In Europe for Europe Go back »
2013-03-15 | All chapters
More importantly, the Chinese investment footprint covers the entire continent, ranging from the cantons of Switzerland, to the industrial heartlands of Germany, the vineyards of France, a port in Greece, and textile companies in Italy. It also includes utility investments in the UK and services sector investments in many European nations.
Zhejiang Xuebao Fashion Co, a leading fur coat maker, is one of the Chinese companies eyeing Europe for further growth. The company plans to invest 50 million yuan ($8 million; 6 million euros) to acquire a local fur coat factory in Turin and establish a representative office in Italy by the end of May.
"Italy is the fur capital of the world. There is a lot of know-how we can gain from the Italian factory. It will also help in making our products appeal more to European customers," says Zhu Weixiang, general manager of the company. "The debt crisis in Italy has given us an ideal investment opportunity."
In July last year, China's leading down coat producer, Bosideng International Holdings Ltd, opened its first overseas store in London's West End. The $55 million store is the first main link in Bosideng's overseas expansion.
The company, named Chinese Investor of the Year in 2012 by the British Business Award council, expects overseas business to account for more than 5 percent of its total revenue in the next five years.
Chinese investment in Europe has not only grown rapidly, but also outpaced its investments to the US. And not surprisingly, most of these investments have managed to create jobs amid a dismal economic climate in Europe.
A recent study conducted by the European Chamber of Commerce in China, KPMG and Roland Berger Strategy Consultants indicates that Chinese companies operating in the EU will not only increase their investments in Europe, but also look to acquire more technology, brands and expertise through M&As to further improve their competitiveness.
"We were surprised to find that most of the respondents wanted to continue to invest in Europe. This gives us the feeling that Chinese companies that have an ongoing investment in Europe are happy with these projects and want to continue to stay invested in Europe," says Davide Cucino, president of the European Chamber of Commerce in China.
Of the 74 surveyed Chinese enterprises that have invested in the EU, 97 percent indicated that they would make future and additional investments in the EU, with the vast majority of them planning higher outlays, the study says.
Lending further credence to the survey findings were figures published by the National Development and Reform Commission in December, indicating that 11 of the newly approved outbound investment projects were in Europe.
Zoje Europe GmbH, the fully owned unit of Zoje Sewing Machine Co, a sewing machine company in East China's Zhejiang province, has recently completed two major acquisitions in Germany and is considering another.
The company plans to buy the German industrial sewing machine maker Pfaff Industrial to hone its technological strengths, says Chen Yongwu, general manager of Zoje Europe GmbH. If the purchase is successful, Zoje will hold more than 15 percent of the global sewing machine market, and become the world's second largest sewing machine company.
"We expect the Chinese investment wave in Germany to continue for the next five to 10 years," Chen says.
According to Germany Trade and Invest, the official investment promotion agency of Germany, investments from China accounted for 18 percent of the total investments last year. It is estimated that Chinese companies invested $1.47 billion in Germany last year, almost equal to Germany's investments in China.
"Germany is located in the center of Europe. Chinese companies can enter the European market easily by using the 'Made in Germany' tag. We expect to attract more Chinese investment this year," says Benno Bunse, chairman of Germany Trade and Invest.
Investment rationale
However, Cucino of the EU chamber says that revenue is not the only factor that is propelling Chinese companies to Europe.
"The foremost reason why Chinese companies want to invest in the EU is of course the European entry point for their products. However, they are not in Europe just for the European market, but also to bring back products to China and even export products to other countries."
In the EU chamber study, 85 percent of the respondents said their main reason for investing in the EU was to gain market access for their products in Europe and to provide goods and services within the EU market.
But "in Europe, for Europe" is not the only purpose, experts say.
Coco Ke Liu, head of business channel development at HLB International, a global network of independent professional accounting firms, says that while some Chinese businesses are investing in Europe to serve the European market, some are also investing here to acquire technologies and brands, which are important resources for success both in the Chinese market and abroad.
In recent years, a growing number of Chinese acquisitions in Europe have been across a diverse range of industries, including food, retail, manufacturing, education, clean technology, industrial technology and healthcare.
Shanghai-based Bright Food Group's purchase of a 60-percent stake in British cereal maker Weetabix in May last year helped the company gain a well-known and well-trusted British brand.
Chinese construction equipment maker Sany Heavy Industry and Chinese private equity company Citic's joint acquisition of Germany's largest concrete pump maker Putzmeister in January last year in a landmark deal allowed China to claim a pillar of German industry.
Bunse of Germany Trade and Invest says that for Chinese companies which are faced with industrial upgrading issues, investing in European countries like Germany can help overcome the problems.
"It is still a difficult process for Chinese companies to set up globally recognizable brands. They need support of both advanced management and technology, which we believe European countries like Germany can provide."
Many Chinese companies are expanding into Europe to build globally recognizable brands, as the European market has strict regulations especially for high-technology products.
Chinese medical equipment maker Mindray Medical is one such company testing the waters.
"We are committed to international expansion, especially in the US and Europe. These two markets are like two fortresses we have to conquer to become a truly global leader," says David Yin, managing director of Mindray's European operations.
"In the process of selling our products to Europe and the US, we learn about their strict standards. These lessons have become invaluable for product development at home."
Yin says Mindray's success in Europe and the US has helped it gain trust from domestic and customers in other emerging economies which had often favored Western products in the past.
"Some Middle Eastern and Latin American markets only give medical equipment product registrations if they have already been sold in Europe or the US, which just demonstrates how important it is to have a presence in Europe and the US," Yin says.
Challenges ahead
As with any companies entering a foreign market, challenges are inevitable for Chinese companies.
Cucino says the survey respondents cited operational problems, rather than market access, as the biggest obstacle for Chinese investment in Europe.
Other big problems included obstacles in obtaining visas and work permits for Chinese employees, European labor laws, human resources costs and cultural differences in management style.
Many Chinese companies have found it difficult to employ Chinese workers at their UK subsidiaries, because the British government often rejects their applications to sponsor work permits for their employees who are non-EU nationals.
This is because the government limits the number of work permits granted to 20,700 a year. This quota is then allocated to each professional category.
If the number of applications for work permits made by companies in a particular professional category exceeds the category's quota, generally applicants with the highest salary will get the places, says Xue Haibin, a partner in the London office of Zhong Lun Law Firm.
Xue says that it has been very difficult for his company to secure work permits for employees, because the salary it offers cannot compete with that of the biggest British law firms.
"The minimum salary of a trainee in London is only 20,000 pounds ($30,000; 23,000 euros), but some large law firms have the financial ability to pay 50,000 pounds."
Headquartered in Beijing, Zhong Lun expanded into the UK in 2006, to provide legal services to both Chinese businesses going there and UK businesses expanding into China.
"The British government says that the country is open to businesses, but its regulations show that it isn't so open," Xue says, adding that Zhong Lun may consider investing more in its offices elsewhere that have more open markets.
The company now has overseas offices in Riyadh, Lyon, Paris and major cities in the US.
An alternative way of employing Chinese workers in UK subsidiaries is through intra company transfer (ICT), but this method is very costly.
Under the UK's ICT scheme, foreign companies can only transfer workers to their UK subsidiaries if their salaries are above 24,000 pounds.
However, employees whose annual salary is between 24,000 pounds and 40,000 pounds can work in the UK for only one year, which for most companies is not enough for a worker to fully contribute toward the company's business there.
Those whose annual salary is above 40,000 pounds can stay in the UK to work without time restriction. The UK's average full-time salary was only 26,500 pounds, as of April 2012.
Paul Taylor, CEO of Dynex Semiconductor Ltd, a British company bought by China's Zhuzhou CSR Times Electric and which is now a subsidiary, says it is very expensive to transfer workers from the parent company to work with his team in the UK.
"This is a problem because we sell our products in China through our parent company and we need people working in China who understand our products. By transferring them to work in the UK for maybe three years, they can gain a good understanding of our products," Taylor says.
"If we sell more products in China, our manufacturing in the UK will grow, and we can recruit more local people to work for us if we grow."
In 2008, Zhuzhou CSR Times Electric bought a 75 percent share in Dynex. It has since invested in Dynex to build a new research and development center costing 12 million pounds.
Taylor says most of the Chinese workers at Dynex are sent from Zhuzhou CSR Times Electric on one-year ICT visas, because the salary of 40,000 pounds needed to pay workers staying for more than a year is unaffordable.
Sylvain Godinet, vice-director of the HLB Swiss member firm Beau Group, sees differences in business culture as a big challenge, and in particular, "the difficulty of EU counterparts to understand the Chinese manners in business".
"Typically, Europeans consider signing a contract with their Chinese counterparts to be the most important act in a partnership. And typically in mergers and acquisition cases, Europeans focus only on the selling price. This is difficult for Chinese parties who generally want to develop more deeply the relationship, exchange know-how and strengthen the relationship and collaboration."
Such challenges are inevitable for Chinese investors in Europe, and they need to be fully prepared for them, the EU chamber says.
"As far as operational obstacles are concerned, Chinese companies should be prepared to adapt to the market. You can look back at what European companies did in the Chinese market 30 years ago. It requires a fundamental adjustment to existing corporate strategy," Cucino says. "On the other hand, I believe that the further opening-up globally, which happened in the past 30 years, should narrow the length of this period of time for adjustment for Chinese companies."
He suggests that the EU should provide a package of easily comprehensible information regarding how to do business in Europe and how to do business in specific EU member state countries.
The EU has been China's largest trading partner for more than 10 years. Last year, bilateral trade dropped 3.7 percent to $546.04 billion. Exports from China to the EU fell 6.2 percent to $333.99 billion, and imports grew 0.4 percent to $212.05 billion.
Trade frictions have also been developing between the two sides. Sectors such as ceramics, photovoltaic and telecommunications have all become battlefields.
Experts say that because of such issues a cloud hangs over trade.
That suggests Chinese companies' increasing desire to invest in the EU may become a second link between China and the EU in strengthening economic relations.
China and the EU could start investment talks in the coming months, says Wu Hailong, the Chinese ambassador to the EU.
The EU has been a major source of China's foreign direct investment and has been an attractive destination for China's outbound direct investment.
According to the Ministry of Commerce, China has signed investment agreements with more than 100 countries and regions including Germany and France.The EU has been a top investor in China, with $6.11 billion invested last year.
In 2011, China's investment in the EU rose to $4.3 billion, from just $100 million in 2003.
Helping hand
Chinese companies' growth in Europe has benefited many European businesses that work as their local distributors, suppliers or consultants.
Chinese lighting company NVC Lighting Technology, whose decision to manufacture some of its products in Birmingham, has brought growth to many component suppliers in Europe, including Tridonic, Helvar Mackwell and CP Electronics.
Kelvin Lay, of Helvar, a component supplier for NVC UK, says the company's use of European manufactured components for products sold in Europe shows its commitment to quality.
Paul Mans, managing director of CP Electronics, a British company that supplies censors to NVC UK, says the company's investment for a full support team in the UK also helps to build trust.
"In the UK, the biggest issue with importing products from China is not knowing if potential problems can be sorted out. But because NVC has a large office in the UK with lots of people with the technical expertise to help customers, it reassures people that if a problem occurs, it can be sorted out," Mans says.
As a young business established in 2007, NVC UK already supplies to about 1,500 out of 3,500 electrical wholesalers in the UK, says director Garry Pass.
Another example of local businesses benefiting from Chinese companies' expansion is the British engineering consultancy Ricardo Plc, which recruited about 100 employees in the UK after winning a contract with the Chinese carmaker SAIC Motor Corporation Ltd in 2005.
Ricardo's task was to help SAIC establish a research and development center in the UK, training SAIC's engineers to understand how to make full use of the technology relating to the Rover 75 and Rover 25, which SAIC bought from MG Rover after the British carmaker collapsed that year.
Located in the English Midlands, the R&D center employed about 200 engineers, many of whom were former MG Rover employees.
Gary Tan, Asia president of Ricardo, says one rationale for establishing the R&D centre in the UK as opposed to China was the availability of highly skilled engineers in the English Midlands after MG Rover's collapse.
(China Daily 03/15/2013 page1)
Source: China Daily