China is clearly a latecomer as a global investor: the stock of its outward foreign direct investments (FDI) accounts for less than 1 per cent of world FDI stock, and lags behind the world average in terms of ratio to gross domestic product (GDP).Nevertheless, the very rapid increase in Chinese investments abroad, which rose from US$ 5.5 billion in 2004 to nearly US$ 42 billion in 2008, is attracting much interest from international business scholars and economists as well as the media.

Despite the presence of Chinese companies in the developed world being negligible in absolute quantitative terms, with Europe and North America receiving respectively 2.8 and 2 per cent of total Chinese FDI2, the focus on China’s overseas expansion in research conducted in these countries is strong. The reasons for this are several, and reflect the mix of fears and hopes from such expansion. The input of fresh capital is very attractive and, in the case of acquisitions, often rescues enterprises facing financial difficulties.
 

The mixed expectations related to China’s overseas expansion calls for a better understanding and knowledge of the strategies of Chinese companies entering overseas markets to inform what is becoming an increasingly relevant debate. The empirical evidence on Chinese FDI in European countries is quite limited and relates mainly to the UK and Germany.  This paper contributes by analysing the case of Italy.

Italy as a location for Chinese FDI

Italy traditionally has not been attractive as a destination for foreign investment: according to UNCTAD (2008), in 2007 Italy was ranked 31st in the inward FDI potential index, and 107th for inward FDI performance. Focusing on Chinese FDI in Italy within a European perspective, Italy ranks 7th with a share of 4.05%, while Germany and the UK account for more than 50 per cent of the total stock of Chinese FDI in Europe in 2008.

Chinese FDI in Italy

The first Chinese ‘flagship’ investment in Italy was in 1986 when Air China opened a commercial office in Rome. From the mid-1980s to the end of the 1990s investments were sporadic, and included an office in Turin of the Nanjing Motor Corporation7, a commercial office for Cemate Machinery Technology and a branch of the Bank of China in Milan.
 

The majority of Chinese FDI in Italy occurred after 2000, and represent recent but rapidly increasing interest. The available information shows that the majority of Chinese companies located in Italy also have investments in other European countries. According to some of our informants, Italy is not the first choice of most Chinese investors, and the decision to invest in Italy is usually part of a broader European strategy. Notable exceptions are Haier, whose location in Italy is strategic for the company, owing to its specialization in the white goods industry and HG Europe, which is located in Italy because of its Italian managing director, who has personal links with the Chinese family owning the Hengdian Group.

With regard to sectoral specialization, the main sectors are household appliances and automotive, both industries in which Italy traditionally has strong production capabilities and in which China is rapidly increasing its competitiveness. In terms of number of investments, Transport and Logistics is an important sector owing to the geographical position of Italy as a hub for Southern Europe. Also, Italy represents an

important market for electronics and telecommunications, which are other attractive industries for Chinese investors.
 

Chinese investments in Europe reflect a sustained effort to enter competitive European markets and get access to superior technologies, know-how and competence. With regard to market-seeking investments, since Italy is the seventh largest economy in the world, it represents an important market for foreign investors. Beyond the size of the market, Chinese companies consider Italian consumers to be demanding and particularly sophisticated.

Chinese FDI in Italy is a recent and limited phenomenon, but shows some interesting features. It is expected to increase in the immediate future.