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Blickpunkt Asia Pacific 10/2011

The Presence of Chinese firms in Europe and the Impacts of the Global Financial Crisis

Prof. Dr. Louis Brennan (Dublin), Dr. Françoise Hay (Rennes) and Dr. Christian Milelli (Paris-Nanterre)*

Chinese firms have expanded their footprint in Europe since the beginning of the millennium. Given this growing presence, it is important to understand the characteristics of these new investors in Europe and also the impact of the Global Financial Crisis (GFC) on their behaviour and strategies. Drawing on a recently published study (see box) by two of the authors that addresses in detail those considerations, there is evidence that Chinese firms are investing more in Europe and that despite a temporary pause following the onset of the GFC, the level of investment continues to increase .

The Impacts of the Global Financial Crisis on the presence of Chinese and Indian Firms in Europe, F. Hay, C. Milelli and Y. Shi, Eastbourne: Sussex Academic Press, September 2011

This study was based on a micro economic approach and employed three different types of data: first and foremost, a proprietary database (Among them, the failures of TCL related to its buyouts, between 2002 and 2004, of the German company Schneider, and the French ones, Thomson TV, and Alcatel Mobile.) on the investments made in Europe by Chinese companies, second, face-to-face interviews conducted by the authors in some European countries, and third, specific case studies. The dataset included 504 Chinese groups that have invested in Europe (304 from mainland China and 199 from Hong Kong) with the observations based on two time periods: 2002-2007 and 2008-April 2010.

General evolution of Chinese investments in Europe

Investments by Chinese firms in Europe have been increasing since the start of the millennium despite two pauses in the intervening period. The first pause occurred in 2006 following a period of turmoil which was not unsurprising given the relative novelty of this phenomenon and partly attributable to some notable failures; a second one followed in 2008 in the wake of the outbreak of the GFC. However, the number of investments reached an all time high in 2009 (Figure 1) which leads us to conclude that investments by Chinese firms into Europe have not been negatively affected (in contrast to, for example, investments from Indian firms).

Unsurprisingly, some Chinese investments in Europe were cancelled or postponed in the months immediately following the advent of the crisis because of heightened uncertainties, the downturn in demand or due to competition with other destination locations, particularly those with rich natural resource endowments, or even with China and its booming domestic market.

Figure 1: Chinese and Hong Kong investments in Europe, 2002-2009
(vertical axis = number of transactions)

Source: authors' database

Several forces combined with Europe’s attractiveness as an investment location have driven and sustained the upward investment trend by Chinese firms in Europe. The main ones are:

  • China is still an export-driven economy and the European Union continues to be China’s largest foreign export market ahead of the United States;
  • Europe is a highly-integrated geographical area (European Union, Single market, Euro zone, Schengen area) which is politically stable and possesses an efficient transport infrastructure network. Therefore, locating in one country of the European Union opens up the whole European market;
  • Europe is a market of some 500 million high-income consumers and Chinese firms are aware that they cannot be global actors without an European presence;
  • Europe possesses a pool of advanced skills and a highly qualified labour force, and first-class technologies. A presence in Europe can give Chinese firms a European production label which is synonymous with guaranteed quality thus boosting their product image in both overseas markets and in the home Chinese market. Given that, Chinese firms need to improve their product image and quality, locating in Europe can help to address this need;
  • Accessing technologies via the acquisition of European firms serves the upgrading goal of China’s development;
  • Since 2008, many Chinese investors have seized opportunities stemming from the GFC and in particular taking advantage of opportunities arising from financial difficulties encountered by some European firms;
  • Chinese firms have been increasingly courted in China by European Investment Promotion Agencies through the set-up of representative offices.

We observe that most Chinese investors are pursuing long-term strategies. Indeed, when they invest in Europe it is not necessarily to gain immediate profits but rather to gain a foothold in the European markets. Since they are largely backed by the Chinese state, their investments are easier and less costly to finance than those of their European competitors or competitors from other emerging economies. As a result, they can accept low-returns on their operations, or even operate at a loss for a while. However, we observe that the investments made in 2008-2009 have involved lower amounts of financial resources than before the crisis. This had been particularly apparent in the case of greenfield investments.

Chinese firms have become more cautious when making investment decisions related to Europe: they take more time to think before acting, their investments are better prepared, and include clearer geographical and sectoral targets. They are also trying to be as discrete as possible in order to avoid generating protectionist reflexes or even prompting of Sino phobic feelings.

Specificities of Chinese investments in Europe

Modes of entry

To date, the ‘greenfield mode’ of entry remains the most popular mode even though merger-and-acquisition deals have been less affected by the financial crisis as a result of the opportunities that have ensued in Europe for Chinese investors targeting brown field sites. Consequently, their relative share is increasing.

Figure 2: Main host European countries for Chinese investment – before 2002, 2002-2007 and 2008-2009

Main destinations

Figure 2 provides details by time interval of the European host countries for Chinese investment. Both in advance of the crisis and following its advent, the United Kingdom, Germany and France have served as the three leading destinations for Chinese investors in Europe: The United Kingdom, Germany and France have been the recipients of 60 per cent of Chinese investments made since 2008. In 2009, the United Kingdom was the top European destination for firms from mainland China.

The three leading European recipient countries are followed by Italy, Spain, the Netherlands and Central European countries (mainly Poland, Romania and the Czech Republic). In fact, Central European countries seem to have been more affected by the current crisis as far as Chinese investment is concerned. Chinese investors appear to be giving a high priority to larger countries and markets along with asset acquisitions opportunities (particularly core technologies, management skills and brand names).

Sectoral distribution

The activities of Chinese firms investing in Europe have become more diversified since the advent of the crisis even though the equipment sector in general continues to occupy a central place in the investment flows made by Chinese firms. This is based around the areas of car manufacturing (United Kingdom and Sweden predominantly, but also Germany), electrical-electronic equipment (France, Italy and Spain) and mechanical engineering (Germany, France and Italy).

The share of Chinese investment accounted for by textile-clothing and fashion-related activities has remained stable since 2002 representing around 10 per cent of Chinese investments in Europe. Since the crisis, many acquisitions have been made in luxury goods: this reflects the emergence in China of a sustained demand for luxury items and prestigious brands with France and the United Kingdom receiving nearly 60 per cent of these investments.

Since the crisis there has been an emphasis by firms from mainland China on new sectors. These include information technologies and telecommunications – software and related services (especially in the United Kingdom), and telecommunications (nearly one third in Germany). These also include renewable energies which were nearly non-existent before the crisis but represent a significant proportion since 2008 (about 11 per cent of Chinese investments in Europe). However to date, they mainly concern sales activities: Germany has received 41 per cent of these investments and France 22 per cent. Finally, and perhaps notably in the current context, is the increasing share of Chinese investments (mainly from mainland) made in banking and finance activities (by Chinese-state-controlled financial institutions), with three-quarters of these investments going to the United Kingdom, especially London.

The global financial crisis provided fresh opportunities for Chinese firms and prompted them to boost their presence in Europe

The GFC has led Chinese firms to become more confident and stronger when compared to weakened European firms and struggling European markets. The $500 billion stimulus package launched by the Chinese government at the beginning on 2009 to address the crisis has given a new impetus to Chinese firms operating in their buoyant domestic market and especially to those in such flourishing activities as automobile, renewable energy, finance and software.

The current crisis has also triggered opportunities for Chinese firms to pursue or intensify their acquisitions of European firms encountering financial difficulties, especially in the automotive industry, equipment and textile-clothing sectors. Such acquisitions can be seen as a means for them not only to move up the value chain or break with the reputation of ‘cheap and poor quality’ production, but also to assert their positions in their home country or gain a march on their domestic competitors or to reduce their competitiveness gap with foreign subsidiaries. Given the fiercely competitive nature of the Chinese market and the current restructuring of industrial activities only the ‘best firms’ will be able to survive in the long term.

An interesting feature of Chinese buyers of European firms relates to the fact that they are often the former partners and subcontractors of the acquired firms. This gives rise to concerns as to whether post-acquisition activities are maintained in Europe and/or simply ‘copied and pasted’ in China.

The place and role of public actors in the internationalisation process of Chinese firms has also to be underlined. Chinese investors in Europe are often backed by central or provincial governments. They can take advantage of easy access to financial resources, subsidies, tax reductions or other incentives. As a result, Chinese and European firms do not always operate on a level playing field. This could prove to be counter-productive for Chinese firms in the long term due to the potential for controversy and for opposition arising in political and media circles or in public opinion across Europe.

However, Chinese investors are more and more perceived and considered as similar to other foreign investors. They are welcomed in Europe, particularly when they opt for greenfield investments. Notably, in recent years, Chinese acquisitions have often given new life to distressed European companies either through outright acquisition or equity participation. In addition, such investments have generally been instrumental in helping those companies overcome trading and liquidity challenges attributable to the financial crisis enabling them to maintain management and engineering teams and providing access to the Chinese market. This success has been achieved as a result of the notable efforts of both sides to overcome cultural and other differences.

In conclusion, Chinese investments in Europe are unquestionably bound to continue and grow as they represent an integral part of China’s international engagement that is supportive of its own development and are unlikely to encounter any substantial political opposition in Europe.

Louis Brennan, PhD, Professor and Director Institute for International Integration Studies, Trinity College, Dublin, email:
Françoise Hay, PhD, Associate Research Fellow at CREM (CNRS), Université de Rennes 1, email:
Christian Milelli, PhD, Research Fellow at EconomiX (CNRS), Université Paris Ouest - Nanterre, email:

CREM Centre de Recherche en Économie et Management, University of Rennes 1
CNRS French National Center of Scientific Research (Centre national de la recherche scientifique)

All three authors are leading members of EU COST Action IS 0905 on »The Emergence of Southern Multinationals and their Impact on Europe«.