The Internationalization of Chinese Companies and Their Presence in Europe

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Editors
Javier Solana & Angel Saz-Carranza
The Global Context:
How Politics, Investment,
and Institutions Impact
European Businesses

The Global Context: How Politics, Investment, and Institutions Impact European Businesses Chapter 06 | The Internationalization of Chinese Companies
and Their Presence in Europe
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06
Chapter 6
The Internationalization
of Chinese Companies
and Their Presence
in Europe
Ivana Casaburi
Director, ESADE China Europe Club
ESADEgeo - Center for Global Economy and Geopolitics
Carles Brasó Broggi
Doctor of Economic History and Sinology
China’s outward foreign direct investment (FDI) has skyrocketed in the last decade,
causing ripples in the economy of every region in the world. One of the regions where
this growth has been felt most is the European Union, where Chinese stock investment
practically quadrupled in the course of just two years, rising from $768 million in
      
(to $12.496 billion in 2010) (MOFCOM 2011, 101).1   
from 2014 (MOFCOM), there are currently 2,000 Chinese companies established in
the EU, with a total investment of $40.097 billion, so China accounts for four of every
ten dollars invested in developed countries. Consequently, almost the entire stock
     
of economic crisis (Casaburi 2014a, 10). From China’s perspective, Europe is a key
destination in the context of the international expansion of its companies.
Contrary to the widespread image that suggests Chinese FDI is targeting natural
resource extraction in Africa and Latin America, Europe is a very attractive region for
Chinese companies. What are the causes of this dramatic growth and why is Europe
now a priority destination? This chapter explains China’s investment in Europe as the
logical result of the internationalization process adopted by China’s companies and
their transformation into global brands.
One of the objectives of the internationalization process pursued by Chinese
enterprises is to improve their position in the value-added chain of global goods
production, in order to make them capable of competing with the leading technology
and innovation companies in the Western world (KPMG 2013, 12). This objective –
together with environmental goals and the reduction of social inequality – are the
three cornerstones that underpin the change of economic model planned by the
Beijing government in Chapters 52 and 53 of the Twelfth Five-Year Plan (Bernasconi-
Osterwalder, Johnson, and Zhang 2013, 12-13). According to research conducted by
the World Bank in cooperation with the State Council of the People’s Republic of China
(PRC), if China is to continue moving forward with high levels of growth through 2030,
it will have to overcome six major challenges: the relationship between economic
competition and the role of the state; innovation; sustainable development; social
* Ivana Casaburi is an Associate Professor in the Department of Marketing Management at ESADE.
1 

The Global Context: How Politics, Investment, and Institutions Impact European Businesses Chapter 06 | The Internationalization of Chinese Companies
and Their Presence in Europe
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

       
companies the opportunity to address two of these major challenges: increasing their
capacity for innovation and ensuring a strong position as global competitors, thanks to
their presence in the markets with the greatest purchasing power. In short, by means
of FDI in the European Union – as well as in the United States – Chinese companies are
seeking to become global brands capable of innovation and of being as attractive as
they are competitive in the international arena.
The internationalization strategy pursued by Chinese companies also coincides with

as the lynchpin of the Chinese economy, to the detriment of state planning. In this
respect, it is not important whether the companies that invest outside China are public
or private (a distinction which is hard to identify at times). Rather, what matters is their
competitiveness, both in China and overseas. In fact, the main way in which this much
sought after competitiveness can be put to the test and supported is by venturing
into foreign markets, which do not have the systems of economic control that hold
sway in China. The medium- and long-term objective is that these companies compete
successfully in global markets, while helping to improve competitive conditions within

to the change of economic model: improving its companies’ market conditions (both in
China and overseas), developing their capacity for high value-added production, and
turning them into global brands that are known throughout the world, like the most
famous American and European brands.
Since 2000, when the Chinese government declared that it wanted Chinese companies
to adopt a “going global” strategy, China’s outward FDI has grown dramatically, increasing
one hundredfold in just over a decade and topping $100 billion in 2013.2 Indeed, the
Tenth Five-Year Plan (2001-2005) underscored the importance of “encourag[ing]
        

(Bernasconi-Osterwalder, Johnson, and Zhang 2013, 2).3 However, it would be an
2 According to UNCTAD (United Nations Conference on Trade and Development) data (statistics/

3 Chapter 17, Section IV, on the implemenation of the “going global” strategy ()
exaggeration to think that the growth of China’s outward FDI into Europe is solely due
to a strategy masterminded and overseen by the Beijing government.
While the “going global” strategy was being planned, Chinese companies achieved
greater autonomy in terms of their management capacity, adopting the logic of market
capitalism and abandoning the directives of the planned economy, a change which, in
1999, led to the amendment of various sections of the Chinese Constitution, together
with other laws governing the responsibility of private companies. These were the
institutional conditioning factors which caused China’s outward FDI to skyrocket after
2000, coinciding with the country’s entry into the World Trade Organization and its
inclusion in international trade regulations.
Since then, China’s outward FDI has never stopped growing, and everything points
to this trend continuing in the future. In the case of the European Union, besides
           
between China and the EU economic zone. In China, the yuan’s appreciation, along
with falling exports, growing production costs, easier access to foreign currency,
stagnating capital returns, and government incentives for internationalization have
encouraged many companies to “go global.” On the other hand, in Europe, it has been
     
European Union’s openness to foreign investment (it is among the most open world
regions in this respect), the euro’s weakness, falling land prices, and Europe’s position
as China’s number one trade partner which has attracted Chinese capital.
In general terms, there are also synergies on a micro level between European and
Chinese companies: European companies are strong in the parts of the production
chain where margins are usually higher – both downstream (i.e., distribution, logistics,
and transport) and upstream (i.e., technology, design, brand, etc.) – whereas Chinese
companies lead the middle part of the production chain, where margins are relatively
low (basically, production and assembly of goods) (Hanemann and Rosen 2012, 28).
Thus, when Chinese entrepreneurs invest in Europe, they are seeking to expand their
markets and vertically integrate processes, not only integrating Chinese companies
into the European Union markets, but also obtaining a European stamp of approval
which will enable them to compete better in China. There is, therefore, an economic
and commercial logic behind China’s institutional internationalization strategy towards
     
Europe is not assured, as indicated by the fall in this investment in 2013, after several
years of growth (MOFCOM 2014).

The Global Context: How Politics, Investment, and Institutions Impact European Businesses Chapter 06 | The Internationalization of Chinese Companies
and Their Presence in Europe
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
    
foresee at present (Hanemann and Rosen 2012, 9). In truth, despite its progress in
recent years, Chinese stock investment in Europe remains low, accounting for only 1%
of total FDI. On the other hand, almost three quarters of China’s outward FDI stock is
in Asia, with a large proportion in the Hong Kong’s Special Administrative Zone, which,
for the purposes of FDI, counts as a separate territory (MOFCOM 2011, 88). Finally,
although Chinese overseas investment has shown considerable growth in recent years,
in absolute terms it remains below its potential. In 2013, for example, Spain’s outward
FDI stock totaled $613.584 billion, slightly more than China’s.4
The fact that Europe became a priority destination for investment just as the growth of China’s
outward FDI accelerated means that there are strong synergies between the two regions,
and therefore this relationship should become closer in the future. In this respect, China’s

fundamentally positive impact on Europe. On the other hand, Chinese investment in Europe
should be as positive as European capital investment has been for China, which has helped
the Chinese economy develop since the reforms initiated by Deng Xiaoping.
Global Companies and Chinese Overseas Investment
When Deng Xiaoping’s reforms were implemented in 1979, China embarked on its path
of “reform and opening up” (), attracting foreign investment to modernize
its production system and boost industrialization through Special Economic Zones
(SEZs) devoted to the export of manufactured goods. This process allowed the country
to sustain, for several decades, an industrialization process with very high levels of
  
period of growth, China showed little interest in investing overseas, and the balance
between incoming and outgoing capital was always one-sided. A historic turning point
              
China’s outbound investment will exceed its inbound investment, turning the country
into a capital exporter (Zhong 2014). This reversal is the result of the process of
internationalization pursued by Chinese enterprises.
4 UNCTAD data (statistics/foreign direct investment/outward stock/countries, 1980-2013).
 
phase, running from 1980 to 2001, and the second, which commenced when the “going

  
years (1985, 1992, and 2001), with year-over-year growth of more than 300%, causing


1980s and between two and four billion in the 1990s), until another exceptional year
caused another great leap forward.5 Nevertheless, since the last boom in 2001 – which

becoming more constant and predictable. This indicates that China’s FDI is diversifying
and becoming less dependent on a small number of large capital investments, instead
depending on many investments with more variable volumes of capital.
  

              
destinations of investment), and the importance of the city of Hong Kong as a global
investment distribution hub, attracting more than half of China’s outward FDI stock at
the end of 2013 (National Bureau of Statistics of China 2014).6 As in the case of other
             
   
investigations usually combine statistics that quantify the nominal value of the FDI with
studies that measure the number of projects accepted by the Chinese government
or the number of investment projects undertaken outside China (Marukawa, Ito, and
           
the number of small projects has increased, whereas the high growth of earlier years
(1985, 1992, and 2001) was based on just a few major investments.
            
strictly regulated and directed by the government. In fact, almost all China’s outward
FDI prior to 2000 came from State Owned Enterprises (SOEs): in particular, from
companies in the oil sector such as China National Petroleum Corporation (CNPC)
5 
6 The most commonly used statistical sources in Chinese FDI analysis are: China’s Ministry Of
Commerce, its National Bureau of Statistics (China Statistical Yearbook), the UN (UNCTAD), and regional
organizations (EUROSTAT for the European Union, Asian Development Bank for Southeast Asia, etc.).

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    
following the fragmentation of the former ministry of petrochemical industries. These
large corporations made numerous investments in foreign assets in order to guarantee
the supply of oil and gas for the Chinese economy, which was in the full throes of
industrialization and economic growth. In 2005, CNOOC made media headlines with
a bid to buy the American oil company Unocal for nearly $20 billion. This would have
been the largest foreign operation headed by a Chinese company up until that time,
but the move was aborted following political pressure from Washington, which voiced
concerns over national security.
In 2000, most Chinese outward FDI stock was capital invested in energy reserves and
had not reached $30 billion (Clegg and Voss 2012, 18). This type of investment did not
diminish in the following decades, rather it continues to grow to the present day and
remains vitally important. In 2010, the three Chinese companies with the largest volume
of outward FDI stock were oil companies: China Petrochemical Corporation, CNPC,
and CNOOC (MOFCOM 2011, 103). With their multinational presence, and despite
their being state-owned, the Chinese government refers to them as Transnational
Corporations (TNCs). These companies therefore play a fundamental role in the
internationalization of the Chinese economy.
Nevertheless, when the strategy of “going global” was put into practice, the investments
made by the large state-owned companies began to include other raw materials. Amidst
2001’s boom, these investments mushroomed, causing worldwide raw materials prices
to rise considerably, a situation that lasted until the outbreak of the crisis in 2008.
Logically, these investments were mainly made in countries rich in raw materials: this
was the period in which Africa and Latin America attracted the lion’s share of Chinese
FDI, reaching 56% in 2005 (MOFCOM 2011, 82-87). However, when the strategy of
          
involving new players who were interested in other economic sectors. The combination


Consequently, the strategy of “going global” should not be interpreted exclusively as
the result of a state strategy focused on the supply of raw materials. In reality, the
extraction of raw materials – “when these are scarce in China” – is just one of the many
objectives of the “going global” policy, whereas making the most of China’s competitive

play a much more important role (Bernasconi-Osterwalder, Johnson, and Zhang 2013,
2-3).7 While introducing the terms of this new strategy into the framework of the Tenth
Five-Year Plan (2001-2005), the Chinese government maintained public control of the
energy sectors. However, it did remove certain bureaucratic obstacles hindering the
internationalization of companies in other sectors by facilitating credit and access to
foreign currency. These measures boosted outbound investment linked with services
             
Commerce calls “leasing and business services.” These sectors accounted for barely
14% of China’s total outward FDI stock in 2004, but by the end of 2012, this proportion
had risen to more than 50% (National Bureau of Statistics of China 2013).8
The sector that showed the highest growth during this period was the Chinese banking
sector, which had barely set foot abroad before then. In the last few years, there has
been a rapid increase in the number of overseas branches held by the main Chinese
banks, such as the Bank of China (BOC) and the Industrial and Commercial Bank of
China (ICBC). At present, the ICBC is the largest bank worldwide by capitalization, and


     

represented 17.4% of all Chinese FDI stock (MOFCOM 2011, 79).
On the other hand, if during the 1990s the key players in China’s expansion were the oil
companies, in this new arena it would be the technology companies that proliferated.
In 2004, China became the principal exporter of technology worldwide, although a vast
majority of products belong to companies that are not Chinese. The latter take the

product design, distribution, etc.) remain in the hands of the foreign companies. In this
race, the Chinese companies are aiming to catch up with the top companies worldwide;

have made a bid for organic globalization, opening their own subsidiaries overseas
            
research, in order to compete with global companies. As a second option, many other
companies have sought to move up the ladder in the value-added chain through
mergers and acquisitions (M&A) involving foreign companies which are already high up
the value chain, allowing them to make a qualitative leap.
7 Tenth Five-Year Plan (2001-2005), Chapter 17, Section IV
8  (6-19 Overseas Direct Investment by Sector)

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and Their Presence in Europe
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    
Special Economic Zone of Shenzhen, this company has successfully become a global
brand through organic growth, making a commitment to internationalization and
             
150,000 employees, of whom 73% work outside China, providing one third of the
world’s population with direct or indirect information technology services (through
international operators) (Casaburi 2014c, 86). At the root of its internationalization
strategy is a strong commitment to investment in technological research, with
           
registered the highest number of patents worldwide in 2008, and it is the Chinese

            
model, and at the end of 2013, it found itself among the three biggest mobile vendors
worldwide, just behind Apple and Samsung. However, since 2014 it has been facing
tough competition in Asian markets from the Chinese company Xiaomi (
2014). In 2010, Huawei already ranked number seven among the Chinese companies
with the highest overseas revenue and no private Chinese company ranked higher in
terms of FDI invested, according to the Ministry of Commerce (MOFCOM 2011, 107).
Lenovo provides another example of a global company, but it has followed the second
strategy. Founded in Beijing in 1984, and now administered from Hong Kong, Lenovo
purchased the American multinational IBM’s PC unit (the famous ), thereby
gaining access to a global market and to a company that played a historic role in
the IT revolution in the United States. In 2011, pursuing its strategy of mergers and
acquisitions, Lenovo purchased the German technology company Medion in what was
one of the largest investments by a Chinese company in Europe (Hanemann and Rosen
2012, 46). More recently, in 2014, it made further inroads into IBM (purchasing the x86
service) and it entered the smartphone market with the acquisition of Motorola Mobility
(Backaler 2015). It is currently the world’s third largest seller of smart connected
devices (tablets, computers, smartphones, and smart TVs) (Casaburi 2014b, 35). It
is through the acquisition of leading companies in the West that Lenovo has forced
           
According to a study by IBM – not limited to Lenovo – Chinese companies’ three
primary motivations for foreign investment are: expanding their markets, acquiring new

sum, while Huawei has become a global company by investing in new subsidiaries (i.e.,
      
these companies expanded internationally as the oil companies did, but they have also
succeeded in moving up the value chain in the global production of goods.
Chinese Investment in the European Union
Thanks to the process of internationalization and to investment in research, many
Chinese companies have attained the technological standards of global companies, and
they are now in a position to compete in the more mature markets of Europe and the
United States. There can be no doubt that the fall in Chinese exports to these markets –
following the outbreak of the world crisis and the rise in production costs in China – has
increased China’s determination to look overseas in search of markets, technology, R&D
centers, know-how in the management of global companies, and patents or western
brands that can provide its companies with the added value they need. This is the
logic behind the new change of model, the objective of which is to prevent China from
falling into the so-called “middle income trap”; this trap occurs when a country cannot

products. Thus, if a middle income country is unable to compete in the more developed
markets, it runs the risk of economic stagnation and the failure to converge with richer
economies (Banco Mundial 2013, 11-12). Fear of becoming ensnared in this trap is

the high value-added industries in the United States and Europe.
            
of economic model is to be implemented: by driving internal demand and the
internationalization of Chinese companies. In this respect, a social security and
urbanization program has been planned to protect and increase the purchasing power
of the middle classes. In addition, large increases in public R&D spending have been
programmed, as a result of which productivity and the added value of production will be
improved, accompanied by a strong commitment to internationalization. Moreover, the
 
aimed: infrastructure, energy, agriculture, high-tech, environment, healthcare, agri-
food, and consumer goods. Other investments seen as strategic are also maintained
and remain under the control of the government and state-owned companies,
       
steel, civil aviation, and water management (Casaburi 2014b, 18). The role to be played
by private companies and the degree of economic competition therefore depend on
the strategic nature of each economic sector. However, it is foreseeable that China’s
FDI will increase in all these sectors, and as a result, companies will be looking to
become more competitive.

The Global Context: How Politics, Investment, and Institutions Impact European Businesses Chapter 06 | The Internationalization of Chinese Companies
and Their Presence in Europe
120 121
         
   
establish the future needs for raw materials, although perhaps without the growth of
the previous decade (which led to a fall in their prices). On the other hand, the high
level of savings in the Chinese economy and its currency reserves suggest that foreign
investment ought to be the most logical solution in the face of the falling returns on
capital on the domestic front. It comes as no surprise that many Chinese executives point
to saturation and high competition in China as key motives for their internationalization
strategy. The massive currency reserves held by the country ($3.3 trillion, principally in
dollars, euros, and yen) are exerting upward pressure on the yuan; but if the government
  
(Casaburi 2014b, 22). In the case of the euro and the yen, it would appear logical for
these currencies held by China to be reinvested in Europe and Japan.
The recent increase in China’s FDI in Europe shows that interest in the EU as a
destination for Chinese investment has grown in the last few years, and although the
      
of 2014. In 2012, Chinese FDI in Europe totaled more than $7 billion, and this was
when foreign investment collapsed due to the euro and sovereign debt crisis (National
Bureau of Statistics of China 2013).9 34% of the total foreign investments made by the
four major Chinese sovereign funds (which manage the largest volume of assets) target
Europe and they have covered the needs of European debt over the last few years

of projects, Chinese investment in the EU overtook European investment in China for
     
(PwC 2012, 8). In fact, the rise of Chinese FDI into the EU during the worst years of the

had grown to $6 billion by 2012 (Nicolas 2014, 104). Furthermore, Chinese investment
has reached both the countries that have weathered the crisis well, such as Germany,
where Chinese investment grew twentyfold between 2003 and 2011, as well as those
      
   
the rest of the world) (Hanemann and Rosen 2012, 96).
9 (6-18 Overseas Direct Investment by Countries or Regions).
These data include Russia and non-EU European countries.
The data on Chinese FDI into Europe vary substantially depending on whether the
statistical sources are European (EUROSTAT), Chinese (MOFCOM), or private consultancy



the Chinese Ministry of Commerce, most notably in 2009 (more than 60% of the total)
and 2010 (47.4%). However, according to Eurostat – and the analyses that measure the
number of investment projects actually executed – Germany, the United Kingdom, and
France are the biggest targets of Chinese investment, followed at a distance by Italy,
the Netherlands, Hungary, and Spain (Clegg and Voss 2012, 27). Similarly, there is no
consensus on which EU member state receives the most Chinese investment, since
this depends on the methodologies used and the year studied. A single investment can

France with the investment made in GDF Suez, in 2011.
To be precise, in 2011, the Chinese sovereign fund CIC purchased 30% of the French
company GDF Suez ($3.2 billion), one of the largest public service companies in the
world. This has been the largest Chinese investment in the European Union to date,
and as a result, France became the leading destination for FDI from China in 2011,
although in the past this country had received considerably less investment than
Germany or the United Kingdom (Nicolas 2014, 106-107). It is foreseeable that these
large investments, principally in the EUMI (Energy, Utilities, Mining, and Infrastructure)
sectors, will continue to create statistical peaks in studies of Chinese FDI into the EU, in


the number of M&As, the ratio being approximately three to one (Hanemann and Rosen
2012, 38; Casaburi 2014b, 33). However, the aggregate value of M&As tends to be much
 
large investments that involve huge amounts of capital, as in the case of GDF Suez,

       
wealth funds (Nicolas 2014, 106). However, recent studies tend to consider operations
of less than $100 million as one of the main drivers of the growth in Chinese investment.
This type of smaller investment is usually found in industrial and technological sectors, as is
the case in Germany and Eastern Europe, for example. The industrial sector and consumption
account for almost half of China’s total investment in Germany, and although the volumes

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and Their Presence in Europe
122 123
of capital in each operation are not as high as in the previous examples, this investment has
been more regular and sustained. There have also been some large acquisitions, such as
the purchase of the machinery company Putzmeister by the Chinese multinational Sany for
$471 million in 2012, or the purchase of the automotive company Kiekert by Hebei Lingyun.
This said, these two German companies form part of the German business fabric based on
family-run SMEs (known as Mittelstand companies) (Casaburi 2014b, 35).
             
commitment to expansion in Germany, seeking to coordinate its business mission (in Chinese,
means “the three ones”) with the new model that China wishes to introduce: creating
  
society. However, industrial investment in Germany has mainly been channeled through
smaller companies and in sums of less than $100 million. Furthermore, entering new
markets is a decisive factor for many Chinese executives who invest in Germany, according
to a report by a well-known consultancy. In addition to Germany’s industrial, technological,
and engineering strength, Chinese entrepreneurs value the country’s geographical position
in the center of Europe, with its excellent transport communication (Deloitte 2007, 10).
One of the novelties in recent years has been China’s industrial FDI into East European
countries, particularly in Hungary (and its chemical industry) and the Czech Republic,
with the establishment of various industrial hubs to join those already existing in the
Netherlands, Italy, and the United Kingdom, as well as the research and technology hubs
scattered across Europe and set up by companies such as Huawei and its competitor ZTE
(Clegg and Voss 2012, 68). In fact, some of the Chinese industrial companies that were
sending their exports to Europe in the past are now making inroads into Eastern Europe,
as demonstrated by the presence of home appliance manufacturers such as Hisense, TCL,
and Haier (Nicolas 2014, 109). Some of these enterprises, including Haier, for example, are
present in 30 European countries, with technology plants in Germany, design centers in

ranking of the ten most innovative companies of 2012 (according to the Boston Consulting
             
strategy allows Chinese consumer goods companies to adapt their products to European
   
have been driven by market and commercial expansion criteria.
Moreover, the large acquisitions in the industrial sector have been made in the
automotive industry, as shown in Geely’s M&A of Volvo, the purchase of the British
company MG Rover by Nanjing Automotive in 2005, and the acquisition of Saab
Automobile by Beijing Automotive Industry Holdings. In this sector, FDI has been
focused on the United Kingdom and Sweden, indicating that Chinese investment
has earmarked strategic sectors in particular countries, as outlined by the Chinese
government in its foreign investment guides (Clegg and Voss 2012, 63-64). In these
projects, there is an underlying need to take over research centers with the capacity
 2 emissions. Through these acquisitions,
Chinese companies seek to become more competitive in both the international and
the domestic markets. Up until the 1990s, the automotive sector in China was carefully
      
            
car sector by turning its gaze overseas, removing barriers to the import of cars and
making it possible for Chinese vehicles to be exported at competitive prices. This
situation favors mergers between Chinese and European brands and the exploration
of potential synergies, providing a good example of how the internationalization of
Chinese companies helps to improve innovation and market conditions in China itself.
On the other hand, it is calculated that approximately one third of China’s outward
investment projects have not turned out to be successful (Nicolas 2010, 36). It is
     
of the market conditions in the destination country that can endanger the success of
a foreign investment project, as seen in TCL’s 2004 purchase of the French company
Alcatel’s mobile subsidiary. This acquisition was principally motivated by the desire to
take advantage of the French company’s patents and its two R&D centers, with a view
to producing more advanced mobiles at lower production costs. This is unsurprising
given the high prices Chinese enterprises usually pay to use the foreign companies’
patents. The combination of TCL’s manufacturing strength and presence in the Chinese
market on the one hand, and Alcatel’s technology and high added value on the other
appeared to be a perfect match. Nevertheless, the acquisition failed and the merger
was abandoned in less than a year, resulting in heavy losses. The unexpected increase
      


     
    
higher than in these sectors in the rest of the world, as borne out by the much publicized
purchases of vineyards and agricultural properties in France by Chinese companies,

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which have caused considerable resentment among the French.10 The high reputation
of European food products, along with strict hygiene, environmental, and health
standards, make this sector very attractive to the Chinese, who are accustomed to food
scandals in their own country. In Spain, sizeable investments have also been made in
the real estate and tourism sector through the acquisition of hotels and properties
by large Chinese groups specializing in leisure and travel, such as Dalian Wanda and
HNA (Casaburi 2014c, 75). All in all, it is apparent that in Southern Europe, Germany,
and Eastern Europe alike, Chinese enterprises look for the strongest sectors with one
objective in mind: to increase their competitiveness and expand their markets.
Conclusions: Europe and Chinese FDI
Insofar as Chinese investment is dominated by global companies which act according to their

of other foreign investments in the business fabric of Europe, such as those made by North
American and Japanese companies, which have now been investing in the European Union

stable in the medium term, and involves capital injections which improve market conditions.
Moreover, these initial investments tend to grow if the commercial strategy achieves good

Most of the Chinese companies that invest in Europe do so in order to expand their
market. But this expansion is not only outward: these companies are just as interested
in penetrating the European market as in gaining a European brand that will make
them more competitive in China. At present, the saturation of the Chinese market
            
local competitors (KPMG 2013, 12). This situation opens up new horizons for European

of the acquiring company’s networks. In reality however, players in Europe very often
            
adopting technology and purchasing patents. In designing M&As, this synergy – which
the Chinese entrepreneurs consider to be vital – can lead the Chinese companies to
overvalue the assets of their European counterparts (PwC 2012, 18). In short, opinions
voiced by Chinese entrepreneurs show that they are accustomed to developing a long-
term commercial vision with great insight into these expansion synergies.
10 On cross-data between economic sectors and destinations for Chinese FDI, see Marukawa, Tomoo,

When operating in Europe, Chinese companies also look to boost their know-how
regarding the management of global companies. When engaging in mergers and
acquisitions, Chinese entrepreneurs not only pursue technology, innovation, and R&D
centers, but they also look for a match that will open the door to vertical integration
of the production process: from assembly lines in Asia to R&D centers in developed
countries, together with distribution networks, logistics, design, and sales. The
experience of many European and North American companies in the international
arena is greatly welcomed by Chinese enterprises, which generally have fewer years of
experience. From the point of view of business management, the internationalization
of transnational corporations such as CNOOC, Huawei, and Sany involves a high degree
of competence in international and intercultural management, which, in some cases,
has also been acquired and continues to be acquired through FDI.
On the other hand, the decrease in China’s outward FDI in the European Union in 2013
                 
investment into Europe is not guaranteed. While Chinese investment into Europe has
decreased, it has increased into the United States and other developed countries,
including Israel, Australia, and Canada (MOFCOM 2014). According to a new index
launched by The Economist Group, Germany is the only EU country in the ranking of
the ten most attractive countries for Chinese investment, holding tenth place behind the
  
Unit 2013, 2). Seven of the countries on this list are developed countries from the OECD.
On the other hand, six EU countries (Germany, UK, France, Sweden, Netherlands, and
Denmark) dominate the list of the countries best positioned to attract Chinese investment
in the “brands and technology” sectors (The Economist Intelligence Unit 2013, 18).
         
              
             
to create a bilateral International Investment Agreement (IIA) between Brussels and
Beijing. This deal would seek to alleviate the confusion Chinese companies face when
dealing with the 26 bilateral investment agreements currently in force between China
and the member states of the European Union (Berger 2014, 11-13).

The Global Context: How Politics, Investment, and Institutions Impact European Businesses Chapter 06 | The Internationalization of Chinese Companies
and Their Presence in Europe
126 127
The boom in Chinese outward investment into Europe has sparked opposition from
protectionist and nationalist sectors, who fear a Chinese “invasion” that will buy up
European companies en masse, echoing the fears expressed in the United States in
the 1980s, when Japanese FDI was booming. However, rather than being conducive to

  
      
of Chinese investment in Europe will depend on Europe’s capacity to draw its territory
           
fragmentation is the main obstacle to the growth of Chinese investment in Europe.
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