Link to the Executive Summary of the ESADE report "Chinese Investment Trends in Europe" 2017-2018.

China became the world's second biggest overseas investor in 2016, spending US $170.11 billion. Almost a quarter of this amount — US $41.15 billion — was invested in the European Union: 31% more than in the year before. This is reflected in the fourth edition of the ESADE report Chinese Investment Trends in Europe. The Report was drawn up by ESADE Business School's Prof. Ivana Casaburi in collaboration with ACCIÓ. It highlights the fact that the Chinese Government has become the world champion of deregulation and Free Trade — something that contrasts starkly with rising protectionism elsewhere (for instance, the Trump Administration's tariff policies, the EU's blinkered response to Brexit, the rise of European anti-globalisation parties). “China is well-placed to take over from The United States as the driver of globalisation”, the Report notes but adds “The fact that China strongly controls its internal market and its publicly-owned companies abroad makes this role less credible”.

The ESADE Report stresses China's stabilisation of its economic growth, which has been consolidated by a rise in internal demand in the country's service sector and growth in private consumption's share of the economic pie (especially through e-commerce). Furthermore, China has made giant strides in becoming a global power in the technology and innovation fields, with major advances in R&D, scientific output, and the boosting of research manpower through large private groups such as ZTE, Lenovo, Tencent, and Xiaomi.

EU technology companies are the most attractive targets for Chinese investment

Just a few years ago, Chinese investment in European technology sectors and companies was almost negligible. Now these firms are the main targets for investment and include fields such as video games, robotics, electric vehicles, bio-technology and 'FinTech' (financial technology). In 2016, this investment in high-tech amounted to US $12.88 billion, 31.3% of the total, followed by Industry (24.7%) and Services (16.2%), especially Tourism, Entertainment, and the Environment. Other more traditional investment sectors held their own, especially Energy, and Real Estate, in which the China Investment Corporation (CIC) and the State Administration of Foreign Exchange (SAFE) (both Sovereign Funds) raised their stakes.

By countries, Germany and The United Kingdom together made up the lion’s share of China's investment in Europe in 2016 (27.4% and 25.5%, respectively). This is because both countries combine an attractive business climate for foreign firms with investment opportunities (such as Real Estate, and technology infrastructure) that are particularly alluring for Chinese companies. Finland is among the leading recipient of Chinese investment in this Report, thanks to the acquisition of an 84% stake of the video game firm Supercell Oy. The acquisition was made by a group of investors led by Tencent. The operation was valued at US $8.60 billion and was China's single biggest operation in Europe in 2016.

Spain, the biggest beneficiary of Chinese investment in Southern Europe

With regard to Southern European economies (Italy, Spain, Portugal, and Greece), the ESADE Report reveals that the Chinese Government's investment interests are fairly diverse. While there were no big investments in 2016 and the first half of 2017, major operations were in the offing.

In 2016, Chinese investment in Spain set a new record at US $1.88 billion as a result of the acquisition of Urbaser, a service company. Italy received US $0.80 billion as a result of various acquisitions: Inter Milan [football club], the jewellery firm Buccellati, and the manufacturing company Gimatic [handling, plastics, mechatronics, and sensors]. In Greece, COSCO took a minority stake in the ADMIE electrical grid, and in Portugal, Fosun International stated that it plans to raise its stake in Banco de Portugal, while Hainan Airlines has taken a stake in TAP Air Portugal.

In the first half of 2017, the ESADE Report highlights the fact that there were fewer investments and that these totalled a lesser amount (close on US $15.30 billion). Italy saw a big rise in Chinese investment, overtaking The United Kingdom and Germany. The biggest single investment was in Spain, with the Orient Hontai Capital fund taking a stake in the Imagina Media Audiovisual.

Two challenges for the future

In the second half of 2017, Chinese investment in Europe also fell short of the figure for the same period in 2016. The operations announced for this period were just under US $30.00 billion — 25% less than in 2016. The reasons for this were: (1) the Chinese Government's measures to restrict foreign operations in efforts to both rein in the country's high public debt and dampen China's coastal property boom; (2) prospects of international arbitration.

In addition, the likelihood of tougher, wider-ranging EU financial legislation over the next few years may end up curtailing Chinese investment (whether through share portfolios or by way of direct investment). The driver behind such regulations is worry by EU countries (especially Germany, France, and Italy) of a spate of technology acquisitions by China. The buy-out of the German company KUKA by Midea (a Chinese manufacturer of White Goods) for €4.50 billion sparked worries that such acquisitions could undermine European industry's competitive advantages.