Chinese investment in Europe has soared this year, and strategic thinking is playing a key role

 

Many have called on Chinese companies to do their bit to transform themselves into far more modern, market-oriented money making machines to fuel China's continued economic rise during a difficult transitionary period.

 

Clarion calls continue to be heard for a less conservative, more ambitions investment-led business culture across Chinese industry with international expansion at the heart of corporate strategy within Chinese companies of all sizes.

 

So it is extremely welcome to see that China's outbound investment to Europe for only the first quarter of this year, $7.2 billion (5.3 billion euros), has easily surpassed the level recorded for the whole of the previous year, $5.5 billion.

 

Even more encouragingly, investment in Europe this year has been spread far and wide across a multitude of very different industry sectors from manufacturing and agriculture to IT, telecommunications and real estate.

 

 

Of course cross-border takeovers are primarily responsible for this surge in investment by Chinese companies in Europe.

 

Highlights this year include China National Cereals, Oils and Foodstuffs Corporation, $2.9 billion purchase of Nidera of the Netherlands, a major global commodity trader and agribusiness player.

 

Not that COFCO's impressive strike in Europe represents the only major investment of note this year. The conglomerate Sanpower of Nanjing also made front-page news this year with its 90 percent stake in the British clothes retailer House of Fraser, at a cost of almost 500 million pounds ($836 million, 615 million euros). Sanpower's ambitious move is all the more impressive given reports that it plans to invest further with well over $100 million pledged to fund a major store revamp and website redesign.

 

 

Not only is this investment spread over a wider and more diverse portfolio of industrial sectors, but it also appears that Chinese companies are now carefully targeting a greater number of European countries and cities.

 

Indeed it is those gateway cities across Europe such as London, Paris and Rome that appear to figure heavily in Chinese companies' investment plans.

 

In the first quarter of this year, investment from China accounted for 11.6 percent of total foreign investment in Europe, compared with the 2.9 percent recorded last year.

 

If this year's investment figures for Europe alone do not provide sufficient evidence of Chinese companies' new found confidence and determination to expand into Europe with a long-term, strategic view, then recent and substantial investment interest and activity in Germany surely combine to form an indisputable trend.

 

Germany has been China's largest trading partner in Europe for many years, but the same has been far from true for Germany as a destination for Chinese investment in Europe.

 

Germany, for a long time the economic power house of Europe, presents a formidable challenge for foreign companies. The competition is as strong as the typical German consumer's demands for the highest quality and service standards.

 

It was only as recently as 2007 when Chinese investment in Germany amounted to no more than four deals that totaled $150 million. However, for 2013 this climbed to a total of $1.5 billion, with no fewer than 20 deals with German companies.

 

Chinese companies no longer appear timid when it comes to gaining market share in Germany's most challenging business environment, and appear eager with German companies. Germany's medium-sized manufacturing companies, the famous Mittelstand, are often global leaders in their particular fields.

 

A year ago, Weichai Power, one of China's leading automotive and equipment manufacturers, further cemented its long-term strategic partnership with Kion Group of Germany. The partnership, to date the largest direct Chinese investment in Germany, first began in 2012.

 

Not that European business should be intimidated by this jump in Chinese investment. On the contrary, this represents an opportunity for Europe and European business to develop further, improve their financial position and expand their brands' market penetration across China, Asia and beyond.

 

Recent Chinese investment in Europe, typified by Weichai's long-term strategic tie-up with Kion Group, appears to be the result of careful planning and the desire to form symbiotic relationships with the most suitable European business partner.

 

 

Two further examples of this desire for mutually beneficial outcomes are this year's tie-up with the German solar industry company Conergy and Shanghai-based Bright Food Group's takeover of the UK breakfast cereal brand Weetabix in 2012.

 

The solar panels maker Chint of Wenzhou bought Conergy in February but has already assuaged any fears among the German workforce with a totally hands-off approach. Conergy's German management and workforce continue to operate as before, with their Chinese owners keen to assist with much-needed capital injection only.

 

But is this strong surge in investment in Europe solely seeking financial and market share gain in more lucrative markets? Not at all. Chinese companies are just as much motivated by the domestic Chinese consumers' insatiable desire for high-end, premium foreign brands and higher quality products and service standards generally.

 

Specifically, Chinese consumers' ever increasing thirst for sophistication has recently led to huge investments by Chinese companies in French wineries and vineyards. The Chinese now drink more red wine than the French, with a particular penchant for the more select French red wine produced from the more famous grape varietals such as cabernet sauvignon, merlot and syrah.

 

Last year Chinese consumers drank their way to a record 155 million nine-liter cases (1.865 billion bottles) of red wine, a growth of 136 percent between 2007 and 2013.

 

Paradoxically, Chinese investment in Europe should spur domestic consumption across the Chinese mainland.

 

The remarkable resilience of the European economy, compared with the stubbornly sluggish US economy, has also played a role in attracting Chinese investment. Chinese companies are choosing to scan the European business environment rather than the US with a particular eye on those European firms in need of cash injection.

 

Germany's central bank has recently reiterated its expectation of strong growth across the European Union this year, and even Spain's central bank estimates economic growth of 1.2 percent this year. Meanwhile, the rest of the world faces a continued slowdown.

 

Encouragingly, this investment in Europe looks set to continue with two of the largest and most internationally acquisitive firms' very public, recent proclamations.

 

Bright Food Group, one of China's largest food companies and its third largest dairy-producer by revenue, appears once again to be eyeing further investment in Europe. This year, the company's charismatic and far from publicity-shy vice-president, Ge Junjie, spoke at the London School of Economics of the necessity of global expansion and plans to secure more joint ventures, strategic partnerships and takeovers in Europe.

 

In addition to buying Weetabix in the past two years, Bright Food has also bought the French wine merchant Diva Bordeaux.

 

Specifically, Ge has targeted an increase in Bright Food's proportion of international assets to total assets from today's level of 12 percent to 25 percent in the next three years.

 

Most importantly, and typical of many of the Chinese companies now seeking investment in Europe more and more, Ge cites not just the obvious learning opportunity for his company and Chinese companies generally from established foreign brands but also the gateway into the Chinese market presented to these foreign firms as key reasons behind cross-border tie-ups as central to corporate strategy.

 

Another example of the strategic nature of recent and future investment in Europe from China is the Chinese property conglomerate Dalian Wanda. Wanda plans to invest in London to the tune of about 700 million pounds with plans to build luxury apartments and a luxury hotel.

 

In all, the message is crystal clear: Chinese companies have at last found the confidence and ambition to invest and expand overseas, and this is also matched with a long-term strategic outlook. Europe is preferred to the US, and European firms have so much to gain with any Chinese partner tie-up with immediate access to the massive marketplace of Chinese mainland.

 

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