French holiday resort operator Club Med in June and there was recent speculation that Bright Food, also of Shanghai, was to buy the United Kingdom biscuit giant United Biscuits, although interest in the deal now seems to have waned.

According to China's Ministry of Commerce, 5.8 percent of Chinese overseas direct investment in 2007, the last year for which figures are available, was directed at Europe, behind Asia on 62.6 percent, Latin America 18.5 percent and Africa 5.9 percent but ahead of North America on 4.3 percent.

Wuttke at BASF says Europe is much more open to Chinese investment than many other parts of the world, particularly the US.

"I am not aware of any European rejection of Chinese investment. I think Europe has been very open to Chinese companies, even though it hasn't always been reciprocated."

Andre Loesekrug-Pietri, chief executive officer of private equity concern A Capital Asia, which has offices in Beijing and Shanghai, says many European companies are actively seeking a Chinese investor to gain access to the market.

"Having a Chinese investor could give them some sort of assurance they have a strong ally in what is a highly competitive but also perceived as a more and more difficult market," he says.

The failure by the EU to award China Market Economy Status is still seen as a barrier for some Chinese companies exporting to Europe.

"Why does the European Union deny China Market Economy Status?" asks Wu at Guanghua School of Management.

"By what measure? Perhaps they would like to tell us. China quite clearly is a market economy."

He says China is often accused of dumping goods in export markets but it was largely selling goods at market prices just like its competitors.

"The fact there may be different cost structures, lower labor costs and land prices really should not be brought into question when companies are simply charging market prices for goods. Ultimately, it is the price of the goods which matter."

Jing at International Financing magazine says the issue boiled down to trust.

"Of course, it is unfair for the EU to deny this because the trade relationship should at a basic level be based on trust and both sides need to acknowledge each other as equals," she says.

The level of competition in China and the entrenchment of State-owned enterprises, huge beneficiaries of China's 4.2 trillion yuan (465 billion euros) economic stimulus package in a number of sectors, has led to a view that it might be already too late to enter the China market.


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