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ChineseinvestmenttrendsinEurope2016-17ReportAuthor:IvanaCasaburiPromoter:Collaborators:2ChineseinvestmenttrendsinEurope2016-17Author:IvanaCasaburi,Ph.
D.
ESADEProfessorandDirectoroftheESADEChinaEuropeClub3ChineseinvestmenttrendsinEurope2016-17ReportAuthor:IvanaCasaburiPromoter:Collaborators:45ChineseinvestmenttrendsinEurope2016-17CONTENTSForewordbyJavierSolana8Executivesummary10PartI:TheChinaofthefuture:challengesandinitiatives16PartII:ChineseinvestmentinEurope:ChinacastsitseyeonSouthernEurope3767InversiónchinaenEuropa2015-16PortadaprefacioForeword8ChineseinvestmenttrendsinEurope2016-17/ForewordChinaiscurrentlylivingapivotalmomentofitsmodern-dayeconomictrajectory,transitioningfromitspositionasami-ddle-incomecountrytothatofahigh-incomecountry.
ThisprocessentailsfurtheringthechangesgraduallyintroducedintheAsiannationsincetheonsetoftheliberalperiodinitiatedbyDengXiaopinginthe1980s.
Morespecifically,itcallsforanewwaveofreformstoaffordmarketforcesgreaterspaceandopenupthecapitalaccounttotheoutsideworld,whilemovingtowardsagrowthmodelinwhichhighvalue-addedservicesandmanufacturing,interalia,playalargerrole.
Thetransitionrequiresthebusinessarenatotakeagreatleapforwardintermsofitscompetitivecapabilities,andtobecomethespringboardforeconomictransformation.
Accesstotho-secapabilitieswillbeviatwodifferentapproaches.
Onado-mesticscale,thiswillinvolvedrivingtheknowledgeeconomythroughinitiativessuchasInternetPlus,electricvehiclesorthecybereconomy,aslaiddowninthe13thFive-YearPlan(2016-2020).
Internationally,bothstate-ownedandprivateChinesefirmsarebeingforcedtoinvestinsourcingcapabili-tiesthatarestillmeagrewithinChina.
TheEuropeanUnioncouldplayakeyroleinthelattercase,bysupplementingandprovidingthesecapabilities.
Nowmorethanever,Chinesecompaniesneedtoacquiretechnology,knowledgeandspecialisation–factorsthatareheavilypre-sentontheEuropeanscene.
ForthisreasontheEuropeanUnion,aswellasbeingChina'smainbusinesspartnerworld-wide,hasnowalsobecometheprincipalrecipientofChinesefirms'investment.
In2015,China'sinvestmentintheEuropeanUnionexceededUSD30billionforthefirsttime,whichisdou-bletheamountinvestedintheUnitedStates.
InwhatisaturbulentperiodforEurope,bringingmajorcha-llengessuchastherefugeecrisis,theriseofEuroscepticismandBrexit,consolidatedandincreasedinvestmentfromChinaisexcellentnews.
ChineseinvestmentistargetingtheEuropeanUnionmorethaneverbefore,inviewofthenume-rousadvantagesthismarketpresentsfortheAsiancountry'sfunds:companiesupforacquisitionorwithwhichtoformalliances,operatingatthehighendofthevaluechain;talent;amajorconsumermarket;regulationsthatallowforforeigninvestment;andconsiderableinstitutional,politicalandma-croeconomicstability.
ThethirdeditionoftheESADEChinaEuropereportencom-passesathorough,in-depthanalysis,intwoparts,ofthisneweconomicreality.
PartIanalysesthemajorchallengesChinamustaddressinreshapingitseconomicmodel,andthecu-rrentstatusofsignificantinitiativesundertakenbytheChinesegovernmentthataffectthecountry'spositioningintheglobalarena,suchasthe"OneBelt,OneRoad"strategy,thenewmultilateralinstitutionslaunchedbyChina(AsianInfrastruc-tureInvestmentBankandNewDevelopmentBank)andtheinternationalisationoftheyuan.
PartIIexaminestherecenttransformationinthepatternofChineseinvestmentworldwide,includingacomparisonofin-vestmentsintheUnitedStatesandinEurope.
Inparticular,itfocusesonChina'sinvestmentsintheEuropeanUnion,withemphasisonfoursouthernEuropeancountries:Italy,Spain,PortugalandGreece.
Ihopeyouwillenjoyreadingthisreport,whichisnowack-nowledgedinternationallyasabenchmarkstudyofChineseinvestmentinEurope,andwhichisthefruitofajointeffortledbyESADEBusinessSchoolandESADEgeo,withthecolla-borationofotherpartnersandfriendssuchasCuatrecasas,GonalvesPereira,ACCI-CataloniaTrade&InvestmentandBarcelonaCityCouncil.
JavierSolana,ChairmanofESADEgeoForeword9Executivesummary10ChineseinvestmenttrendsinEurope2016-17/ExecutivesummaryForthethirdyearrunningthisreportreflectstheresultsofESADE'sstudyofforeigninvestmentsmadebyChinesefir-ms,aphenomenonthathasbeeninfluencedbythemeasuresimplementedtochangeChina'seconomicmodel,andtheen-suingslow-downinGDPgrowth.
Bothofthesefactorshaveservedtodriveforeigninvestments,enablingChinatopostanewrecordattheendof2015.
Withinthiscontext,Euro-pehasconsolidateditspositionasapriorityrecipientofthefundsinvestedbyChinesecompanies,whicharedisplayingtheirsustainedandgrowinginterestinSouthernEuropeancountries,notablyItaly,Spain,PortugalandGreece.
Themainconclusionsdrawnfromthestudyaresetoutbelow.
Theslow-downinGDPgrowthintheAsianeconomyhasstabilised,withtheeconomynowmovingtowardsratesofbetween6.
5%and7%(6.
9%in2015and6.
7%inthefirstandsecondquartersof2016).
Whiledouble-digitgrowthratesarenowathingofthepast,Chinacontinuestobethema-jordrivingforceoftheworldwideeconomy,accountingfor15%ofglobaloutput.
Thethree-waytransitioninChina'sgrowthmodelisstillunderway:privateconsumerspendingismakingheadway(from35.
9%ofGDPin2011to38.
2%in2015)whilepublicinvestmentisdroppingback(from47.
3%ofGDPin2011to45.
3%in2015);theservicessectorsareex-panding(44%ofGDPin2013comparedwith50.
4%in2015)whiletherelativeweightofmanufacturingisonthedecline(43.
7%ofGDPin2013comparedwith40.
5%in2015);andfirmstepstowardsamoretechnology-andknowled-ge-orientatedeconomyarebeingtaken(withR&Dexpen-diturerepresenting2%ofGDPin2014).
ThemainriskscurrentlyconfrontingtheChineseeconomyarethedebtandovercapacityofitsstate-ow-nedenterprises,whichvariousestimatesplaceatsomewherebetween250%and300%ofGDP,andtheexposureofitsfinancialsystemtothoserisks(80%ofbankloansaregrantedtoSOEs).
Toaddressthischallengethegovernmenthaslaun-chedanambitiousprogrammeofreforms.
Chinahasinitiatedthe13thFive-YearPlan(2016-2020),whichaimstoachievea"moderatelyprosperoussociety"ba-sedonaverageeconomicgrowthof6.
5%from2016to2020,andtodoublepercapitaGDPby2020compa-redwith2010.
Intheeconomicandbusinesssphere,theFive-YearPlanfocusesondrivingchangeinthegrowthmo-delthroughdifferentprogrammessuchas"InternetPlus"or"MadeinChina2025".
ThisAsiannationcontinuestoimplementadecisiveandambitiousexpansivestrategyinordertoincreaseitscapa-citytoinfluencetheworldeconomy,throughmajorini-tiativessuchasOneBelt,OneRoad,thelaunchoftwonewmultilateralbanksbackedprimarilybyChinesecapital(AsianInfrastructureInvestmentBankandNewDevelopmentBank)andtheinternationalisationoftheyuan.
China'spositionasaworldwideleaderintheforeigninvestmentstakesholdsstrong:onaninternationalscale,itsfirmshaveinvestedthreetimesmorethantheworldwideaverageinthelastdecade.
Chineseforeigninvestmentbeatsnewrecordsyearafteryear,reachinganall-timehighofUSD127.
56billionin2015.
Thisdenotesgrowthof3.
6%comparedto2014basedonUNCTADdata.
In2015and2016aconsolidationoftrendsinChineseforeigninvestmentwasseen.
Investmentintheadvancedmanufacturingandservicessectorsgrew;morefundswerechannelledintoEuropeandtheUnitedStatesthaninemergingcountries;whileinvestmentsmadebypriva-tely-ownedenterprises(POEs),whichalreadyconcentrate39.
8%ofthetotalamount,increasedinproportiontofundingprovidedbystate-ownedenterprises(SOEs).
ChinesefirmssteppeduptheirbackingoftheEuropeanUnionin2015,postinganewinvestmentrecordofUSD31.
38billion(approximately28.
61billion),whichrepresentsgrowthof55%on2014.
Weestimatethatin2016ChinawillcontinuetoinveststronglyinEurope,surpassingtheUSD33billionmark.
In2015ChineseinvestmentintheEuropeanUnionex-ceededthevolumechannelledintotheUnitedStates(USD31.
38billionintheEUcomparedwithUSD15.
3billionintheUS).
InEurope,theenergyandlogisticssectorsreceivethebulkofChineseinvestments,whileintheUnitedStatestechnologyfirmsarefavoured.
Moreover,Chinesestate-ownedenterprisesplayagreaterroleinEuropeandinvestmentinstate-ownedassetsismorepromi-nentonthiscontinentthanintheUnitedStates.
TheEuropeanFundforStrategicInvestments(EFSI),betterknownastheJunckerPlan,andthelong-termHorizon2020initiativecouldservetostimulateChineseinvestmentinEurope,goinghand-in-handwithChineseinvestmentstra-tegiessuchasOneBelt,OneRoad.
RegardingtheUnitedKingdom'sdeparturefromtheEuropeanUnionfollowingthe2016referendum,ChineseinvestmentintheUKisnotexpec-tedtodeclineinthemediumandlongterm,andinanycasenotalltransactionswouldbeequallyaffectedbyBrexit.
Executivesummary11ChineseinvestmenttrendsinEurope2016-17/ExecutivesummaryTwocountrieswereheadandneckabovetherestasre-cipientsofChineseinvestmentinEuropein2015,inviewoftwomajortransactions.
Thefirst-rankingrecipientofChi-nesefundsin2015wasItaly,whichreceivedUSD10.
31billion(32.
9%ofthetotalinvestmentinEurope)inthelargesttransactionseeninEuropetodate:theacquisitionofthetyremanufacturerPirellibyChinaNationalChemicalCorp(Chem-China).
Irelandwassecondinline,inviewoftheHNAavia-tionandtransportgroup'spurchaseoftheaircraftleasingfirmAvolon,atransactionwithapricetagofUSD7.
6billion.
AsareflectionofChina'sinterestinacquiringtechnologi-calcapacityandgreaterspecialisationthroughinvestmentsinadvancedcountries,themanufacturingsectorwastheprimaryrecipientofChineseinvestmentintheEuro-peanUnionin2015,amassing39.
4%ofthetotal(USD12.
38billion),followedbythelogisticsandtransportindustry(USD8.
12billion,25.
9%)andtherealestatesector(USD3.
2billion,10.
6%).
SouthernEuropeancountrieshavebecomemoreat-tractivetoChineseinvestorsinrecentyears,alreadyrackingup28.
3%oftotalcumulativeChineseinvestmentforthe2010-2015period,positioningthemasthesecondmostappea-linggroupofEuropeancountriesforChinesefirmsaftertheBigThree(UnitedKingdom,GermanyandFrance).
Chinahasshowngreaterinterestinchannellingfundsintothesecountriesthanotherinternationalinvestors.
While12.
8%oftotalforeigninvestmentinEuropeisconcen-tratedinSouthernEuropeancountries,thisproportionclimbstotheaforementioned28.
3%ifChineseinvestmentaloneisconsidered.
OfthefourSouthernEuropeancountries,ItalyattractsthemostcomplexChineseinvestment,encompassinganex-tensiverangeoftransactionsandeconomicsectors.
ItisalsotheEuropeanUnioncountryintowhichChinafunnelledthebulkofitsinvestmentsin2015.
SpainwasthelastmajorEuropeaneconomytore-ceiveChinesefunds,althoughatpresentinvestmentsareprogressingatafastpace,exceedingUSD2billionattheendof2015intermsofcumulativeinvestmentssince2010–morethandoublethe2014year-endfigure.
InPortugal,transactionsconductedasof2015haveenteredanewphase,whichseestheconsolidationoftheintenseinboundinvestmentandpositionsthiscountryinthesixthslotwithrespecttoEuropeasawhole.
Moreover,Chine-seinvestorsareshowingincreasinginterestinboththepublicandprivatesectors.
Finally,ChineseinvestmentsinGreecehavebeenconcen-tratedinapromisingtransactionwithconsiderablestrategicimplications:COSCOShippingGroup'sinvestmentinthePortofPiraeus.
IvanaCasaburi,Ph.
D.
ESADEProfessorandDirectoroftheESADEChinaEuropeClub1213PARTITheChinaofthefuture:challengesandinitiatives1415PARTITheChinaofthefuture:challengesandinitiatives1.
Softlandingandabout-turnintheeconomicmodel162.
NewChina'sgreatestchallenges19Box1.
RisksofexpansionintheChineserealestatesector223.
TheChinaofthefuture:initiativesandopportunities233.
1.
Thenewroadmap:13thFive-YearPlan(2016-2020)233.
2.
Makingheadwayinthefinancialsystemreform24Box2.
.
Internationalisationoftheyuan273.
3.
Large-scaleinitiativesforthecomingdecades:"OneBelt,OneRoad"andnewmultilateralbanks284.
Outlookforthefuture32Bibliography34ChartsandtablesChart1.
Comparisonof2015GDPgrowthinselectedeconomiesChart2.
ChineseGDPanditsshareofglobalGDPaccordingtotheIMF(2000-2015)Chart3.
Transformationofthegrowthmodel(2000-2015)Chart4.
Year-on-yeargrowthbyeconomicsector(2015)Chart5.
Researchanddevelopmentexpenditureandpatentapplications(2006-2014)Chart6.
TotaldebtasapercentageofGDPinselectedcountries(2010-Q32015)Chart7.
Distribution(%)ofassetstocksbetweenSOEsandPOEsinselectedsectors(2014)Chart8.
Debt-equityratioinselectedsectorsChart9.
USD-yuanexchangerate(2006-2015)Chart10.
PerformanceofShanghaiCompositeIndexandShenzhenStockMarketIndex(2006-Q12016)Chart11.
RelativeglobalweightoftheChineseeconomyasperselectedvariables(2010/2011-2015)Chart12.
ChineseoutboundFDI(2006-2015)Chart13.
CapitalsubscribedbymultilateralinstitutionsChart14.
ChineseGDPgrowth(%)comparedwithFive-YearPlans(FYP)Table1.
CompositionofIMFSpecialDrawingRights(%oftotal)Table2.
IMFvotingpowerrelativetoglobalGDP161.
Softlandingandabout-turnintheeconomicmodelInthelasteditionoftheESADEChinaEuropereportwemen-tionedthatsourcesofgrowthintheChineseeconomywerediminishing,leadingthecountrytopostmoremodestgrowthrates.
In2015theeconomysloweddownfurther–expan-sionwas6.
9%,five-tenthsofapercentagepointlessthanintheprioryear.
Thisdownwardtrendcontinuedinto2016,withfirst-quartergrowthof6.
7%.
TheChineseeconomyhassteppedintoanewnormalcharacterisedbyalowergrowthratecoupledwithanabout-turninitseconomicmodel,shif-tingfrompublicinvestmenttoconsumerspending,andfromindustrytoservices.
Theeraof10%annualgrowthinChinaisnowathingofthepast.
However,thegrowthrateisstillhigh,whetherincompa-risonwithotherOECDcountriesorwithemergingeconomies.
inthecaseofOECDcountries,China'sgrowthratewasbe-tweenthreeandfourtimesfasterin2015thanintheEuropeanUnion(+2%)andtheUnitedStates(+2.
4%).
Asregardsemer-gingeconomies,BrazilandRussiareportedadeclineineco-nomicactivityof3.
8%and3.
7%,respectively,whileMexicoandSouthAfricagrew2.
5%and1.
3%,respectively.
Amongstthemajoremergingeconomies,onlyIndia,withexpansionof7.
3%,exceededChina(seechart1).
Inshort,theChineseeconomycontinuedtodemonstrateen-viablegrowthwithrespecttotheothermajoreconomiesandinnocaseshouldthecurrentdecelerationbeinterpretedasalossofrelativeweightorrelevanceforChinavis-à-vistheworldwideeconomyasawhole.
Itstotaloutput,asillustratedbychart2,alreadyamountsto15%ofglobalGDP.
Inacontextmarkedbydepletionoftheoldsourcesofecono-micgrowthandaslow-downinactivity,aquestionarises:istheAsianeconomymovingtowardsaneweconomicmodelthatwillenableittolaythefoundationsformorebalancedandsustainablegrowthinthefutureThismatterisofgreatinterestandshouldbeaddressedfromathreefoldperspective.
Firstly,asregardsthecomponentsofGDP,ananalysisofwhetherweareseeingashiftawayfrompublicinvestmentandtowardsprivateconsumerspendingshouldbeperformed.
Secondly,withrespecttosectors,thequestionofwhetherthemixismovingawayfromindustryandtowardsservicesshouldbeSource:FMIComparisonof2015GDPgrowthinselectedeconomiesChart1IndiaChinaIndonesiaTurkeyWorldNigeriaMexicoDevelopedcountriesSouthAfricaRussiaBrazil7.
36.
94.
83.
83.
12.
62.
51.
91.
3-4-202468-3.
7-3.
8Source:FMIChineseGDPanditsshareofglobalGDPaccordingtotheIMF(2000-2015)Chart2200020012002200320042005200620072008200920102011201220132014201516.
014.
012.
010.
08.
06.
04.
02.
00GDPGROWTHSHAREOFGLOBALGDP17asked.
Thirdly,fromamorehorizontalperspective,progressintheshiftfromlabour-intensiveactivitiestowardsknowled-ge-andinnovation-basedactivitiesshouldbeanalysed.
Regardingthefirstoftheseperspectives,existingindicatorsshowthatthecomponentsofGDPareindeedundergoingatransformation,whichwouldsuggestthatsourcesofgrow-tharebeingredefined.
Publicinvestmenthasbeenonthedecline,representing45.
3%in2015asopposedto47.
3%in2011.
Thisadjustmentissignificant,evenifitisoccurringmoreslowlythandesired.
Therelativeweightofpublicinvest-mentintheEUis18.
4%,comparedwith19.
7%intheUnitedStates1.
AreductioninpublicinvestmentispivotalifdebtandovercapacityintheChinesemanufacturingsectoristobere-versed.
Thesefactorshavereachedalarminglevels,aswewillseebelow.
Privateconsumerspending,meanwhile,hasclimbedfrom35.
9%ofGDPin2011to38.
2%in20152.
Thisboominprivateconsumerspendingreflectedinofficialstatisticsissupportedbyvariousbusinessactivityindicatorspublishedthroughouttheyear.
Forexample,Huawei3achievedrecordlocalsalesin2015andlastyear'sSinglesDaybumpedAlibaba'ssalesupby60%inonedayalone,toUSD14.
3billion4.
Theexpec-tationsofinternationalcompaniesoperatingintheChinesemarketalsoincreasinglyenvisageariseinprivateconsumerspendinginChina.
Bywayofexample,theSpanishtextilesmultinationalInditexmultipliedthenumberofitsZarastoresfrom101to165in2015,whiletheSwedishfirmH&M'sstorecountclimbedfrom82to291,andstoresoftheJapanesefirmUnicloproliferatedfrom80to3065.
OverthelastdecadetherehasbeenashiftinthesectorsoftheChineseeconomyasareflectionoftherestructuringprocessongoingthere,whichhasseenthemanufacturingactivityreduceitscontributiontotheGDP,whileserviceshaveincreasedtheirs6-7.
Internalchallenges,suchasindus-trialovercapacity,havebeenexacerbatedbytheslowdownintheChineseeconomyandweakglobaldemand.
Asaresult,theshareofChina'stotalGDPattributabletothesecondaryindustry(whichincludesmanufacturing,mining,constructionandpublicservices)droppedfrom43.
7%in2013to40.
5%in2015,whilethetertiary(services)sectorincreaseditssharefrom44%to50.
4%inthesameperiod(seechart3).
Differentservicesubsectorsarefastmakingheadway,drivenbygreaterdisposableincomeandahigherstandardofliving.
Commercialactivityisgrowingsubstantiallyonthebackofthee-commerceboom,whichgeneratedturnoverofUSD589billionin2015andinturnoriginatedconsiderableactivityinthelogisticsandtransportsector,whichexpandedby4.
6%in2015.
Liberalisationofinterestratesandthecapitalaccounthasboosteddemandforfinancialservices,whichgrewby15.
9%.
Demandforhealthcareandeducationserviceshasalsoescalated,asislikewisethecaseforrestaurantsandho-tels(+6.
2%)(seechart4).
Thetransformationsonthesupplysideandthedemandsidefeedoffoneanother,creatingaviciouscircle.
Astheirincomelevelsrise,Chineseconsumersarebecomingmoresophisti-cated,culturedandinterconnected,aswellasmoredeman-ding.
Inmanyaspects,theyhaveadoptedconsumerpatternsthatuntilnowweremoretypicalofwesterncountries.
Thisfactordirectlyinfluencesthemarketperformanceandcompe-titivedynamicsoffirmssupplyingvalue-addedproductsandservices,whilestimulatingbusinessactivityinorderforsuchservicestoberendered.
Thisinturnspeedsuptheredefiningofthesectormixrequiredbythesupplyside.
1http://www.
economywatch.
com/2"Walledin:China'sgreatdilemma".
GoldmanSachs.
2016.
3http://www.
reuters.
com/article/us-huawei-results-idUSKBN0UK08U201601064http://economia.
elpais.
com/economia/2015/11/11/actualidad/1447222805_516453.
html5"China'sshifttoservices.
Acommercialpropertyperspective".
Blackrock.
2015.
6"ChinaOutlook2016".
KPMGGlobalChinaPractice.
2016.
7"China'sshifttoservices.
Acommercialpropertyperspective".
Blackrock.
2015.
Source:NationalBureauofStatistics(NBS)Transformationofthegrowthmodel(2000-2015)Chart355504540353050.
440.
5SECONDARYSECTORTERTIARYSECTOR2005200620072008200920102011201220132014201518Asregardsthethirdperspective,availableindicatorsshowthattechnologyandinnovationhavebeenmakingconsidera-bleheadwayinChinainrecentyears,evenmovingaheadofcertainadvancedcountriesinsomecases.
TheseindicatorsleavenotashadowofadoubtastothedirectiontheChineseeconomyistakingandthegovernment'sdeterminationtoturnthecountryintoaninnovationpowerhouse.
R&Dinvestmentin2014was2%,surpassingtheEUaverageandequalto40%ofthevolumeinvestedintheUnitedStatesthatyear.
Chinaisthemostprolificpublisherofarticlesinscientificmagazi-nesspecialisingincomputerscienceandchemicalresearch;thenumberofpatentsregisteredrisesby20%annually;thisAsiancountryisalreadyinvolvedin37%ofworldwideexportsofhi-tech;andeachyearitturnsoutmorethanonemillionengineeringgraduates.
Thetransitiontowardsamoreknowledge-basedoutputsce-nariowithamoreprominentadded-valuecomponentisbeingledbyaselectgroupofmajorChinesefirmscompetingatgloballevel.
TheseincludeHuawei,Lenovo,Tencent,AlibabaandBaidu,allofwhichareexamplesofinnovativebusinessmodelsthatchampionR&Dinvestment.
HuaweiinvestedUSD6.
6billioninR&Din2014alone,notfarofftheUSD8.
1billionR&DexpenditureofUSfirmApple8-9.
Moreover,foreignmulti-nationalsareincreasinglyoptingtodevelopagreaternumberofinnovativebusinessmodelsandproductsinChina,inlinewiththiscountry'snewlydevelopedcapabilities.
ThenumberofR&Dcentresownedbyforeigncompaniesalreadytotals1,300.
Inmanycasesthesehavebeenadaptedfrombasicmanufacturingandassemblypoints,oneexamplebeingtheBritishpharmaceuticalsfirmGSK,whichhassetupitsnewneurodegenerativediseaseresearchbaseinChina.
ThetransformationoftheChineseeconomicmodelisun-derway.
Whichevertheindicatorused,itisevidentthatChi-naistakingfirmstepstowardsaremodellingofitsgrowthsources,pavingthewayformorebalancedandsustainablegrowthinthelongterm.
Theeconomictransformationpro-cessisundeniable.
Assuch,itisworthexaminingtheextentandscopeofthisprocessinacountrythesizeofChinaandwiththedistinctivefeaturesofthiscountry'sgeography.
Thetransitionintheeconomicmodelisanationwideoccurrence,butistakingplaceatdifferentrates,whichisaggravatingtheinterprovincialimbalance.
Inrecentyears,thegapbetweenregionsthatconcentratetheireconomicactivityinminingandquarryingindustriesandlabour-intensivemanufacturingsec-tors,andthoseinwhichnewsectorsareflourishing,hasbeenwideningatbreakneckspeed.
Bywayofexample,incitiesthatplayhosttoahighconcentrationofthecountry'smostcultured,sophisticatedanddemandingconsumers,suchasBeijingandShanghai,servicesalreadyrepresent77.
9%and64.
8%ofGDP,respectively;whereastheinlandcityofChon-gqingandthenorth-easterncityofShenyang,bothofwhichhaveamarkedindustrialcomponent,continuetoaccountfor46.
8%and45.
5%ofGDP,respectively10.
Furthermore,whileitistruethatR&Dindicatorshaveimprovedhugely,theyareprincipallyameasureofexpenditurebythegovernmentandbytechnologicalgiantssuchasHuawei,LenovoandTencent.
Nonetheless,ashiftintheproductionstructuretowardsacti-vitiesthatincorporategreateraddedvalueandinnovationwillcallformoreopennessinagreaterportionofthebusinessarena,currentlymadeupofover77millioncompanies,manyofwhicharesmallenterpriseslocatedinthelesser-developedinlandprovinces11.
8http://qz.
com/374039/huaweis-rd-spend-is-massive-even-by-the-standards-of-american-tech-giants/9http://bgr.
com/2015/11/30/apple-vs-google-r-and-d-spending/10"China'sshifttoservices.
Acomercialpropertyperspective".
Blackrock.
2015.
11See:http://www.
chinacheckup.
com/questions/companies-in-chinaSource:NationalBureauofStatistics(NBS)Year-on-yeargrowthbyeconomicsector(2015)Chart4181614121086420AgricultureandfishingIndustryConstructionTradeTransportationandlogisticsFinanceRealestateHotelsandrestaurants45.
96.
86.
14.
66.
23.
815.
9192.
NewChina'sgreatestchallengesChina'sdevelopmentsuccessstoryofrecentyearsanddeca-deshasmainlybeenpromptedbypublicinvestmentfunnelledinfromBeijing.
However,theinvestment-drivendevelopmentmodelhasbeenimplementedonsuchalargescalethatithasresultedinconsiderabledebtandovercapacityincer-taineconomicsectors.
TheproblemhasescalatedtosuchproportionsthatithasbecomeoneoftheprimaryrootsofuncertaintyasregardsChina'sfutureeconomicperformance.
Publicinvestmentwassteppedupexponentiallyinviewofthestimulusplandevisedtoaddressthesubprimemortga-gecrisisthatemergedin2008,tothetuneofCNY4trillion(USD586million),72%ofwhichwasinvestedininfrastructureandrealestateprojects,puttingadditionalpressureondebt.
TherapidupsurgeinChinesepublicdebtledtoratiosofbe-tween250%and300%ofGDPin2015,wayabovethoseofothercountriessuchasIndia(128%)andGermany(187%),asillustratedbychart6.
Notably,thedebtburdenisdistributedunequallyamongstthedifferenteconomicagents.
Centralgo-vernmentdebtremainsmoderate,estimatedat44%ofGDP,whilecorporatedebtrepresents150%ofGDP.
However,thepotentialdebtoftheChinesegovernmentcouldbemuchhi-gherinviewofitsconsiderableexposuretoSOEs,manyofwhichareexperiencingfinancialproblemsarisingfromsur-pluscapacityandthefallindemand.
Thefinancialpositionofpublicaccountsandtheimpactthatthe106SOEscontrolledbythecentralgovernmentcouldhaveontheseaccountsareparticularcauseforconcern.
SomeoftheseSOEs–suchastheoilcompaniesChinaPetroleum&ChemicalCorporation(SINOPEC)andChinaNationalPetroleum,theconstructioncompanyChinaRailwayEngineeringandthetelecommunica-tionsfirmChinaMobileCommunications–rankamongstthelargestenterprisesintheworld.
Asillustratedbychart7,SOEscontinuetobeeminentlymoresignificantthanPOEsinwhatarestillstrategicsectorsfortheChineseeconomy12.
12"ChallengeAheadinChinaReformofStateOwnedEntreprises".
WendyLeutert.
BrookingsInstitution.
2016Source:WorldBankandOECDResearchanddevelopmentexpenditureandpatentapplications(2006-2014)Chart515,9200620072008200920102011201220132014900,000800,000700,000600,000500,000400,000300,000200,000100,0000801,0002.
521.
510.
50R&Dexpenditure/GDPPatentapplications1.
381.
381.
461.
681.
731.
791.
932.
012.
05Source:BankforInternationalSettlementsTotaldebtasapercentageofGDPinselectedcountries(2010-Q32015)Chart625020015010050024824718712896ChinaInitedStatesGermanyIndiaRussia20102011201220132014201520Asthemainexecutorsoftheinvestment-drivenpolicy,SOEsarecurrentlyafflictedbyaseriousproblemofovercapacity.
Inthecementsector,calculationsindicatethatChinausedasmuchcement(6.
6gigatonnes)between2011and2013astheUnitedStatesinthewholeofthe20thcentury;whileChina'scurrentsteelindustryoutputisdoublethatofJapan,India,theUnitedStatesandRussiacombined.
TheAsiannationhasallofthisinstalledcapacitynow,butdemandisonthedecline,duetobothaslow-downindomesticactivityandlesserexter-naldemand.
Anadditionalproblemarisesintheformofthesecompanies'scantproductivityandcapacitytogeneratepro-fits:theROAratioofChineseSOEsisjust33%thatofprivatefirmsand50%thatofforeigncompanies13.
Thedebt-to-equityratioofthesecompaniesisthereforebarelysustainable.
Finally,wecannotplaydowntheriskthatthecurrentsitua-tionbearsforthefinancialsector(seechart8).
Itisestimatedthatupto80%ofthetotalvolumeofbankloanscurrentlyoutstandinginChinahavebeengrantedtoSOEs,whoseperformanceandrepaymentcapacitycouldpotentiallydes-tabilisethefinancialsystem.
ThefinancialpositionofSOEsisalreadygivingrisetodefaults,asillustratedbythenumberofnon-performingloans(NPL)14in2015,whichisdoublethefigurepostedin201415.
EstimatesemergingfromBelgianthinktankBruegel16indicatethatthetotalvolumeofnon-perfor-mingloansamountedtoCNY1.
27trillionattheendof201517–equivalenttothesizeoftheSpanisheconomy.
Theseesti-matesareinlinewithIMFpredictions18.
Underheavypressureduetotheproblemscausedbyoverca-pacityanddebt,asmentioned,inSeptember2015theChine-seunveiledgovernmentitslong-awaitedSOEreformplan.
Onpaperatleast,andonthebasisoftheheraldedreforms,thisisthemostambitiousSOEreformplantodateandrequiresthehighestlevelofcommitmentfromthegovernment.
OneofthemainobjectivesofthereformprogrammewillbetoincreasetheinvolvementoftheprivatesectorandforeigncompaniesinSOEs.
Thisopensthedoorforpurchasesofsharepackagesandconvertiblebonds.
TheSOEsmostexposedtotheentryofprivateandforeigncapitalwillbethoseoperatingintheoil,gas,electricity,railwayandtelecommunicationssectors.
ThereformdocumentdistinguishesbetweentwotypesofSOEs:"commercial"(shangyelei)and"publicinterest"(gongyilei).
Pri-vatisationwillonlyaffectcommercialSOEs,withthegovern-mentretainingownershipof100%ofpublicinterestSOEsforpublicwelfarepurposes.
EquityswapsbetweenSOEsandprivateinvestorswillalsobepossible.
Theequityswappro-grammeaimstoenableCNY1trillionofdebttobewrittenoffSOEbalancesheets.
Theriskwould,however,betransferredtothenewdebtholder,whichsomewhatreducestheincenti-veforprivatefirmstogetinvolvedintheprogramme.
ThegovernmentwillalsoreducethenumberandsizeofSOEsthroughaseriesofmergersandacquisitionsinvolvingthedi-fferentcompanies,whichwouldalsoentailanassetrestructu-ringprocessinmanyofthesecompanies.
TheChineseautho-ritieshavealreadyacquiredacertaindegreeofexperienceinmanagingmergersofmajorpublicentities.
Inearly2015came13"SOEreformscouldunlockthepotentialofunproductivesectorsandboostgrowth".
BBVAResearch.
CarlosCasanova,BettyHuangyLeXia.
201514Loansthatareindefaultorabouttofallintodefault,i.
e.
morethan90dayspast-due.
15See:http://www.
reuters.
com/article/us-china-banking-npl-idUSKCN0UQ04D2016011216ChinaBanks:thewayforward.
AliciaGarcíaHerrero.
Bruegel.
2016.
17See:http://www.
bloomberg.
com/news/articles/2016-04-15/china-may-have-1-3-trillion-of-risky-loans-imf-report-shows18AlthoughofficialfiguresindicateanNPLratioofaround1.
8%ofthetotal,basedonvariousprivateestimatestheactualfigurecouldbecloserto12%-15%.
Source:NationalBureauofStatistics(NBS)Distribution(%)ofassetstocksbetweenSOEsandPOEsinselectedsectors(2014)Chart7120100806040200ElectricityMetalsMiningChemicalsAutomotive97.
971.
486.
953.
677.
72.
128.
613.
146.
422.
3SOEsPOEsSource:BusinessInsiderbasedoncompaniesholdingAsharesinthesectorsmentionedhttp://uk.
businessinsider.
com/china-debt-to-gdp-statistics-2016-1Debt-equityratioinselectedsectorsChart82502001501005002000200520102014IndustryEnergyMaterials21theannouncementofthemergerbetweenthetwolargeststa-te-ownedrailwaysectorenterprises,ChinaCNRCorporationLimited(CNR)andChinaSouthLocomotive&RollingStockCorporationLimited(CSR),toproducethenewChinaRailwayRollingStockCorporation(CRRC),valuedatUSD26billion.
Moreover,attheendof2015themergeroftheshippingcom-paniesCOSCOandChinaShippingGroupwasapproved,givingrisetoanewshippinggiant,ChinaCOSCOShippingGroup.
Thisisthelargestshippingconglomerateworldwidebynumberofvesselsandmarketvalue;specifically,ithasamarketvaluethreetimesgreaterthanthatoftheDanishfirmMaersk19,whichrankssecond.
Newinvestmentvehicles,theso-calledStateCapitalMana-gementCompanies(SCMC),havealsobeencreated.
ThesegovernmentdivisionswillbetaskedwithefficientlyallocatingstateequityandbudgetstotheSOEswiththegreatestgrowthpotential,andwhichhaveincorporatedtechnologytohighestdegreewithrespecttotheenvironmentorstrategy.
Theaimisalsotoguaranteeautonomyinmanagingthesecompaniesandtograduallyintroducemeasurestoincreaseworkforceproductivity,enablingperformance-relatedsalaryincentives,forexample.
Finally,theneedtofindanoutletforthesurplusinstalledcapacityoftheselargeSOEsisoneofthemainins-tigatorsofthelarge-scalegovernmentinitiativespresentedinthelasttwoyears,suchastheOneBelt,OneRoad(OBOR)projectandtheAsianInfrastructureInvestmentBank(AIIB),whichareanalysedinsection4.
ThetablebelowsummarisestheSOEreformmeasures.
4Increasethepresenceofprivatecapitalintheshareholderstructure4Undertakeamergerprocess4Startupnewinvestmentvehicles(StateCapitalManagementCompanies)4Guaranteeautonomyintheirmanagement4Increaseproductivity4FindanoutletforsurpluscapacitythroughtheOneBelt,OneRoad(OBOR)project6measuresaimedatreformingSOEs19See:http://www.
wsj.
com/articles/china-cosco-shipping-merger-expected-to-kick-off-further-consolidation-in-industry-14545981392220http://internacional.
elpais.
com/internacional/2016/02/26/actualidad/1456502478_209415.
html21http://www.
ft.
com/intl/cms/s/2/65a584e2-da53-11e5-98fd-06d75973fe09.
html#axzz45bLmgqWo22http://www.
ft.
com/intl/cms/s/0/385cb206-c358-11e5-b3b1-7b2481276e45.
html#axzz45bLmgqWo23See:http://www.
economist.
com/news/finance-and-economics/21694530-house-prices-are-soaring-big-cities-oversupply-plagues-much24P2P:DirectfinancingbetweenindividualsorwithoutintermediariesArecurringthemewhendiscussingthechallengesfacingthenewChinaistheriskofarealestatebubbleanditseffectonthestabilityoftheeconomy.
ThreefactorshavecontributedtotherapidexpansionoftherealestatesectorinChinainrecentyears.
Firstly,therehasbeenmassmigrationfromruraltourbanareas,fosteredbythegovernment,whichhascausedthenum-berofhomesrequiredinlargecitiestoskyrocket.
Accordingtoofficialdata,overthelast20yearsthepercentageoftheChine-sepopulationlivinginurbanareashasincreasedfrom30%to54%,followingamassinternalmigrationof300millionpeople.
TheaimofthegovernmentinBeijingistocontinuethisprocessandforafurther100millioncitizenstomigratetourbanareasby2020.
Thismovementhasledtotheconstructionofmillionsofnewhomesbothinthecentreoftheurbanhubsandinthesurroundingareas.
Secondly,theexcessliquidityavailableinthemarket,particular-lysincethe2008fiscalexpansionmeasureswereintroduced,haspromptedthousandsofcompaniestotakeonconstruc-tionandrealestateactivity,generatingsignificantdysfunctioninsomecases.
Forexample,certaincompaniesbuiltalargenumberofhomesinthirdandfourthtiercities,drawninbylowlandprices,althoughtheseinvestmentscouldnotactuallybejustifiedbypotentialdemand.
Thirdly,thescantavailabilityofinvestmentoptions,giventhelimitedaccesstofinancialproducts,coupledwithstockmarketvolatility,inacountrywithoneofthehighestlevelsofsavingsintheworld,havetemptedlargeamountsofChinesesavingsintorealestateinvestments,causinganupwardspiralofrisingprices.
Bytheendof2015therewasatotalof718millionsquareme-tresofunsoldhomesandcommercialpremises,whichissu-fficientspacetohousearound20millionpeople.
Thiswouldindicatethatthegrowthrateoftherealestatesector,whichaccountsfor15%ofChina'sGDP,posesacertainlevelofrisktothestabilityoftheeconomy20.
Besidesthedirectimpactthatacollapseintherealestatemarketwouldhaveonthecompa-niesoperatinginthissectorandtheiremployees,asharpdecli-neinpriceswouldalsonegativelyaffectthebalancesheetsoffinancialinstitutions.
Accordingtocertainanalyses,anestima-ted60%ofbankloansareassociatedwiththerealestatesec-tor21and30-40%ofthecollateralpledgedassecurityforbankloansarerealestateassets22.
AlsoworthnotingisthepotentialimpactonthewealthofChinesehouseholdsthatinvestinrealestate,whichcouldseeadeclineintheirpurchasingpower.
Inrecentyearstherehasbeenasignificantdivergenceinas-setprices.
Realestatepricesarerisinginthecountry'smostprosperouscities,particularlyBeijingandShanghai,whicharetheareasfavouredbyyoungpeoplewithsubstantialpurcha-singpower,andalsoinGuangzhou,SanyaandShenzhen.
ThemostnotableincreasehasbeenseeninShenzhen,whichhasbecomeoneofthemostattractivetechhubsinthecountry.
Priceshereroseby53%onaveragein201523.
AsquaremetreoffloorspaceinShanghaicostsUSD509,whilethecostinShenzhenisUSD659.
Conversely,inthirdandfourthtiercitiesnointeresthasbeenshowninbuyingtheemptyhomeseitherforresidentialpurposesorasinvestmentproperty,andthesearedeclininginprice.
Financialinvestorsthatoperateintherealestatesectorareawareofthelackofdemandinthesecitiesandthehighriskposedbythepurchaseofrealestateassetsintheselocations,andhavechoseninsteadtofocusontheaforementionedci-ties,thereforeplacinggreaterupwardpressureonassetva-lues.
Moreover,theproliferationofpeer-to-peer(P2P)24finan-cingplatformsgearedtowardtherealestatemarket,suchaspinfangwang.
com.
cn,whichisbasedoncollectivepurchasesstartingatUSD160,reducestheriskinherentinspeculativeoperationsandcouldevencontributetotheriseinprices.
Wemustnotforgeteitherthattherestrictionsplacedoncapitalleavingthecountryfollowingthefinancialvolatilityexperiencedin2015and2016couldpumpupthehousingmarketagainbylimitinginvestmentoptions.
Box1RisksofexpansionintheChineserealestatesector233.
TheChinaofthefuture:initiativesandopportunities3.
1.
Thenewroadmap:13thFive-YearPlan(2016-2020)Draftingofthe13thFive-YearPlan(2016-2020)beganin2015,whenthe12thFive-YearPlan(2011-2015)wasdrawingtoaclose.
ThebasesforthenewplanweretheconsultationsandmeetingspromotedbytheNationalDevelopmentandReformCommission(NDRC),theultimateauthorityintermsofthecountry'sreform.
ThefinaldocumentwasendorsedbytheNationalPeople'sCongress,andimplementedinMarch2016.
TheFive-YearPlanisacompendiumofproposedinitiativesthatwilldictatetheChinesegovernment'sinterventionintheeconomicandbusinessarenaoverthecomingfiveyears,andisakeytoolforanticipatingandunderstandingthecourseoftheeconomicreforms.
TheultimateaimoftheFive-YearPlanistoachievea"moderatelyprosperoussociety"basedonaverageeconomicgrowthof6.
5%from2016to2020,andtodoublepercapitaGDPby2020comparedwith2010.
Themainfeaturesofthe13thFive-YearPlanareanalysedbelow.
The13thFive-YearPlanisacontinuationofthepreviousplan.
Thatsaid,whiletheareasofactionareprincipallythesame,themeasuresaremoreambitiousandareexpectedtohaveamoreprofoundimpact.
Possiblythemostsignificantchangeinthe13thFive-YearPlanwithrespecttoitspredecessoristheimportanceplaceduponinnovation.
Expresssupportofcertaineconomicsectorshasbeenreplacedbyacross-cut-tingapproachwhereinreformsaimedatencouraginginnova-tioninallpocketsoftheeconomyareakeycomponent.
Twoinitiativesinthisareaareparticularlynoteworthy:InternetPlusandMadeinChina2025.
Althoughthesetwoinitiativeswerebroughtintoplayin2015,theywillbeespeciallyemphasisedoverthedurationofthenewFive-YearPlan.
InternetPlusentailsthereductionofinternettariffscoupledwithanincreaseininternetspeed,aswellasgreaterintegra-tionofbigdataandtheinternetofthingsinthevariouseco-nomicsectors,includingtraditionalindustries.
Tothisend,anR&Dinvestmenttargetof2.
5%ofGDPhasbeensetfor2025,whilehouseholdsinmajorcitiesshouldhaveaccesstoaninternetspeedof100megabytespersecond,orbroadbandshouldreach98%ofthepopulation25.
MadeinChina2025isaten-yearplanwhich,inthewordsofIndustryandInformationTechnologyMinisterMiaoWei,seekstoachieveindustrialcapacityequaltothatofGermanyandJapanattheirearlystagesofindustrialisation.
Thepurposeoftheplanwillbetoimplementvariousinitiativesaimedatincor-poratingservicesandtechnologyintoproductsandmanufac-turingprocesses.
Thesectorstobecoveredbythestrategyareagriculturalequipment,electricvehicles,biomedicineandmedicalapparatus,maritimeengineering,communicationstechnologies,aviationandaerospaceequipment,electricalpowerequipmentandrobotics26-27.
Afterinnovation,thenextprioritytobeaddressedthroughtheFive-YearPlanisthatofreducingthenegativeimpactofeco-nomicdevelopment,andofindustrialactivityinparticular,ontheenvironment.
Thenewmeasuresincludetheintroductionofstricterenvironmentalstandards,andincentivesformana-gersofmajorfirmstoencourageadecreaseinemissions.
Mo-reover,lowcarbonsectorsandelectricvehiclesarefavoured,thecreationofagreenfundhasbeenannounced,andacapof5billiontonneshasbeensetforenergyconsumption**28.
TheChinesegovernmenthasalsoestablishedanadditionalincentiveforthereductionofindustrialemissions,havingun-dertakenvariouscommitmentsinthisrespectduringtheParisClimateChangeConferenceheldinDecember201529.
25"ChinaInternetPlusStrategy".
BettyXu.
SecondedEuropeanStandardizationExpertinChina(SESEC)Projects.
201526See:http://knowledge.
ckgsb.
edu.
cn/2015/05/21/policy-and-law/made-in-china-2025-chinese-manufacturing-to-get-a-makeover/27See:http://www.
chinadaily.
com.
cn/bizchina/2015-05/19/content_20760528.
htm28See:http://espaachina.
es/blog/xiii-plan-quinquenal-de-china-crecimiento-economico-chino/29See:https://www.
chinafile.
com/reporting-opinion/environment/how-chinas-13th-five-year-plan-addresses-energy-and-environment24BesidesthefinancialsystemandSOEreformsalreadymen-tioned,theinnovationandenvironmentalpolicymeasureslaiddowninthenewFive-YearPlanarelikelytohavethegreatestimpactontheChineseeconomyinthecomingfiveyears.
No-netheless,theFive-YearPlanalsoincludesanumberofmea-suresthataffectotherareasofactivity.
Thesearesummarisedbelow30:Strengtheningoftheantitrustpolicy,particularlyinsectorsstillsubjecttoamonopoly:electricity,telecommunications,transport,oil,naturalgasandpublicservices.
Taxreformtoincreasethedecision-makingcapacityofcen-tralgovernmentandotherauthoritieswhenallocatingresour-ces.
Greaterautonomyforuniversitiesandresearchbases,in-cludingmanagementoffundsandpersonnel.
Promotionofinnovativeeducationpractices.
Reformoftheruralsystemfordistributingandprotectingfarmers'andruraldwellers'agriculturallandownershiprights.
Greaterinvestmentbycentralandprovincialgovernmentstoreducethepovertyindex.
ExtensionofsocialsecuritycovertoallChinesecitizensandareductioninhealthinsurancecosts.
Accelerationofurbandevelopment–attheendofthispro-cesstheaimisfor60%oftheChinesepopulationtobelivingincitiesby2020(54%in2014,accordingtoWorldBankdata).
Developmentofnewinfrastructure,entailingtheimplemen-tationofmammothprojectssuchasextendingthehigh-speednetworkto30,000kmsoastoserve80%ofmajorcities,orbuilding50newairports.
3.
2.
MakingheadwayinthefinancialsystemreformTheChineseauthoritiesareawarethatthetransitiontowardssustainablegrowthrequiresareformofthefinancialsystem.
ThissectionanalysesthreekeyaspectsoftheChinesefinan-cialsystemthathaveundergonereforminthelastthreeyears:liberalisationofthecapitalaccount,whichaimstofacilitateca-pitalflowsinsideandoutsideChineseborders;bringingbankinterestratesintolinewithmarketvalue;andrelaxationofthecriteriacurrentlyusedtodeterminethevalueoftheyuan.
LiberalisationoftheChinesecapitalaccount.
Intermsofcapitalaccountliberalisation,Chinacontinuestobeoneofmostrestrictiveeconomiesintheworld.
AccordingtotheIMF'sAnnualReportonExchangeArrangementsandEx-changeRestrictions(AREAER),restrictionsoncapitalinflowsremainedinforcein14ofthe15categories,and15ofthe16categoriesinthecaseofcapitaloutflows31.
Foreigninvest-mentsrequiregovernmentauthorisation32andtheoperationsofauthorisedinvestorscontinuetobesubjecttoquotasandtimingrestrictions.
Inrecentyearsconsiderableprogresshasbeenmadetowardsfacilitatingliberalisationofthecapitalaccount.
Va-riousstepshavehadapositiveimpactontheChineseeco-nomyandareindicativeofthegovernment'sintentiontoheadtowardsgreaterliberalisationofthecountry'scapitalaccount,soastoincreasetheinvolvementofforeignplayersinlocalcapitalmarketsandforChinesecitizensandenterprisestohavemoreoptionsfortransactingabroad.
Ithasbeenan-nouncedthatQFIIandRQFIIwillbeabletoundertakeunres-trictedoperationsinthemarketforbonds.
Thiseasingseekstoincreasetheinvolvementofforeigninvestors,particularlythoseofaninstitutionalnature,whichmakeuponly2%ofthetotalatpresent.
Furthermore,anumberofpilotprojectshavebeendevisedincertainChinesecitiestoliftrestrictionsandenablecitizenstoaccessmorethanUSD50,000,thecurrentceiling,withwhichtoundertaketheirtransactionsabroad33.
Meanwhile,investmentquotashavebeenraisedthroughtheShanghai-HongKongStockConnectprogramme,whichwillenableinvestorsfromcontinentalChinatoaccesstheHongKongsecuritiesmarketandforeigninvestorstoaccesssharesintheShanghaimarketwithfewerrestrictions.
30InformationbasedonthepublicationsoftheChinesegovernmentrepresentativeattheUnitedNationsattheendof201531"AnnualReportonExchangeArrangementsandExchangeRestrictions".
IMF.
201432OnlyQualifiedForeignInstitutionalInvestors(QFII)andRenminbiQualifiedForeignInstitutionalInvestors(RQFII)areentitledtoundertakeforeigntransactions,andonlyQualifiedDomesticInstitutionalInvestors(QDII)mayconductdomestictransactions.
33See:http://ftalphaville.
ft.
com/2015/07/17/2134607/this-isnt-the-chinese-capital-account-liberalisation-youre-looking-for/25Bringingbankinterestratesintolinewithmarketva-lue.
Inthelastthreeyearswehavewitnessedadejurelibe-ralisationofbankinterestratesonbothloansanddeposits.
InJuly2013,justfourmonthsafterXiJingpingtookuphispositionasPresidentofChina,interestratesonbankloanswereliberalised;untilthen,ratesweresubjecttoafloorof70%inthebenchmarkingand6%imposedbythegovern-ment.
Later,in2015,thedepositinterestratewasremoved.
Thisliberalisationbenefitsfamiliesandenterprisesalike,intermsofgreatercompetitioninthebankingsectorwhichfor-cesbankstooffersavingsandinvestmentproductsatmoreattractiverates.
Moreover,economicagentshavereducedthecostofaccessingcredit,whichshouldhaveapositiveimpactonconsumerspendingandbusinessactivity.
Therearealsoexpectationsthatinterestrateliberalisationwillleadtoamoreefficientallocationofresourcesandgreatermarketdiscipli-neinchannellingcredit,asbankswillapplydifferentinterestratesdependingonthecustomer'sriskrating.
Inanycase,althoughfinancialinstitutionsalreadyhavethefreedomtosettheirowninterestratesfordepositsandloans,otherdefactobarriersarestillinplace,whichmeanthattotalinterestrateliberalisationisnotyetareality.
Bywayofexample,thebench-markinterestratesappliedtoSOEs–which,asindicatedpre-viously,aretheprincipalrecipientsofprivatecredit–arestillinplace.
TheinterestchargedonloanstoSOEs,inviewoftheconsiderableproportionoftotalcredittheyrepresent,isthebasisfordeterminingthepricesatwhichfinancialinstitutionsarepermittedtolendtoothereconomicagents.
Assuch,al-thoughinterestratederegulationhascomealonginleapsandboundsinrecentyears,thereisstillroomforimprovementintermsoftotalinterestrateliberalisation.
Relaxationofthecriteriausedtodeterminethevalueoftheyuan.
Asregardsthevalueoftheyuan,sincethemid-90stheChinesecurrencyhasbeenstronglyindexedtotheUSdollar,althoughthegovernmenthasbeentakingstepstointroducemarketcriteriaindeterminingthelocalcurrencyex-changerate.
Specifically,since2005thefluctuationbandhasbeenprogressivelywidened(thelatestbeing+/-2%in2014),andtheChinesecurrencyhasappreciated35%vis-à-visthedollarsincethen.
However,overthelasttwoyearsthevalueoftheyuanhassliddownagainduetotwoepisodesoffinancialinstability,asreflectedinchart9.
InAugust2015,inresponsetoanIMFrequestfortheyuantoreflectavaluationmorecommensuratewithitsmarketvaluewithaviewtoitsinclusionintheSpecialDrawingRi-ghts(SDR)34,thereformistgovernoroftheCentralBank,ZhouXiaochuan,decidedtoimplementa1.
9%reductionintheexchangerate,whichheannouncedasanextraordinarymovement.
Afurtherdepreciationwasneverthelessappro-ved,andeffectedadaylater,leadingtoa4.
8%dropinthecurrency'svalueintheHongKongyuanmarket.
Evenso,thegovernmentisnotexpectedtobackacontinuousdeclineinvalueoftheyuanvis-à-visthedollar,sincethiswouldhinderrepaymentofChina'scurrentCNY1trilliondebt,wouldredu-ceprivateconsumerspendingcapacityinmid-transitionoftheeconomicmodel,andwouldcomplicatetheimplemen-tationoftheOneBelt,OneRoad(OBOR)initiative,makingtransactionfinancingmoreexpensive35.
However,thelackofclearcommunicationfromtheCentralBank,combinedwiththeslow-downandgrowingpublicdebt,aswellasdoubtsconcerningthereliabilityofcertaineconomicdata,enticedahugeUSD1trillionabroadin2015aloneaccordingtoBloom-bergdata,whichisequaltothesizeoftheTurkisheconomy.
34TheSDRistheIMF'sbenchmarkcurrencyandconsistsoftheUSdollar,theeuro,thepoundsterling,theyenand,since2015,theyuan.
Formoreinformationontheimplicationsofincludingtheyuaninthecurrencybasket,seeBox2ofthisreport.
35See:http://www.
economist.
com/news/finance-and-economics/21688440-chinas-leaders-face-menu-unappealing-exchange-rate-options-fight-or-flightSource:XE.
comUSD-yuanexchangerate(2006-2015)Chart9200620072008200920102011201220132014201598765432107.
827.
36.
846.
836.
626.
326.
246.
076.
26.
4726Asaresultoffinancialturbulenceandtheincreaseinshortpositionsontheyuan,between10and27August2015thesharepricesofcompanieslistedonthetwoChinesestockmarketsfellby21.
5%onaverage.
Thiscollapseinthestockmarketwasanabruptcorrectiontoamarketthathadgrownhugely.
InthecaseofShanghai(ShanghaiCompositeIndexorSCI),growthfromJune2014toJune2015was150%(seechart10).
AsecondwaveofvolatilitywastocomeinJanuary2016,tri-ggeringanaveragedeclineof16.
4%inshareprices.
Inthiscase,theChinesegovernmentdecidedtointerveneinthecapitalmarkets,managingtocurbthevolatilitybyprohibitingSOEsfromsellingmorethan5%oftheirportfolio,suspendingseveralIPOs,andpressurisingpublicbodiestoincreasetheirlongpositions.
Withoutadoubt,reformingtheChinesefinancialsystemisanimmenselycomplextaskthatentailsalargenumberofini-tiatives,whereineachsolutioncarriesitsownrisk,bringingfurthercomplexitytothereformprocess.
Themaininitiativescanbesummarisedasfollows:Bringingbankinterestratesintolinewithmarketvalue,wi-thoutjeopardisingthevolumeofcredit,butalsowithouten-couragingtheadventofassetbubbles.
36Speculativecapitalthatquicklyentersandexistsacountrytotakeadvantageofexchangeratevolatility.
Openingupthecapitalaccounttofosteraccesstogreaterforeignresources,butwithoutpromptinganabruptentryofhotmoney36.
Wideningtheyuanfluctuationbandsothatitgraduallygetsneareritsmarketvalue,whilecontrollingexpectationsastoitsfuturevalue.
Examiningandincreasingthenumberofcompanieslistedonstockexchanges,butbringingsharepricesmoreintolinewiththecompanies'bookvaluesoastoreducespeculativetransactions.
Allofthesereformsrequireclearrulesandtransparentdata,aswellascredibilityandacorrectcommunicationspolicyonthepartoftheCentralBank.
Thereformofthefinancialsys-temisthereforeexpectedtotakeafewyearstocompleteandcouldbringonnewepisodesofvolatilityinthefinancialmar-kets,whichwouldinanycasebeshort-lived,similartothoseseenin2015and2016.
Source:YahooFinance.
700060005000400030002000100003500300025002000150010005000PerformanceofShanghaiCompositeIndexandShenzhenStockMarketIndex(2006-Q12016)Chart1020152016200620072008200920102011201220132014SHANGHAICOMPOSITEINDEXSHENZHENSEINDEX27DespitetheAsiangianthavingclimbedtheranksinrecentyearstobecomethesecondlargesteconomyintheworld,itscurrencycontinuestoplayasecondaryrolewithrespecttoitsuseatinternationallevel,andisfarbehindthecurrencieswithwhichitshouldbecompetinginviewofChina'seconomicprowess,i.
e.
theUSdollar,theeuroandtheyen.
Theyuancu-rrentlyaccountsforjust1%oftheworld'stotalreserves.
Itistheeighthmostusedcurrencyintheworldfortheissueofbondsandranksninthinforeignexchangetransactions37.
Chinaiscurrentlytheworld'sleadinggoodstraderanditspu-blicbanksarefundamentalplayersinthefinancingofprojectsindevelopingcountries.
Bothofthesefactsshouldhaveservedtoincreasetheyuan'spresenceatinternationallevel.
However,economicagentsandbusinessownersaresomewhatscep-ticalregardingthewidespreadadoptionoftheyuaninthesetypesofoperations.
In2015commercialtransactionsperfor-medinyuanamountedtoUSD1.
7trillion,whichisonequarterofthetotalvolumeoftradeinChina38.
Inrecentyears,Beijinghasattemptedtopromotegreateruseofitscurrencythroughvariousinitiatives.
Since2004,awareofthelimitsoftheChinesefinancialsystem,thegovernmentinBeijinghasbeenpromotinganoffshoremarketfortheuseoftheyuaninHongKong,withtherecentadditionofcitiessuchasLondon,ParisandFrankfurt.
Theyhaveauthorisedbu-sinessestoopenanaccountinyuaninthesemarketsandtoissuecorporatebondsinthecurrency(theso-calleddimsumbonds).
What'smore,inrecentyearscompaniesinChinahavebeenauthorisedtousetheyuanintheircommercialdealingsabroad;thishadbeenarestrictedpracticeuntilnow.
TheRMBQualifiedForeignInstitutionalInvestorprogrammehasalsobeenlaunched,whichallowsqualifiedforeignopera-tors,subjecttoapprovalandnumerousrestrictions,toinvestinboththestockandbondmarkets.
Thecurrencyswapsbe-tweencentralbanksarealsoworthnoting,increasingtheuseoftheyuanasareservecurrencyinupto70countries,althou-ghitsrelativeweightcontinuestobesymbolic.
OneimportantstepinextendingtheuseoftheyuanandintheinternationalrecognitionofthecurrencywasitsinclusionintheIMF'sSDRs(specialdrawingrights)attheendof2015.
TheIMFconfirmedthatChina'scurrency"meetsthecurrentcriteriaforinclusion",maybeusedfreelyandisfullyconvertible.
Asaresult,despitethetightcapitalcontrolsthatcontinuetoexistinChina,theyuanbecamepartofthebasketofcurrenciesthatmakeuptheSDRs,togetherwiththeUSdollar,theeuro,thepoundsterlingandtheJapaneseyen39,representing10.
9%ofthetotal,ascanbeenseenintable1.
40Overthecomingyears,theyuanisexpectedtograduallybeusedinalargernumberoftransactionsandinternationalope-rations.
Thecurrencyhasvariouspointsinitsfavour,suchasitsestablishedcommercialstrengthandtheOBORproject,whichshouldactasachannelforgreaterinternationaluseoftheyuantofinancelarge-scaleprojects42.
Conversely,theepisodesoffinancialvolatilityseeninthepasttwoyearsandthedifficultiesexpectedtoarisewhenreformingthefinancialsystem,inclu-dinginterestrates,coulddisincentivisetheuseoftheyuanatinternationallevelinthecomingyears.
37See:http://economia.
elpais.
com/economia/2016/01/06/actualidad/1452102709_541259.
html38"China'seffortstoexpandtheinternationaluseoftherenminbi".
EswarPrasad.
201639SDRsareinternationalreserveassetscreatedinthe1960sbytheIMFtosupplementcentralbankreserves.
Theyarecurrentlyusedbythe188membercountriesoftheIMFinnumeroustransactionsandoperations.
Atinternationallevel,theyareprimarilyusedinoperationsinvolvingtheIMFitselforasareservecurrency,accountingfor3%ofglobalreserves,whichisfarbehindtheUSdollar.
40See:https://www.
imf.
org/external/np/exr/facts/sdrcb.
htm41See:https://www.
goldmoney.
com/research/goldmoney-insights/the-imfs-special-drawing-rights-the-rmb-and-gold42Inanycase,notethattherecentlyformedAIIBhasindicatedthatitwillperformallitstransactionsinUSdollars.
Author:AdriánBlanco,EconomistBox2InternationalisationoftheyuanCompositionofIMFSpecialDrawingRights(%oftotal)Table120012016USDOLLAR4541.
7EURO2930.
9YEN158.
3POUNDSTERLING118.
1YUAN10.
9TOTAL100100Source:FMI41283.
3.
Large-scaleinitiativesforthecomingdecades:OneBelt,OneRoadandnewmultilateralbanksTheslow-downintheeconomyandtheuncertaintyassocia-tedwiththetransformationoftheChineseeconomicmodelshouldnotbereadasascalingdownofAsia'sroleastheleadingemergingeconomyforthe21stcentury.
EventhoughtheprolongedexpansiveperiodthatsawGDPgrowthratesinexcessof10%hasdrawntoacloseandChinahasembarkeduponanewphaseofmoremodestgrowth,itsrelevanceasaglobaleconomicpowerhasnotbeenknocked.
Quitethecontrary.
Chinahascontinuedtoclimbtheglobaleconomicleadershipladderintermsofitsrelativeweightasperworldwi-definancialindicators,progressingfroma10.
2%shareoftheglobaleconomyin2011,theyearwhenthingsstartedtocooldown,to15%in2015.
Moreover,whiletheworldwideeco-nomyhasdeclinedinrecentyears,China'sshareoftheglobalmarketformerchandisehasrisenfrom10.
3%to13.
8%.
NeitherdoestheperceptionthatforeignmultinationalshaveofChinaappeartohavebeendamaged–itsshareofglobalinboundFDIrosefrom2.
9%in2010to4.
9%in2015,asre-flectedinchart11.
Chinesefirmsalsocontinuedtoexpandtheirfootingworldwide,withChina'scumulativeforeignin-vestmentsgrowingfrom1.
5%in2010to4%in201543.
Ba-sedonUNCTADdata,China'sinboundinvestmentsin2015(USD135.
61billion)stillsurpasseditsoutboundinvestments(USD127.
5billion),althoughthegapbetweenthetwofiguresisclosing.
IfChinacontinuesalongthispathitwillforeseea-blybecomeanetexporterofFDIinthecomingyears.
Albeitintheabsenceofconsolidateddata,China'sfinancialroleincertainregionswouldappeartoindicatethatthevolumeofloanstoothercountrieshasincreased.
Forexample,loanstoLatinAmericaamountedtoUSD29billion,whichismorethaninthetwopreviousyearscombined.
Furthermore,Chinacontinuedtoconcentratebetween50%and60%ofworld-wideoutputofsteel,nickel,coalandaluminium,whilealsoproducingasubstantialvolumeofcopper,zinc,iron,cottonandsoybeans.
Inrecentyears,ChineseFDIworldwidehasgrownexponen-tially;injusttenyears,ithasclimbedfromlessthanUSD20billiontomorethanUSD100billionasof2013.
In2015,themostrecentyearforwhichconfirmeddataareavailable,Chi-na'sglobalinvestmentshitanewrecordofUSD127.
5billion,makingthiscountrytheworld'sthirdlargestinvestor(seechart12).
TheAsiancountry'sinternationalstrategytookaqualitativeleapin2015and2016withthestart-upofvariouslarge-sca-leprojectsandinitiativesthatshouldserveasthefoundationandbase-linestrategyforthecountrytoachieveagreaterglo-baleconomicandbusinesspresenceinthecomingdecades,whichshouldinturnimpactevenmorepositivelyonvolumesofFDI.
ThetwomaininitiativesthatwilldefineChina'sinter-ventionontheworldwidestageinthecomingdecadesareanalysedbelow.
ThesearetheOneBelt,OneRoad(OBOR)project,alsoknownastheNewSilkRoad;andthestart-upofthemultilateralfinancialinstitutions–theAsianInfrastruc-tureInvestmentBank(AIIB)andtheNewDevelopmentBank(NDB),alsoknownastheBRICsBank.
43ChineseFDIstockrelativetototalFDIstocktotalasperUNCTADdatafor2010and201544Inordertousethemostup-to-dateofficialdata,2011and2015datahavebeentakenforGDPandtrade,whereasforinboundandoutboundFDI,2010and2015figureshavebeenused.
Source:OwnresearchbasedonMOFCOMdataChineseoutboundFDI(2006-2015)Chart122006200720082009201020112012201320142015140000120000100000800006000040000200000Source:OwnresearchbasedonUNCTADandIMFdata44RelativeglobalweightoftheChineseeconomyasperselectedvariables(2010/2011-2015)Chart111614121086420GDPGoodstradingServicesrenderedInboundFDIOutboundFDI10.
210.
34.
22.
91.
51513.
84.
74.
942010/2011201529OneBelt,OneRoad(OBOR)–ThefirststepsTheOBORproject,alsoknownasthe"NewSilkRoad",isacornerstoneofBeijing'sforeignpoliticalandeconomicstrate-gyforthecomingyears.
NootherinitiativebetterreflectstheextentofChina'saspirationtobecomeaglobaleconomicandbusinessleaderinthefirsthalfofthe21stcentury.
Asiscom-monknowledge,thisinitiativeisacompendiumofinfrastruc-turemega-projectsthataimtoestablishtwomajortradingco-rridors,oneland-based(OneBelt)andtheotherocean-going(OneRoad),pickingupmuchofthenetworkoftraderoutesthatoperatedbetweenChinaandEuropeinthe15thcentury(theSilkRoad)45.
TheprojectwasfirstannouncedbyChina'sPresi-dent,XiJingping,attheendof2013andhasbeenextensivelycoveredbyspecialisedmediatheworldover,understandablygeneratinghugeexpectation,giventhescaleoftheinitiative.
Theprojectswillextendto60countriesthatconcentrate70%oftheworldwidepopulation,55%ofGDPand75%ofknownenergyreserves.
AtUSD4trillion,thebudgetwillbeseveraltimeshigher,atpresentvalue,thanthatallocatedtotheMar-shallPlan,theUSaidprogrammetorebuildEuropefollowingtheSecondWorldWar.
Oneoftheprogramme'scomponentsalone,theconstructionofrailwaylines,willentailtheentryintoserviceof81,000kmoftrack,whichismorethandoublethetotalcurrentworldwidenetwork46.
Furthermore,thisbeinga35-yearplan,itwilldrawtoaclosein2049.
ThisisasymbolicyearfortheAsiancountry,markingthecentenaryofthefoun-dationofthePeople'sRepublicofChina.
Fivemainfactorshavedrivenandshapedtheinitiative,andjustifytheChinesegovernment'simplementationofsuchamonumentalplan.
Theseareanalysedbelow.
Firstly,theeconomicfactor.
Thegovernmentneedstobackmeasuresthatprovideanoutletforthesurplusinstalledca-pacityinChina'sindustrialsectors,principallyaffectingSOEs,asmentionedpreviously.
Inthisrespect,ChineseSOEswouldberequiredtoparticipateinatleastthoseprojectsfinancedbytheChinaDevelopmentBank(CDB)andtheExport-Im-portBankofChina(EXIMBank),throughworksandsupplycontracts.
Secondly,thefinancialfactor.
Beijing'sintentioncontinuestobethatofpromotinginternationalusageoftheyuan,whichisstillalittle-usedcurrency,eventhoughitisbackedbythesecondlargesteconomyintheworld.
ThemagnitudeandscopeofOBORshouldincreasetheinternationaluseoftheChinesecurrencyinthefinancedprojects,leadingittocom-petewiththedollarasthecurrencyusedincertainemergingcountries47.
Thirdly,thecommercialfactor.
Theproliferationofnewin-frastructureandlogisticscorridorsshouldbringaboutare-ductioninoperatingcostsofforeigntradetransactions,whichshouldinturnincreasethevolumeofsuchtransactions.
Untilnow,importsofoilandcommoditiesfromtheMiddleEastarrivedviatheChinaSeas,butthelandcorridorsthroughPa-kistanwillmakejourneys90%shorterforcommercialtran-sactions.
AccordingtoChinesegovernmentestimates,by2025China'stradewiththecountriesincludedintheinitiativewillamounttoUSD2.
5trillion48.
Beijinghasalsostatedthattheinitiativewillservetodrivetradeagreements,reducecus-tomsdutiesandsimplifyadministrativeproceduresforforeigntradetransactions.
Fourthly,thegeostrategicfactor.
TheBeijinggovernmentaimstoextenditsregionalpoweranddiplomaticmechanismundertheOBORinitiative,increasingitsfootinginanumberofcountries,particularlytheformerSovietrepublicsandEasternEuropethusfar,aswellasvariousMuslimcountries.
Notably,in2015Beijingapproveditsfirstanti-terrorismlaw,enablingChinatodeploytroopsoutsidehometerritoryintheeventofanationalsecuritythreat.
Fifthistheenergyfactor.
TheAsiannationistheprimaryconsumerofenergyintheworld,andthemainnetimporter.
Itsneedshaveballoonedby500%sincetheliberalisationpro-cessbeganin1980,andsecurityofenergysupplyisapivotalfactorforBeijing.
Theprojectsencompassedbytheinitiativewillbefinancedbytherecentlycreatedmultilateralbanks,theAsianInfrastruc-tureInvestmentBankandtheNewDevelopmentBank(seenextsection),aswellasChina'smajorstate-ownedbanks.
Inthecaseofthelatter,theBankofChinahascommittedtoprovideUSD100billionandtheCITICBankafurtherUSD113billion.
TheChinaDevelopmentBank,China'sprincipallendertoforeignrecipients,willfinance900projects,providinganestimatedUSD890billion.
TheEXIMBankisalsoexpectedtobeactivelyinvolved49.
AttheendofDecember2014,thegovernmentsetupaninvestmentvehicle–theso-calledSilkRoadFund–withapoolofUSD40billiontofinancethoseprojects.
ThefundwassetupwithresourcesprovidedbythePeople'sBankofChina(CentralBank),theChinaInvestmentCorporation(thecountry'smainsovereignwealthfund),aswellastheChinaDevelopmentBankandtheEXIMBank,asmentioned.
InadditiontotheChinesefinancialinstitutions,othermultilateralbanksandstate-ownedandprivatebanksfromothercountriescouldbebroughtintoco-financetheprojectsthatmakeupOBOR.
Infact,theWorldBankcouldco-finance12OBORprojectsalongsidetheAIIBin2016,ac-cordingtotheFinancialTimes50.
45Specifically,theinitiativewillfinanceprojectstodevelopsixcorridors:NewEurasianLandBridge(whichwillextendtoRussiaand,subsequently,Europe),China-Mongolia-Russia,China-CentralandWestAsia,China-Indochina,China-PakistanandChina-India-Myanmar.
46DatatakenfromthePetersonInstitutereport47http://www.
ft.
com/intl/cms/s/2/6f105c2a-7f02-11e5-98fb-5a6d4728f74e.
html#slide048"China'sBeltandRoadInitiative:Motives,ScopeandChallenges".
SimeonDjankovandSeanMinner.
PetersonInstituteforInternationalEconomics49See:http://thediplomat.
com/2015/12/chinas-one-belt-one-road-initiative-outlook-for-obor-and-the-us-rebalance/50See:http://cbw.
ge/world/chinas-aiib-seeks-pave-new-silk-road-first-projects/30AsisstandardpracticeforChinesestate-ownedbanksindevelopingcountries,asregardsinfrastructurefinancing,thetransactionscouldbecontingentupontheworksbeingexe-cutedbyChinesefirms,whichwouldalsosupplytherequiredmaterials.
Meanwhile,foreigncompaniescouldformacon-sortiumwithChineseenterprisestocarryouttheprojects,orcouldgosoloincaseswheretheyhaveaclearcompetitiveadvantageandnotablespecialisation.
WhatprojectsareunderwaytodateOBORhasbeenrunningforatleasttwoyearsandthefirstprojectsannouncedunderthisinitiativewerecarriedoutinCentralAsiainMarch2014,followingthevisitofChina'sPremier,LiKequiang,toKazakhs-tan.
Ayearlater,thetwocountriesannouncedChina'slar-gestforeigninvestmentprojecttodate:theChina-PakistanEconomicCorridor,aninfrastructuredevelopmentpackage,includingtelecommunications,valuedatUSD46billion.
NotonlyarePakistan(with182millioninhabitants)andIran(with77million)51promisingtradingpartnersofChina;theyarealsokeysuppliersofenergy,aswellasbeinganaturallandbridgetoEurope52.
TheirparticipationinOBORisthereforecritical.
ChinahascontinuedtomakeanumberofinvestmentsinthecountrieswheretheOBORprojectisbeingrolledout,andnotonlyininfrastructure.
TheseinvestmentshavenowreachedUSD14.
8billionin49countries,whiletenderstotallingUSD92.
6billionhavebeenawarded.
Newfinancialinstitutions:AsianInfrastructureInvest-mentBank(AIIB)andNewDevelopmentBank(NDB)ThecreationofanewmultilateralbankbackedbyChina–theAIIB–isoneofthemostrelevantinitiativesfordecadesinthefieldofInternationalFinancialInstitutions(IFIs).
There-centlycreatedfinancialinstitutionhasadualpurpose.
Ontheonehand,itaimstodriveinfrastructuredevelopmentinAsia,whichneedsaninjectionofUSD750billiontocatchupwithdevelopedcountries53,facilitatingthefinancingofmajorin-frastructureprojects.
Ontheotherhand,andfromawiderperspective,theAIIBaimstoaddressthemultilateralinstitu-tions'inabilitytoaffordagreaterrelativeweighttoemergingcountries,Chinainparticular.
TheAsiannation,whichranksfirstintheworldintermsofpopulationandsecondbyrelativeeconomicweight,wasnotseeingitsimportancereflectedintheexecutivebodiesofinstitutionssuchastheIMF,andhadexpresseditsdiscontentwiththemodestrelevanceaccordedbytheWorldBanktotheregion'sinfrastructure54.
Forexam-ple,withrespecttovotingpower,asillustratedbytable2,theUnitedStatescontrol16.
6%oftheIMF,whileChina,theworld'ssecondlargesteconomy,holdsonly6.
14%.
Asregardsimpact,theAIIBisexpectedtobecomeoneofthefinancialinstitutionsmostcapableoffinancinginfrastructureworldwide.
IthasaninitialcapitalofUSD100billion,whichisequivalenttotwothirdsoftheothermajorAsianmultilate-ralbank,theADB,lessthanhalfoftheWorldBankandonethirdoftheEuropeanInvestmentBank(EIB).
Accordingtoitsarticlesofassociation,theAIIBcouldhaveleverageof2.
5ti-mesitssubscribedcapital,representingmaximumfinancingofUSD250billion.
Asreflectedinchart13,itsinitialcapitalfallsshortofothermultilateralbankssuchastheWorldBankandtheEuropeanInvestmentBank.
Asforthefinancingofac-tivities,whichforthistypeofinstitutionisusuallythroughthemarkets,itremainstobeseenwhethertheAIIBwillbeabletoaccesswholesalefinancingundertermsthatgrantthemaxi-mumcreditratingtoothermultilateralinstitutions.
Conversely,itwillreceivefinancialcontributionsfromthemajorstate-ow-nedChinesebanks,whicharecurrentlytheworld'smainfi-nancersofdevelopingcountries,andwhichcouldchannelaportionoftheirtransactionsthroughtheAIIB.
51TheAsiannationistheworld'snumberoneimporterofoil,itstwomainsuppliersbeingIranandSaudiArabia,theregion'stwogreatrivals.
PresidentXiJingpingwasthefirstheadofstatetovisitIranafterthesanctionswereliftedinJanuary2016,whenheproposedtheconstructionofa3,200kmrailwaycorridortoconnectTehranwiththeChinesecityofUrumqi,aprojecttobeexecutedbytheChinaRailwayCorporation.
52AlthoughthelandbridgetoEuropewillpassthroughtheCaucasiancorridor,itisexpectedtosubsequentlylinkIranwithTurkeysoastocovertheMediterraneansearoutetoEurope.
53InfrastructureforaSeamlessAsia.
AsianDevelopmentBankInstitute2009.
54China'sriseasaregionalandglobalpower:TheAIIBandthe'onebelt,oneroad'.
DavidDollar.
BrookingsInstitution.
2015.
IMFvotingpowerrelativetoglobalGDPTable2CHINA6.
1415.
01INDIA2.
662.
86RUSSIA2.
611.
81BRAZIL2.
242.
42SOUTHAFRICA0.
640.
42SUBTOTALEMERGINGECONOMIES14.
2922.
52UNITEDSTATES16.
624.
52UNITEDKINGDOM4.
073.
89GERMANY5.
374.
59FRANCE4.
073.
31ITALY3.
052.
48SPAIN1.
941.
34Source:FMIIMFvotingpower(%)GlobalGDP(%)31Initially,57countrieshaveadheredtotheinitiativeasfoundingmembers,includingmajorEuropeancountriessuchastheUnitedKingdom,Germany,France,ItalyandSpain55.
DespitethelargenumberofcountriesthathavebeeninvolvedintheAIIBfromtheoutset,thenewbankseemstohavebeentai-lor-madefortheAsiannation,theinitiative'smaininstigator.
At29.
78%,itsvotingpowerbyfarexceedsthatofthecoun-triesnextinline,namelyIndia(8.
36%)andRussia(6.
53%),andthatofEuropeancountriessuchasGermany(4.
48%),France(3.
37%),Italy(2.
57%)andSpain(1.
76%)56.
Chinaisalsotheonlycountrywithvetopower,forwhichtheAIIB'sarticlesofassociationstipulatemorethan25%ofvotes,ratherthanthe15%requiredinothermultilateralorganisations.
Thebank'sPresident,electedforafive-yearterm–whichwillbepivo-talforthebank'sstrategyandpositioning–isMr.
JinLiqun,formerlyofChinaInvestmentCorporation(CIC),theChinesesovereignwealthfund.
Theothermajormultilateralbankstarteduprecently,inwhichChinaisakeystakeholder,istheNewDevelopmentBank(NDB,betterknownastheBRICsBank).
ThisinitiativewasinstigatedbyIndiafollowingthe4thBRICsSummitheldinNewDelhiin2012.
Ingeneralterms,theNDBcouldbesaidtosharethetwoprimaryobjectivesoftheAIIB:tosupportthefinancingofmajorinfrastructureprojects,andtomakehead-waytowardsanewinstitutionalarchitecturewhereinemer-gingcountriesplayamoreprominentrole.
Therearenonethe-lesssomesubstantialdifferences.
Theprojectsfinancedwillfocuslessoninfrastructure;andwhilethetargetregionfortheprojectswillbeAsia,theywillalsoencompassLatinAmericaandAfrica.
Onanoperationallevel,ratherthandistributingvotingpoweronthebasisofstakesheld,votingrightswillbeallocatedinequalproportionsof20%toeachfoundingmem-ber,withnovetopowerenvisaged.
ThefivefoundingcountriesareBrazil,Russia,India,ChinaandSouthAfrica,andthesenations'MinistersofFinancewillmakeuptheentity'sBoardofGovernors,thebank'schiefexecutivebody.
TheinstitutionwillhaveitsheadquartersinShanghaiandthefirstPresidentwillbeK.
V.
KamathfromIndia(formerlyChairmanofthetechnologyfirmInfosys).
Theinitialcapital,subscribedbythebank,isUSD50billion,al-thoughatargetvolumeofUSD100billion(ofwhichChinawouldcontributeUSD41billion)hasbeenannounced,whichthecountrieswillbringforwardinthecomingyears.
Thebankbecamefullyoperationalinthefirstquarterof2016.
ItsfirsttransactionwasapprovedinApril:fourrenewableenergyde-velopmentloansamountingtoUSD81millioninChina,USD300millioninBrazil,USD250millioninIndiaandUSD180millioninSouthAfrica57.
Determininghowthetwonewinstitutionswillslotintothein-ternationalfinancialsystemandtheirrelationshipwithothermultilateralinstitutionsiscurrentlyattheinitialstages.
Thusfar,acceptanceoftheinitiativebyothermultilateralbodieshasbeenpositive,asindicatedbycommentsfromheadsofstate,whohighlighttheopportunitiesgeneratedbyprojectco-finan-cing.
Moreover,in2016theNDBhasalreadysignedseveralcooperationagreementswiththeLatinAmericanmultilateralbank,CorporaciónAndinadeFomento(CAF)58.
Inthemediumterm,majoremergingeconomiesareexpectedtoincreasinglyfavourtherecentlycreatedinstitutions,tothedetrimentoftheoldinstitutions,notonlyfortheireconomicandbusinesstar-gets,butalsointermsofforeignpolicy.
55Asiancountrieshavewelcomedtheinitiativewithhugeenthusiasm,convincedthatitopensthedoorforgreaterregionalintegrationthroughenhancedconnectivity.
Europeancountries,meanwhile,havejoinedtheprogrammeinthehopethatitwillenabletheirenterprisestobeinvolvedinexecutingtheprojects.
TheUnitedStates,CanadaandJapanhavenotadheredtotheinitiative.
56"UnnuevobancomultilateralpararelanzarlainversióneninfraestructurasenAsia"("AnewmultilateralbanktorelaunchinfrastructureinvestmentinAsia").
JorgeDajani.
RealInstitutoElcano.
2015.
57See:https://www.
rt.
com/business/339797-ndb-first-project-loans/#.
VxHb-b8a0IQ.
twitter58See:http://www.
americaeconomia.
com/economia-mercados/finanzas/sabia-que-caf-y-el-new-development-bank-sellaron-una-alianza-estrategicaCapitalsubscribedbymultilateralinstitutionsChart13350300250200150100500AIIBNDBEIBADBIADBAFDBWBSource:"TheAsianInfrastructureInvestmentBank.
ANewMultilateralFinancialInstitutionoraVehicleofChina'sGeostrategicGoals".
EPSC(EuropeanPoliticalStrategyCentre).
EuropeanCommission.
2015;AIIB:AsianInfrastructureInvestmentBank;NDB:NewDevelopmentBank;EIB:EuropeanInvestmentBank;ADB:AsianDevelopmentBank;IADB:Inter-AmericanDevelopmentBank;WB:WorldBank;AFDB:AfricanDevelopmentBank.
FiguresinbillionsofUSdollars.
324.
OutlookforthefutureTherearetwostarklycontrastingviewsregardingtheoutlookfortheChineseeconomyinthecomingyears;thosewhoforeseeasoftlandingandthosewhobelievetheeconomywillsufferasharperdecline(hardlanding).
ThoseadoptingthemoreoptimisticviewincludetheChinesegovernmentandinternationalorganisations,whichpredictannualgrowthof6.
5%whileChinatransitionstowardsaneconomicmodelwithgreateremphasisonprivateconsumerspendingandservices,inwhichthemarketwillgaingroundintheeconomicandbusinessspheres.
Theybelievethatexcessdebtlevels,productionovercapacity,theoverheatingoftherealestatemarketorthereformofthefinancialsystemwillnotleadtoadestabilisationofthecountry'seconomy.
Infact,theycon-siderthatevenintheeventofamajoreconomicdownturn,thegovernmenthasampleroomformanoeuvretooffsetthedeclineinactivityand,ifnecessary,absorbthelossesderivedfromtheclosureofmajorpublicsectorcompanies.
However,othercommentators,largelyinternationalobserversandprivateanalysts,includingprofessorsMichaelPettisandChristopherBaldingofGuanghuaSchoolofManagementandPekingUniversity,respectively,orthefinancialmagna-teGeorgeSoros,considerthattheimbalances,particularlythoserelatedtoovercapacityandpublicdebt,couldcauseChina'sgrowthratetodroptobelowcurrentlevels,evenfa-llingintoaprolongedperiodofslow"Japanesestyle"growth.
Furthermore,evenassumingthatgrowthissustainable,theyhavequestionedwhetherthechangeineconomicmodelispossibleduetoinsufficientvelocity,i.
e.
atthe6.
5%ratetar-getedintheXIIIFYP,growthinconsumptionwouldrepresentjust53.
1%ofGDPin2023,whichisbarelythreepointshigherthanitscurrentcontribution59.
Theofficialdatapublishedoneconomicgrowthforthefirstandsecondquartersof2016,whichcameinat6.
7%,hasreinforcedthepositionofbothsidesofthedebate.
Thosewhoforeseeasoftlandingenvisagehighergrowththanthatestimatedbythemarket.
EventheIMFupgradeditsoutlookforgrowthinChinabytwo-tenthsofapercentagepointatitsSpringMeeting.
Conversely,thescepticsmaintainthatfirst-quartergrowthisowedprimarilytothefiscalstimulus,whichisreflectedbothinthegrowthofM260moneysupplyandtherecordlevelsofbanklendingseeninJanuary(creditextendedinthefirstquartercametoUSD712billion,reminis-centof2009levels)61.
Theuseofdebttoboosttheeconomyin2016,togetherwiththeaforementionedspendingplans,haveheightenedscepticismregardingtheChineseeconomy'struecapacityforgrowthoncestimulusiscutback,andthein-tentionsofthegovernmenttoimplementreforms,especiallythoseaimedatlooseningcontrolsandreducingdebtlevels.
Notably,inMarch2016theChinesegovernmentpresentedaplantoraiseitsbudgetdeficitto3%ofGDP,whichisthehighestdeficittargetsince1979.
6259See:http://blog.
mpettis.
com/2015/11/chinas-rebalancing-timetable/60Sumofcashheldbythepublic,demanddepositsandassetsavailableforuseintransfers.
Itisnormallyusedasanindicatorofthemoneystockofaneconomy.
61See:http://www.
bloomberg.
com/news/articles/2016-04-20/china-s-economic-recovery-masking-financial-risks-fitch-saysplatform=hootsuite62"Donotbetonfiscalstimulus".
TheEconomist.
2016.
Source:OwnresearchChineseGDPgrowth(%)comparedwithFive-YearPlans(FYP)Chart142001200220032004200520062007200820092010201120122013201420151614121086420ActualgrowthFYPgrowthtarget33Ourperspective:softlandingandrelianceonreformplansWithrespecttothisinterestingdebatethathaspolarisedalar-geportionoftheeconomicandbusinessworld,ESADEChinaEuropebelievesthattheChinesegovernment'sreformprojectwillbringaboutthesustainedgrowthrequiredtochangetheeconomicmodel.
Althoughthereareundoubtedlyrisks,most-lyassociatedwithreformingthecountry'sinstitutions,wearenonethelessmoreinclinedtosharetheviewofsoftlandingadvocatesasopposedtothemorepessimisticstances.
Firstly,ChinahasalwaysmettheeconomicgrowthtargetsestablishedinitsFive-YearPlans(seechart14)andthegover-nmenthasanamplebufferfortakingonadditionaldebtduetoitslowlevelofpublicdebt.
Secondly,weshouldnotunde-restimatethepositiveimpactthatthestructuralimprovementscurrentlyunderway,suchastheliberalisationofthefinancialsector,thestrongfocusonpublicandprivateinnovationorthedevelopmentofneweconomicsectors,arehavingontheChineseeconomy'spotentialforgrowth.
However,inouropi-nion,thestructuralreformsarethekeyissuethatwilldetermi-nethelevelofriskand,ifachieved,willfacilitatethechangeintheeconomicmodelandfavourthecurrentgrowthtrend.
Thirdly,regardingtheimpactofdebtlevelsandovercapacityontheChineseeconomy,itisunbelievablydifficulttopredictthelevelofspendingthatthecentralgovernmentwillmain-taininordertostimulatetheeconomyinthemediumtermandwhatlevelofdebtcouldbeconsideredunsustainable.
Inanycase,asconsumerspendingbecomesabiggerdriverofgrowthinthecomingyears,thegovernmentwillbeabletolessenitsrelianceonpublicinvestment,therebyreducingdebtlevels.
Lastly,thegovernmentisclearlydeterminedtoundertakere-forms,asdemonstratedbythestepstakenuntilnow,whichbodewellasregardsitscapacitytocarryouttheremainingreforms.
Lookingback,itisworthrememberingthatmajorreformswereundertakeninthe80s,whichdespitebeingconsideredhighlysuccessful,wereatthetimemetwithgreatscepticismandinternalopposition.
What'smore,certainre-formsforeseenforthenearfuturearealreadyquitefaralongsoadegreeofinertiaaccompaniesthereformistmomentumbuildingupinthegovernment,whilethevariouspilotschemesunderwayhavebroughtexperienceinhandlingreforms.
Forexample,inthelastthreedecades83SOEshavebeenab-sorbedbyotherpublicentitiesinmergerprocesses,withtheaimofgeneratingsynergiesandreducingtheirsize,therebyincreasingproductivity.
However,theChinesegovernmentwillfaceseriousobstaclesinundertakingthereformprocess,particularlyintheformofinternaloppositiontothereductioninsizeandcapacityofindustrialSOEs.
Theseniorexecutivesanddirectorsofthesepubliccompanies,particularlytheleastcompetitiveentitieswiththegreatestindustrialovercapacity,willputpressureonBeijingtolimittheeffectofreformsthatgoagainsttheirinte-rests.
Inaddition,thecurtailmentofovercapacitycouldleadtobetween5and6millionredundancies,whichmightcausesizeablegroupsofthepopulationtoloseconfidenceintheneweconomicmodel.
Inordertomitigatethisproblem,thegovernmenthasannouncedthatitwillpayindemnitiesofuptoUSD23billionoverthecomingtwotothreeyears63.
Never-theless,in2015variousprotestswerealreadystagedagainstthegovernment'splans,suchasthoseattheLongmaycoalmineintheprovinceofHeilongjianginthenortheastofthecountry,64andinthesameyeartherewere2,700strikesinthecountry,whichistwiceasmanyasin201465.
Thesocialeffectsofthereformwillundoubtedlybeoneofthegreatcha-llengesfacingacountrythat,duetoitssizeandrapidchange,continuestobecharacterisedbysizeablegapsinwealthdis-tributionbygeographicalareaandsocialclass.
63See:http://ftalphaville.
ft.
com/2016/03/02/2154910/layoffs-redistribution-and-chinese-tail-risks/64See:http://internacional.
elpais.
com/internacional/2016/03/16/actualidad/1458145110_491866.
html65See:http://www.
economist.
com/news/china/21695091-large-protests-miners-augur-ill-governments-reform-plans-deep-pit34ChineseinvestmenttrendsinEurope2016-17/TheChinaofthefuture:challengesandinitiativesRobertoBendini.
"Exceptionalmeasures:TheShanghaistockmarketcrashandthefutureoftheChineseeconomy".
EuropeanParliament.
2015.
http://www.
europarl.
europa.
eu/RegData/etudes/IDAN/2015/549067/EXPO_IDA(2015)549067_EN.
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aspxcampaignid=OneBeltOneRoadBibliography35PARTIIChineseinvestmentinEurope:ChinacastsitseyeonSouthernEurope36ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEurope37ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEurope1.
1.
RecordChineseinvestmentaroundtheglobeinaslowingeconomy381.
1Consolidationoftrendsandnewinvestmentpreferences391.
2ChangeinthegrowthmodeltostimulatetheinternationalisationofChinesecompanies422.
2.
ChineseinvestmentintheEuropeanUnion43Explanatorynote:ESADEChinaEurope2010-2015database472.
12016:approachingUSD100billionofChineseinvestmentintheEuropeanUnion47Box1.
TheUnitedKingdomandthenewBrexitscenario482.
2ComplementarynatureofEuropeanandChineseinitiatives:adriverofinvestment492.
3ChineseinvestmentintheUnitedStatesandtheEuropeanUnion.
Whatarethedifferences50Box2:ACCI–Catalonia:gatewaytoEurope523.
3.
ChinacastsitseyeonSouthernEurope:investmentinItaly,Spain,PortugalandGreece553.
1Italy,akeydestinationforinvestmentbyChinesefirms563.
2Spain,thelastgreatconquestofChinesefirmsinEurope58Box3.
BarcelonaCityCouncil–Barcelona,theMediterraneanlogisticscentreforChineseinvestorslookingtodobusinessinEurope643.
3Portugal,whereChineseinvestmentisconsolidatingandcontinuingtogrow65Box4:Cuatrecasas,GonalvesPereira–RecentChineseinvestmentinPortugal683.
4Greece,thestrategicvalueofthePortofPiraeus70Bibliography72ChartsandtablesChart1.
GDPandforeigninvestment(2006-2015)Chart2.
ChineseandglobalFDI–Shareoftotal(2006-2015)Chart3.
Chinesepositionintheglobalrankingofforeigninvestment(1980-2015)Chart4.
Foreigninvestmentbyprivately-ownedenterprises(POEs)(2010-2015)Chart5.
Percentageofinvestmentoriginatingfromcoastalandinlandprovinces(2006-2014)Chart6.
ChineseinvestmentintheEuropeanUnion(2010-2016)Chart7.
ChineseinvestmentintheEuropeanUnion.
Geographicaldistribution(2015)Chart8.
CumulativeChineseinvestmentintheEuropeanUnion.
Geographicaldistribution(2010-2015)Chart9.
ChineseinvestmentintheEuropeanUnion.
Sectordistribution(%)(2015)Chart10.
CumulativeChineseinvestmentintheEuropeanUnion.
Sectordistribution(%)(2010-2015)Chart11.
ProjectsapprovedundertheJunckerPlan,bysector(2016)Chart12.
EuropeancountrieswithhighestlevelofChineseinvestmentinrelationtothesizeoftheireconomies(2015)Table1.
The15largestChinesecompaniesintermsofassetstocksheldabroad(2014)Table2.
The10largestinvestmentsbyChinesefirmsinItaly(2010-2016)Table3.
ChinesecompanieswithapresenceinSpain(2016)Table4.
The10largestinvestmentsbyChinesefirmsinSpain(2010-2016)Table5.
The10largestinvestmentsbyChinesefirmsinPortugal(2010-2016)Table6.
AssetsincludedinthethirdGreekbailoutPARTIIChineseinvestmentinEurope:ChinacastsitseyeonSouthernEurope38ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEurope1.
1.
RecordChineseinvestmentaroundtheglobeinaslowingeconomyIthasbeen35yearssinceitfirstbegantoopenupitseco-nomytotheoutsideworldand15yearssincethelaunchofits"GoOutpolicy",andChinahasnowestablisheditselfasoneoftheworld'sleadinginvestors.
ThesignsthatChinawouldemergeasaneconomicpowerhouseofthe21stcenturycouldbeseeninthe90sand2000s,whenitbecametheworld'sforemostgoodstraderandthesecondlargesteconomyontheplanet.
TheAsiangianthasalsodisplayedanenormouscapacitytofinancelargeinfrastructureprojectsinAfricaandtocarryoutmasspurchasesofUStreasurybonds.
Inrecentyears,Chinahasalsobecomeaworldwideleaderintermsofforeigninvestment,withChinesecompaniesinvestingabroadattripletheaverageglobalrateforthepastdecade.
China'sFDIcontinuestoreachnewhighseveryyear.
In2015,thelastfullyearforwhichdataareavailable,anewrecordwasachie-ved:USD127.
56billion,whichis3.
6%higherthanthe2014figure1.
Afterbecominganetcapitalexporterforthefirsttimeinitshistoryin2014,in2015ChinasurpassedGermanyastheworld'sleadingcapitalexporter.
TheinvestmentcapacityandfinancialmuscleofChinesecompaniesisevidencedbythesizeoftheirforeigninvest-ments:in2015theycarriedoutover35operationswithavalueexceedingUSD1billionindifferenteconomicsectors.
ThemostnotableexamplesaretheacquisitionofthetyremanufacturerPirellibyChinaNationalChemicalCorporation(ChemChina)foralmostUSD9billion,theacquisitionbyChinaThreeGorgesoftwolargehydroelectricplantsinBrazil(JupiaandIlhaSolteria)foratotalofalmostUSD3billion,theUSD3billioninvestmentbytheSanyGroupinthedevelopmentof2GWofwindpowerassetsinIndiaandtheUSD1.
8billioninvestmentbytheprivategroupFosunintheUSinsurancecompanyIronshore.
In2015Chinesecompaniescarriedoutover1,000foreigninvestmentoperations,rangingfromofficeblocksandindustrialSMEstosoftwarecompanies,maritimeportsandfootballclubs.
Thedataavailablefor2016whenthecontentsofthisreportwerefinalisedpointtowardsChinasettinganewrecordforforeigninvestment.
AccordingtoMO-FCOM,betweenJanuaryandAprilChinainvestedUSD60.
08billion(CNY391.
45billion),whichisayear-on-yearincreaseof71.
8%2.
Ascanbeseeninchart1,growthinglobalChineseinvest-mentfollowsthesametrendasGDPgrowth.
Thedecliningrateofgrowthinforeigninvestmentshouldbeseenasana-turalstabilisationprocessfollowingtheinvestmentexplosionbroughtaboutbythe"GoOutpolicy"inthe2000s,andshouldinnowaybeconsideredtoindicateareductionininvestmentactivitybyChinesefirms,i.
e.
China'sinvestmentcontinuestogrow,justataslowerpace.
Thecountry'scurrentFDIgrowthratesareunprecedentedamongtheworld'slargeeconomies.
In2015,China'sFDIsetanewrecordforthe13thyearinrow,surpassingUSD1trillionofcumulativeinvestment.
1InformationpublishedintheWorldInvestmentReport2016,UNCTADandconsistentwithMOFCOMdatahttp://unctad.
org/en/pages/PublicationWebflyer.
aspxpublicationid=15552See:http://english.
mofcom.
gov.
cn/article/statistic/foreigntradecooperation/201606/20160601331125.
shtml7060504030201001614121086420GDPandforeigninvestment(2006-2015)Chart12015200620072008200920102011201220132014FDIGROWTHGDPGROWTHSource:ownresearchbasedonIMF,MOFCOMandUNCTADdata.
Leftaxis:%annualFDIandGDPgrowth;FDIisbasedoncumulativestockdatapublishedbyMOFCOMupto2014,towhichthedataannouncedbyMOFCOMfor2015havebeenadded.
39ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeAscanbeseeninchart2,China'sexceptionalgrowthinFDIledtoanuninterruptedriseinitsshareofglobalforeignin-vestmentbetween2006and2015tobecomethe10thlargestglobalinvestorincumulativeterms,havingrisensevenposi-tionssince20103(chart3).
In2015,Chinabecametheworld'sthirdlargestinvestorintermsofinvestmentflows,surpassedonlybytheUnitedStatesandJapan.
Overthecomingyears,foreigninvestmentisestimatedtoremainatsimilarlevelsorevengoupduetofactorsthatareexplainedfurtheron,andChinaisexpectedtocontinueclimbingtheranksasaglobalinvestor.
Accordingtoouranalysis,by2023theAsiangiantcouldovertaketheUnitedStatestobecometheworld'slea-dinginvestor.
1.
1Consolidationoftrendsandnewinvestmentprefe-rencesIn2014,2015and2016aconsolidationofthemaintrendsinChineseinvestmentabroadwasseen:greaterpreferenceforadvancedcountries,particularlyEu-ropeancountries;reconfigurationofChineseinvestors'preferredinvestmentsectors,withgreateremphasisonservicesandindustrialte-chnology;riseinthenumberofprivateinvestorswithrespecttopublicinvestors;greaterroleofinlandprovincesinforeigninvestment;newinvestmentpreferencesintermsofsectorandgeogra-phicallocation.
ThepatternofChineseinvestmentabroadisseeingarapidtransformation.
Roughlyspeaking,thepatternofChinesefo-reigninvestmentinthe90sand2000sentailedusingfinan-cialcapacitytotakepositionsthroughSOEsinSub-SaharanAfricaandtoaccessnaturalresourcesinLatinAmerica,asevidencedbytheconstructionoftheairportinSudanortheinvestmentinBrazilbytheoilcompanySinopec.
Theseope-rationscontinuetotakeplace,althoughtheyareincreasinglyundertakenbyprivatecompanieswiththeirsightsonothergeographicalareasandsectors,suchasLenovo'spurchaseofMotorola,whichwaspreviouslyheldbytheUScompanyGoogle,ortherealestateoperationcarriedoutbyDalianWandaforthedevelopmentofshoppingcentresinParis,in2015and2016,respectively.
3TheimpactoftheforeigninvestmentundertakenbyChinesecompaniesisincreasinglybeingdocumentedinMOFCOM'sstatisticalyearbook,whichprovidesdatashowingasignificantimpactonjobcreationandthegenerationoftaxrevenues.
Withrespecttojobs,the29,700Chinesecompaniesthathaveinvestedabroadhavecreated1,855,000positions,althoughthemajorityofthesewereindevelopingcountrieswhereChinahasinvestedprimarilyinlabour-intensivesectorsandminingandquarryingindustries.
Investmentindevelopedcountrieshasbeenofaverydifferentnature,incapital-andknowledge-intensivesectors,whereChinesecompanieshavecreated135,000jobs.
Withrespecttotaxrevenues,in2014aloneChinesecompaniespaidtotaltaxesofUSD19.
15billiontovariousnationaltaxauthorities.
ChineseandglobalFDI–Shareoftotal(2006-2015)Chart22006200720082009201020112012201320142015706050403020100-10-204.
54.
03.
53.
02.
52.
01.
51.
00.
50GlobalChinaShareoftotalSource:ownresearchbasedonUNCTADandMOFCOMdata.
Leftaxis:%annualFDIgrowth.
Rightaxis:China'sshare(%)ofglobalFDI.
Chinesepositionintheglobalrankingofforeigninvestment(1980-2015)Chart31980198519901995200020052010201501020304050607080901004.
504.
003.
503.
002.
502.
001.
501.
000.
5008829242022241710GlobalrankingGlobalshareSource:ownresearchbasedonUNCTADdata.
TheleftaxisshowsthepositionintherankingandtherightaxisshowsChineseforeigninvestmentasapercentageofglobalforeigninvestment.
40ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeTherearealsosignificantexceptionstoinvestmentincommo-ditiesindevelopingcountriesandinvestmentinmanufactu-ringandtechnologyinadvancedcountries.
Inadditiontosou-th-eastAsiancountriessuchasMalaysiaandIndonesia,andLatinAmericancountriessuchBrazilandArgentina,Chinesecompaniescarryoutlargeoperationsintheenergyandmi-ningandquarryingindustriesindevelopedcountriessuchasCanadaandtheUnitedStates.
Forexample,ChineseSOEshaveacquiredownershipinterestsinCanadaintheenergycompaniesSyncrude,NexenandNovus,aswellasstakesinnumerousexplorationandminingandquarryingprojects.
Chinesefirmsarealsoinvestinginknowledge-intensivesec-torsindevelopingcountries.
Therehavebeenagreaternum-berofacquisitionsofUSandEuropeancompaniesinthesetypesofsectors,althoughfirmshavealsobeeninvestingincommercialandresearchactivityindevelopingcountries.
Forexample,HuaweirecentlylaunchedaninnovationcentreforsmartcitiesinPortoAlegre(Brazil)inconjunctionwithUniver-sidaddeRioGrandedoSul,andnotlongagoZTEcreatedaninnovationcentretogetherwiththelocaltelecommunicationsoperatorinIndonesia.
AlthoughanincreaseinChineseinvestmenthasbeenseenacrossalleconomicsectors,inrecentyearstherehasbeenamoveawayfromindustryinfavourofservices,primarilyasaresultoftheaforementionedtransformationoftheChineseeconomicmodel.
In2006theindustrialsectoraccountedfor30.
3%oftotalinvestment,comparedto68.
7%fortheservi-cessector.
By2014thesecondarysectorhadlostsixpoints,fallingto24.
2%oftotalinvestment,whileserviceshadrisento74.
8%.
WhichsectorsareseeingthegreatestnumberofChi-neseinvestmentsThesectorswiththehighestgrowthininvestmentbetween2011and2014areinformationtechnology(+59.
8%),cul-tureandentertainment(+70.
4%)andtherealestatesector(+49.
6%).
Intherealmofinformationtechnology,anotablenumberoflargeChinesecompanies,suchasLenovo,LegendHoldings,Huawei,ZTEandTencent,whicharespearheadingtechnologicalchangeinthecountry,havebecomeglobalen-terprises.
Bywayofexample,thehardwareanddevicema-nufactureLenovohasundertakenlargeoperations,suchasthepurchaseofMotorolaMobilityfromGoogle,tobecomethethirdlargestmanufacturerofsmartphonesintheworld6,ortheformationofajointventurewiththeJapanesecompanyNECtocreatethelargestJapanesemanufacturerofPCs.
Asaresultofthisvibrantinvestmentactivity,agrowingnumberofChinesetechnologycompanieshaveachievedsomeofthehighestvolumesofassetstocksheldabroad,ascanbeseenintable1.
AlthoughChinastillhasfewtrulyinternationalactors,itisin-vestingsubstantialsumsofmoneyinthecultureandenter-tainmentsector.
Forexample,in2012DalianWandaacquiredtheUScompanyAMCEntertainmentforUSD2.
6billion,gi-vingthegroupchairedbymagnateWangJianlinthesecondlargestshareofcinemasintheUnitedStates.
Inaddition,therehasbeenarecentflowofChinesecapitalintovariousEuropeanfootballclubs,suchasAtléticodeMadridandRealClubDeportivoEspaolinSpainorInterandACMilaninItaly.
TherealestatesectorhasgonefrombeingbarelysignificantCOMPANYSECTORASSETSTOCKSHELDABROADTOTALASSETS1ChinaNationalOffshoreOilCorpMining71,090182,2822ChinaOceanShipping(Group)CompanyTransportation44,80557,8753LegendHoldingsCorporationITequipment26,95747,0624ChinaNationalPetroleumCorporationMining22,857641,3345ChinaStateConstructionEngineeringCorporationLtdConstruction22,440149,6706Sinopec-ChinaPetrochemicalCorporationOil21,943362,8737ChinaMinmetalsCorpMetal19,22559,0108SinochemGroupMining18,70657,8679LenovoGroupLtdITequipment16,79127,08110ChinaMobileLimitedTelecommunications10,556211,11711ChinaElectronicsCorporation(CEC)Dataprocessing10,22638,15712CofcoCorpWholesaletrade10,22570,88813DalianWandaCommercialPropertiesCo.
,LimitedConstruction9,18991,89114TencentHoldingsLimitedDataprocessing8,26027,87315FosunInternationalLimitedMetal8,21252,897The15largestChinesecompaniesintermsofassetstocksheldabroad(2014)Table1Source:WorldInvestmentReport2016.
UNCTAD.
Excludingfinancialsectorentities.
2014data.
Assetfiguresinmillionsofdollars.
41ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeafewyearsago,withnooperationscarriedout,tobecometheseventhlargestrecipientofChineseforeigninvestmentatpresent.
Theseoperationsfallintotwocategories.
Thema-jorityareprivateinvestorslookingtoaddpremiumbuildingslocatedinexclusiveneighbourhoodsinadvancedcountriestotheirassetportfolios.
Inothercases,Chineseinvestorshaveoptedtoacquireapropertyonwhichtodeveloprealestateforsubsequentsaleataprofit.
Inanycase,notablereales-tatepurchasesbyChineseinvestorsarebecomingincreasin-glycommonplaceinUSandEuropeancities.
Forexample,variouslandmarkbuildingsinNewYorkarenowownedbytheChinese,suchas767FifthAvenue,theWaldorfAstoriahotel,theGeneralMotorsBuilding,thePacificParkprojectsinBrooklynand1ChaseManhattanPlaza,aswellasothersinEuropeancities,suchastheReutersheadquartersinLondonandPalazzoBroggiinMilan.
Secondly,China'srestructuringprocesshasalsoimpactedonitsforeigninvestment.
InasmuchasChinesefirmsarein-creasinglyfocusingtheireffortsonqualitygrowth,manyareinvestingindevelopedeconomiessoastoaccesstechnolo-gy,experienceandhigh-qualityproducts,whichcaninturnhelpthemtoimprovethevaluechainandbemorecompe-titiveinthedomesticandinternationalmarkets.
Inviewofitsgeographicalproximity,AsiaisperhapsanaturalcatchmentareaforChinesefirmslookingtoinvestabroad;thisregionreceived32.
6%ofcumulativeChineseinvestmentupto2014.
Nonetheless,EuropeandNorthAmericaarealsowitnessingfast-growinginvestmentfromChina.
Theseregionsreceived16.
5%and11.
5%ofcumulativeChineseinvestmentupto2006,whereasby2014theirshareamountedto24.
9%and21.
2%ofthetotal,respectively4.
Thirdly,astheChineseeconomyhasprogressivelycarvedoutgreaterroomfortheoperationsofprivateenterprisesandtheoperatingandfinancingbarrierstointernationalisationhavebeenbrokendown,POEs(privately-ownedenterprises)havebeengaininggroundabroadcomparedtoSOEs(state-ow-nedenterprises).
Withrespecttothenumberofmergersandacquisitionsabroad,55.
1%ofallagreementsin2010wereexecutedbyprivatefirms,whereasin2015thispercentageroseto75.
9%.
Similarly,whileprivateenterprisesrepresentedonly10.
6%ofthetotalvalueofM&Atransactionsundertakenabroadin2010,theyaccountedfor39.
8%in2015(seechart4).
AmongstthelargestprivategroupsinChinawithagrowinginternationalpresencearetheautomobilemanufacturerGee-ly,theentertainmentandrealestategiantDalianWanda,theenergycompanyCEFCChinaEnergy,thesteelworkscom-panyJiangsuShagangGroup,thetechnologycompaniesHuaweiandLegendHoldings(majorityshareholderofthetechnologymanufacturerLenovo),thetextilefirmShandongWeiqiaoPioneering,andFosun,possiblytheprivateChinesegroupwiththehighestlevelofinvestmentactivityinEurope.
Infourthandfinalplace,atrendworthmentioningistheri-singnumberofnewChineseprovinceswithagrowingnum-berofcompaniesinvestingabroad.
DespitetheincreasinglycommonviewthateconomicgrowthinChinaistwo-tiered,characterisedbyawideninggapindevelopmentbetweencoastalandinlandprovinces,inrecentyearstherehasbeenanupswinginthenumberofChinesecompanieshailingfromprovinceslocatedfarfromthecoastwiththecapacitytoin-vestabroad.
AlthoughtheprovincesofGuangdong,ShanghaiandBeijingcontinuetooverwhelminglyhousetheheadquar-tersoftheprivateandpubliccompanieswiththehighestle-velsofforeigninvestment,theoutboundFDIofinlandprovin-cesclimbedbyover200%peryearintheperiodfrom2006to2014.
Infact,asseeninchart5,theoutboundFDIofinlandprovincesintheperiodconsideredincreasedfrom14.
6%to20.
5%ofthetotal,whichisoneofvariouseconomicindica-torsshowingthattheChinesedevelopmentmodelistrending,albeitmodestly,towardsagreaterregionalbalance.
4"ChinaOutlook2016".
KPMGGlobalChinaPractice.
2016.
PreparedonthebasisofdatafromMOFCOM,NBSandtheStateAdministrationofForeignExchange.
ThefiguresdonotincludeChineseinvestmentinHongKong,theBritishVirginIslandsortheCaymanIslands.
Source:"ChinaOutlook2016".
KPMGGlobalChinaPractice,basedonDealogicdata.
Foreigninvestmentbyprivately-ownedenterprises(POEs)(2010-2015)Chart49080706050403020100%noperations%volumeinvested55.
175.
910.
639.
82010201542ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEurope1.
2Changeinthegrowthmodeltostimulatetheinter-nationalisationofChinesecompaniesTheprofoundtransformationtakingplaceintheChineseeco-nomy'sproductionmodel,whichisexplainedinthefirstpartofthisreport,willhaveagreatinfluenceonChineseinvest-mentabroadinthecomingyears.
Ingeneral,weconsiderthatalthoughcertainfactorswillactasaboostandothersasadrag,theoveralleffectwillbepositiveand,therefore,thechangeinmodelrepresentsanadditionalstimulusformorecompaniestoinvestabroad.
Thefactorexpectedtohavethegreatestpositiveinfluenceonforeigninvestmentwillbethedemandsposedbythetransitiontowardsamodelwithagreatercontributionfromsectorsandactivitiesthataremorevalue-,knowledge-andtechnology-orientated,whichwillre-quirelocalbusinessestoacquirethesecapacities.
Atinternallevel,thischangeisbeingcatalysedbyvariouspublicstimulusinitiativesforcompaniestoadvanceintheareaoftechnology,suchasInternetPlusorChina2025,supplementedbyinno-vationinvestmentinbothChineseandforeignenterprises.
Atexternallevel,Chinesefirmshavefoundaquickerwayofde-veloping,byinvestinginfirmsindevelopedcountries,suchastheUnitedStatesorEuropeancountries,inordertoaccesstechnologicalresourcesandinnovativeproducts/servicesthatwillenablethemtodeveloporincreasetheircompetitiveedge5.
OtherfactorsthatshouldboosttheinternationalisationofChinesefirmsarethecurrentindustrialovercapacityandthefinancialliberalisation.
Thesurplusinstalledcapacityofacon-siderablenumberoflargepublicenterpriseshasincreasedtheincentivefortheirinternationalexpansion,througheithertheexportofcommoditiesandmanufacturedgoods,accesstooperatingcontractsorforeigninvestment.
Inthisrespect,aspointedoutinthefirstpartofthisreport,oneoftheobjec-tivesoftheOneBelt,OneRoadstrategyispreciselytoex-pandthemarketformajorChinesestate-ownedenterprises,therebyofferingapartialsolutiontotheirovercapacity.
Thefinancialliberalisationandtheinternationalisationoftheyuanshouldalsofavourthegreaterinternationalisationandpresen-ceofChinesecompaniesabroad.
TheChinesegovernmentanditsmonetaryauthoritiesinparticulararedeterminedtobringabouttotalfinancialliberalisation,albeitinagradualandorderlymanner,havingalreadytakenimportantstepsinthisdirection.
Thisprocessshouldencourageanincreaseinthenumberofforeigninvestmentoperations,particularlybypri-vateinvestors.
Inaddition,thegovernment'sambitiontoposi-tiontheyuanasaglobalbenchmarkcurrency,notjusttobeheldasreservesbutalsoforuseincommercialtransactions,shouldalsogiveforeigninvestmentoperationsaboost.
Conversely,twosignificantfactorsthatcouldhaveanegativeeffectonforeigninvestmentaretherecentfinancialvolatilityandthedebtlevelsofSOEs.
Theepisodesoffinancialvolatilityseenin2015and2016,whichprimarilyaffectedtheShanghaiandShenzhenstockmarkets,ledtoasignificantoutflowofcapitalthatraisedconcernsaboutthestabilityofthefinan-cialsystemandtheyuan.
Asaresult,theChineseauthoritiesadoptedcertaincontrolmeasuresthatmakeithardertoinvestabroad.
Inanycase,theserestrictivemeasuresareexpectedtobeatemporaryresponsetospecificincidentsofcapitalou-tflow.
Inthelongterm,thetrendisclearlytowardsgreaterlibe-ralisationandthepromotionofforeigninvestment.
However,thehighdebtlevelsanddifficultiesconfrontingcertainSOEscouldinfluencetheirforeigninvestmentdecisions.
Theusualstrategyhasinvolvedmakingleveragedbuyoutsabroadusingborrowingsfrompublicentities,butgiventhecurrentdebtle-velsofthecompaniesrequestingtheloansandthefinancialpositionofcertainlenderfundsandbanks,thenumberofma-jorleveragedoperationsfinancedbypublicentitiescouldseeadeclineinthecomingyears.
5TheadvantagesforChineseinvestorsofpurchasingalargemanufacturingcompanyarenotmerelytheaccesstoknowledgetransfer,butalsoproductioncapacity,expansionoftheirmarketandimprovedbrandprofitability.
WhenGeelyHoldingGroupacquired100%ofVolvoin2010,whichuntilthenhadbeenthepropertyofFordMotorCompany,thevice-chairmanoftheChinesecompanylistedalltheadvantagesthattheoperationaffordedthecompany:aninternationallyrecognisedbrand,intellectualpropertyrightsover10,963patents,tenproductionplatformswithenvironmentalcriteria,3,800engineersand3,235salesofficesin100countries.
Source:ownresearchbasedonMOFCOMdata.
Percentageofinvestmentoriginatingfromcoastalandinlandprovinces(2006-2014)Chart590807060504030201002006201485.
414.
679.
520.
5InlandCoastLineal(COAST)Lineal(INLAND)43ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEurope2.
ChineseinvestmentintheEuropeanUnionChinesecompaniesincreasedtheircommitmenttotheEuro-peanUnionin2015,settinganewrecordforinvestmentintheEuropeancontinent.
EuropeisnotonlyChina'smainglobaltradingpartnerbutalsotheprimarydestinationofitsforeigninvestmentafterAsia,thenaturalcatchmentareaforChinesecompanieslookingtoexpand.
TheattractionofEuropeforChinesecompaniesisclear:politicalandmacroeconomicstability;apredictable,transparentinvestmentenvironment;500millionpotentialconsumerswithhighpurchasingpower;highlyqualifiedworkersandexecutives;assetssuchassta-te-ownedenterprisesandrealestatepropertiesthatoffersta-bilityandlowrisk;andindustrialcompaniesthatcanhelptoincreasetechnologicalcapacityandinnovation.
In2015and2016thesestructuralfactorswerejoinedbyothershort-termaspects,includingconsolidationoftheeconomicrecoveryinEurope,particularlytheEurozone;thestrengthoftheyuanatvarioustimesduringtheyear,postingarateofCNY6.
58pereuroon13April2015;andChinesecompanies'growinginte-restinacquiringEuropeanfirms,inviewoftheshiftinChina'sgrowthmodel.
Asaresultofthesefactors,in2015,thelastcompleteyearforwhichdataareavailable,ChineseinvestmentintheEuropeanUnionamountedtoUSD31.
38billion(approximately28.
61billion)6accordingtotheESADEChinaEuropedatabase,anincreaseof55%vis-à-vis2014.
ThiswasthethirdconsecutiveyearofgrowthforChineseinvestmentintheEuropeanUnionandthefirstinwhichitsurpassedtheUSD30billionthres-hold(seechart6)7.
Thespectacularincreasewasprimarilytheresultoftwomajordeals,thelargestbyChineseinvestorsinEuropetodate:ChemChina'sacquisitionofItalianfirmPirelli(USD8.
98billion)andHNA–BohaiLeasing'spurchaseoftheIrishcompanyAvolon(USD7.
6billion).
Duringthefirsthalfof2016(January-June)investmentsamountingtoUSD22billionhadbeenannounced,leadingustoestimatethatChineseinvestmentintheEuropeanUnioncouldreachanewall-timehighin2016,toppingtheUSD33billionmark.
Thelion'sshareofChinesefundsin2015wenttoItaly,whichreceivedUSD10.
31billion(32.
9%oftotalinvestmentinEu-rope)inthelargesttransactionseeninEuropetodate:theacquisitionofthetyremanufacturerPirellibyChinaNationalChemicalCorp(ChemChina),whichaccountedfornineoutofeverytendollarsinvestedbyChinainItalylastyear.
Thetran-sactionwascarriedoutintwotranches,thefirstcomprisingtheacquisitionof26%ofthecompanyfromCamfin,anotherItalianconcern,andthesecondentailingthepurchaseoftheremainderofthesharesfromJPMorganandRussianener-gygiantRosneft.
TheinvestmentformspartofChemChina'sstrategytodiversifyitsactivitiesinthelocalmarketwithaviewtobecomingatyresuppliertoItalianautomobilemanufactu-rers.
ChineseinvestmentsinItalywillbeanalysedinthesec-tiononinvestmentinsouthernEurope.
6Averageexchangeratein2015:1.
097perUSD(fortransactionsinotheryearswehaveusedtheaverageannualexchangeratefortheyearinquestionor,fortransactionsinUSdollars,theoriginalamountshowninthedatabase.
)7TheESADEChinaEuropedatabaseencompassesinvestmenttransactionsintheEuropeanUnionbetween2010and2015,aperiodthattakesinalmostallChineseinvestmentintheregion.
AccordingtoofficialfigurespublishedbyMOFCOM,88.
4%ofChineseinvestmentintheEuropeanUnionhasmaterialisedsince2010.
8CumulativeinvestmentintheEuropeanUnioninthe2010-2015periodtotalledUSD89.
7billion.
ThereisadifferenceofUSD70millionwheninvestmentsforeachoftheseyearsarecombined,duetoroundingofcertaintransactionsoverafive-yearperiod(2010-14).
Weconsiderthisanacceptableerrorinviewoftheamountsinvolved.
Source:OwnresearchbasedontheESADEChinaEuropedatabase.
FiguresexpressedinmillionsofUSdollars.
ChineseinvestmentintheEuropeanUnion(2010-2016)8Chart635,00030,00025,00020,00015,00010,0005,00002010201120122013201420152016(JAN-JUN)(Estimated)20163,27012,90012,6209,29020,17031,38022,00033,00044ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeIreland,whichuntilthenhadnotbeenonthereceivingendofanysignificantChineseinvestment,wasthesecondmostpopularinvestmentdestinationin2015,followingthepurcha-sebyaviationandtransportationgroupHNAoftheaircraftleasingfirmAvolon,atransactionvaluedatUSD7.
6billion,includingUSD5billionindebt.
TheDublin-basedfirmowns150aircraftin33countriesandthearrivaloftheChinesein-vestorwillcontributetoAvolon'sexpansionintoAsia,aswellasincreasingitsfinancialclout.
ThroughthistransactiontheChinesegrouphopestobecomeagloballeaderintheavia-tionsector,particularlytheaircraftleasingsegment,expan-dingthescopeofitsactivity,hithertolimitedtoChina,beyonditsconfines.
AfterItalyandIreland,thethreemajorEuropeaneconomiescontinuedtobethepreferreddestinationforChineseinvest-mentinEuropein2015;theUnitedKingdom,FranceandGer-manyjointlyreceived23%ofChineseinvestmentinEurope(seechart7).
ThepatternsofChineseinvestmentineachofthesecountrieswereobservedtoconsolidateanddeepenlastyear.
AttractinginvestmentsofUSD3.
54billion,theUni-tedKingdomwasoncemoreinChineseinvestors'sightsonthestrengthofitsrealestatesector,particularlyinLondon,whichboastsassetsofsufficientvaluetosuitthestrategyofAsianinvestorswhileofferingamoderateriskprofile.
LastyearsawacquisitionssuchasthatoftheMiltonGateofficebuildingintheCityofLondonbyTaikangLifeInsuranceCompany,orthepurchaseofapropertyvaluedatclosetoUSD100millionbybillionaireWangJianlin,therichestmaninChina.
TherealestatearmofprivateinvestmentgiantFosun–whichalreadyacquiredtheLloydsChambersbuildinginLondonin2013–thenannouncedanewjointventurewiththeBritishpropertygroupResolutionProperty,whichownsawiderangeofrealestatepropertiesinseveralEuropeanmarkets,withaviewtoexploringfurtheracquisitionsintheUnitedKingdom9.
France,onceagainoneofthefavouritedestinationsforChine-secompaniesinEurope,wasonthereceivingendofUSD2.
92billion.
Thelargesttransaction,whichaccountedforonethirdofChineseinvestmentinFrancelastyear,wastheacquisitionofseveralshoppingcentrespreviouslyinthehandsofCBREGlobalInvestorsbythesovereignwealthfundCIC10,whichalreadyownedrealestateassetsinLondon.
CICappearstobetakingadvantageofCBREGlobalInvestors'needforcashtoacquireshoppingcentressuchasLaVacheNoireontheoutskirtsofParis,andtwoothersinBelgium.
Indoingso,CIC–oneoftheworld'slargestsovereignwealthfunds,withUSD653billionofassetsundermanagement–isdemonstratingitswillingnesstooncemoreincreaseitsexposuretoEuropeanrealestate.
Theotherheadline-grabbingtransactionwastheacquisitionbyFosun(throughGaillonInvest)ofthetourismandresortsoperatorClubMéditerranée(ClubMed)forUSD1.
2billion.
ThedealmarkedtheculminationoftwoyearsofnegotiationsinwhichFosunfinallywonoutoverItaly'sInves-tindustrialGroup.
ChinesecompaniesalsocontinuedtoinvestinGermany.
In2015,investmentinthelargesteconomyoftheEurozonewasUSD750million,lowerthaninpreviousyearsandmainlydirectedatthemanufacturingindustryandthelogisticsandtransportsector.
Lastyear,asinpreviousyears,numerousdealsweremade,althoughforsmalleramounts,thusre-ducingthetotalvolumeofincominginvestment.
Neverthe-less,transactionsfollowedthesamepattern:acquisitionbyaChineseindustrialcompanyofanon-controllinginterestinamedium-sizedGermanmanufacturingconcern.
Suchashareholders'agreementoffersChinesecompaniesaccesstonewknow-howandtechnologywhileprovidingGermantargetswithacombinationoffinancialcloutandaccesstoothermarkets.
ThelargesttransactionofthistypecarriedoutlastyearwastheacquisitionofWEGUHolding,amakerofsuspensionsystemsandshockabsorbers,bytheChinese9ChinaInvestmentCorporationSource:ESADEChinaEuropedatabase.
FiguresexpressedinmillionsofUSdollars.
ChineseinvestmentintheEuropeanUnion.
Geographicaldistribution(2015)Chart712,00010,0008,0006,0004,0002,0000ITALYIRELANDNETHERLANDSUNITEDKINGDOMFRANCEGERMANYPORTUGALSPAINCZECHREPUBLICPOLANDLUXEMBOURGOTHERSWEDEN10,3107,7203,6203,5402,9201,13075065021014014013012045ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropecompanyAnhuiZhongdingforUSD107million.
InadditiontotheinvestmentsintheGermanmanufacturingsector,oneofthemostsignificanttransactionslastyearwasthepurchasebyFosunofHauck&Aufhuser,aGermanprivatebank,forUSD230million.
Fosun,whichhasalreadybeeninvolvedinnumerousdealsinEurope,appearsincreasinglyinterestedinraisingitsexposureinthefinancialsector,havingexpressedinterestintheacquisitionofBelgianbankBHFKleinwortBen-sonGroupSA.
TheNetherlandsandSpainaretwoothercountrieswhereChinamadesignificantinvestmentsin2015.
TheUSD3.
62billionchannelledintotheNetherlandspertainsmainlytoac-countingfactors:anattractivetaxandregulatoryframeworkforholdingsofEuropeancompaniesmeansthatsignificantChineseinvestmentsareaccountedforthere.
Nevertheless,thereweresomesizeableacquisitionsofDutchcompanieslastyear,includingNXPSemiconductors,whichispresentinover30countriesbuthasitsheadquartersinEindhoven,andthefinancialservicescompanyVivatVerzekeringen.
Spain,ontheotherhand,welcomedinvestmentsofUSD1.
13billionin2015,thefirsttimethattheUSD1billionthresholdhasbeenbroken.
Thiswaslargelyattributabletoatransactionthattookplaceintheenergysector,theacquisitionofaninterestinMa-drileaReddeGasbyGingkoTreeInvestment,theinvestmentarmoftheSAFEfund,forUSD730million.
TheremainderwasmadeupbyChineseinvestorswhocontinuedtoinvestintheagribusinesssector,inwhichSpainisverystronglypositionedwithregardtoAsianinvestors.
SpecifictransactionsincludedtheacquisitionoftheMarquésdeAtriowineryandMiquelAli-mentació,afooddistributioncompany,amongothers.
Inthissamesector,2016willbringnewdealsontopofthosesealedin2015,includingtheacquisitionofAlbo,acanningcompany.
TheinvestmentsofChinesecompaniesinSpainwillbeanaly-sedingreaterdetailinthesectiononinvestmentinsouthernEurope.
Analysingtheaggregatedataforthe2010-15period(seechart8),wecanseethatthethreemainEuropeaneconomies–theUnitedKingdom,FranceandGermany–arestillthemaindestinationofChineseinvestmentinEurope,attracting44.
1%ofthetotalfortheperiod.
OfallthecountriesinEurope,theUnitedKingdomreceivedthelion'sshareofChinesein-vestmentinthe2010-15period;specificallyUSD21.
73billion,equivalentto24.
2%ofthetotal.
Franceisinthirdplacebe-hindItaly,withUSD10.
52billion(11.
7%),whileGermanyranksfifthintermsofcumulativeinvestment,withUSD7.
35billion(8.
2%).
However,havingbecomemoreattractivetoChineseinvestorsinrecentyears,southernEuropeancountriesareal-readyrakingin28.
3%oftotalcumulativeChineseinvestment,makingthemthesecondmostappealinggroupofEuropeancountriesforChinesefirms.
AtthetopofthelistisItaly,withUSD15.
01billion(16.
7%ofthetotalforEurope),followedbyPortugalwithUSD7.
23billion(8%)and,trailingatsomedis-tance,SpainwithUSD2.
05billion(2.
3%)andGreecewithUSD1.
15billion(1.
3%).
OtherEuropeancountriesthathavereceivedaconsiderablevolumeofChineseinvestmentintheperiodanalysedareIreland(USD7.
72billion),theNetherlands(USD5.
99billion)andHungary(USD3.
85billion).
Turningtoanalysethesectorsthatattractinvestmentandre-flectingthepreviouslystatedinterestoftheChineseinacqui-ringtechnologicalandotherspecialistcapabilities,manufac-turingwasthesectorthatmostattractedChineseinvestmenttotheEuropeanUnionin2015(seechart9),accountingfor39.
4%ofthetotal(USD12.
38billion),althoughmuchofthiswasduetotheacquisitionofItaliantyremakerPirelli.
Thesecondmostpopularsectortoinvestinwaslogisticsandtransport,whichin2015hostedtheacquisitionoftheIrishcompanyAvolon(USD8.
12billion,25.
9%)alongwitheightothertransactions.
Notably,asdescribedbelow,thePortofPiraeusmanagementandinvestmentcontract,valuedatoverUSD400million,wasawardedtoCOSCOin2016.
Thiscon-Source:ESADEChinaEuropedatabase.
FiguresexpressedinmillionsofUSdollars.
CumulativeChineseinvestmentintheEuropeanUnion.
Geographicaldistribution(2010-2015)Chart825,00020,00015,00010,0005,0000ITALYIRELANDNETHERLANDSUNITEDKINGDOMFRANCEGERMANYPORTUGALSPAINHUNGARYPOLANDOTHERSSWEDENGREECEROMANIABELGIUMBULGARIA21,73015,01010,5207,7207,3507,2305,9903,8502,0501,7101,1501,0708608306501,98046ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropetractiscloselyrelatedtotheOBORproject.
In2015,thefinan-cialandrealestatesectorssharedthirdplaceasrecipientsofincominginvestment.
Inthefinancialsector(USD3.
2billion,10.
6%)therewerethreemajortransactions:theacquisitionofDutchinsurerVivatVerzekeringenbyAnbangInsuranceGroupforUSD1.
54billion;thepurchaseofItalianinsurerAs-sicurazioniGeneralibyPeople'sBankofChinaforUSD570million;andthepurchase,begunin2014,ofthePortuguesecompanyEspiritoSantoSaúdebyFosun,valuedatUSD621million.
Intherealestatesector(USD3.
2billion,10.
6%)theaforementionedprojectsbyprivateinvestorssuchasWandainFranceortheFosunGroupinItalystandout.
Inthissector,themaincountryonthereceivingendisstilltheUnitedKing-dom,whichattracts1outofevery3dollarsinvested.
BehinditisFrance,acountrywhereinvestmentsforuptoUSD3billionareproposedinaleisurecentreontheoutskirtsofParis,andItaly,wheretheFosunGroupacquiredthePalazzoBroggiinMilan(USD381million).
Investmentinservicesotherthanthoseinmoreconsolida-tedsectorsofactivitycontinuestogrow(6%withincominginvestmentsofUSD1.
9billion).
Theenergysector(USD940million,3%)hasbeenlessvisiblethaninotheryears,althoughsignificanttransactionshavetakenplace,includingtheSAFEsovereignwealthfundbuyingintoMadrileaReddeGas,aSpanishgasoperator,forUSD730million,andtheacquisi-tionofseveralwindfarmsinPolandbyChinaThreeGorges.
Thetelecommunicationssectoralsomaintainedalowerprofi-le,withtransactionstotallingUSD400million(1.
3%),followedcloselybyinvestmentsofUSD330million(1.
1%)intheagri-businesssector.
Analysingtheaggregatedatafor2010-15(seechart10),thedistributionofChineseinvestmentbysectorisgreatlycon-centratedinthreesectors:manufacturing(USD20.
24billionor22.
6%ofthetotal),energy(USD19.
12billionor21.
3%)andrealestate(USD16.
56billionor18.
5%).
Therelativeweightofthesethreesectors,whichtogetheraccountformorethan6outofevery10dollarsinvestedintheEuropeanUnionbyChina,isespeciallyhighbecauseaconsiderablenumberoftransactions,particularlyintheenergysector,callforlargevolumesofinvestment.
Thesectorthatreceivesthefourthlar-gestamountofChineseinvestmentislogisticsandinfrastruc-tureatUSD10.
69billion(11.
9%),followedbyfinanceatUSD6.
46billion(8.
3%),agribusinessatUSD5.
22billion(5.
8%)andtelecomsandsoftwarewithUSD4.
56billion(5.
1%).
CumulativeChineseinvestmentintheEuropeanUnion.
Sectordistribution(%)(2010-2015)Chart10ManufacturingEnergyRealestateLogistics/TransportationFinanceAgribusinessTelecoms/SoftwareOtherOtherservice22.
624.
55.
15.
88.
311.
918.
521.
3Source:ESADEChinaEuropedatabase.
ChineseinvestmentintheEuropeanUnion.
Sectordistribution(%)(2015)Chart9ManufacturingLogistics/TransportationRealestateFinanceOthersservicesEnergyOtherTelecoms/SoftwareAgribusiness39.
41.
11.
32.
93610.
210.
225.
9Source:ESADEChinaEuropedatabase47ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeExplanatorynote:ESADEChinaEurope2010-2015databaseOfficialinformationsources,whetherChinese,EuropeanorNorthAmerican,havevariouslimitationswhenitco-mestoreflectingtherealityofChineseinvestmentintheworld.
Thelargenumberoftransactionscarriedoutthrou-ghtaxhavensandOFCs,systemlimitationswhenregiste-ringinvestments,andtheconsiderabledelayinpublishingstatisticsalllimittheirexplanatorycapacity,makingitverydifficulttoadequatelymonitorChineseinvestmentcarriedoutsolelythroughthesechannels.
Aswiththelasteditionofthisreport,andinlinewiththepracticesofotherinstitutionsvis-à-vistheNorthAmeri-canmarket,ESADEChinaEuropehasthereforecompileditsowndatabasetoevaluateChineseinvestmentintheEuropeanUnion,encompassingthe2010-2015periodandthefirsthalf(JanuarytoJune)of2016.
Thisdatabase(referredtothroughoutthisreportastheESADEChinaEuropedatabase)combinestheprivateinformationsour-cesDealogic,HeritageFoundationandMergermarkets10forM&Atransactions,FDIMarkets11forgreenfieldope-rations,andourownresearchandmonitoringofpresscoverageofothersignificanttransactions.
ThedatabaseonlycoverstransactionsoriginatingincontinentalChina(referredtothroughoutthisreportasChineseinvestment).
Assuch,theamountsrecordeddonottakeintoaccounttransactionsconductedbyHongKong-basedfirms.
However,theESADEChinaEuropeObservatory,whichfornowfocusessolelyonmonitoringthepresenceofChi-neseenterprisesinSpain,alsoincludesHongKong-ba-sedcompanies.
TheChinaEuropedatabaseenablesthemaindestina-tionsofChineseinvestmentinthe2010-2015periodtobeidentified,bothbygeographicallocationandbysector.
DuringthisperiodinvestmentstotalledUSD89.
7billion,whichisaround85%ofthecumulativeinvestment,me-aningthatthedatabaseprovidesinformationonalmostallChineseinvestmentintheEuropeanUnionsincethecommencementoftheinvestmentrelationshipbetweenthetwoeconomies.
DisclaimerofliabilityforerrorsoromissionsInviewofthedifficultyandcomplexityofobtainingaccuratedata,althoughmaximumcarewastakenandthegreatestofeffortswasmadeinpreparingthisdatabaseandwhenusingthedatainthereport,theauthorofthisreportassumesnoliabilityforanypossibleerrororomission,orforanydamageandlossderivedfromtheuseoforreferencetotheinformationcontainedherein.
2.
12016:approachingUSD100billionofChinesein-vestmentintheEuropeanUnionSeveraltransactionsinvolvingChineseinvestmentintheEu-ropeanUnionhavetakenplacein2016,whichwillpresuma-blypushannualinvestmenttooverUSD30billiononceagainandcumulativeinvestmentsince2010tooverUSD100billion(USD89.
7billionattheendof2015).
Atleasttwolargein-vestmenttransactionshavetakenplacein2016:onebetweenChinesehomeappliancemanufacturerMideaandGermanroboticsmanufacturingfirmKuka,valuedatUSD5billion,andamajorrealestatetransactionintheshoppingcentresegmentbyDalianWanda,whichacquiredtheentertainmentcomplexEuropaCityontheoutskirtsofParis,forsomeUSD3billion.
Afurtherfivetransactions,someofwhichinvolvefirmsuntilnowcontrolledbyinternationalventurecapitalfundsandva-luedatoverUSD1billion,areexpectedtotakeplaceinEuro-pe.
Forexample,inanewtransactionintheEuropeanluxurygoodssegment,ShandongRuyicouldacquirecontroloftheluxurygoodsfirmSMCP,whichiscurrentlyheldbyventurecapitalfundKKR,forUSD1.
5billion.
Meanwhile,Chinesein-vestmentgroupCreatmayinvestinhealthsciencescompanyBioProductsLaboratory,untilnowheldbytheventurecapi-talfundBainCapitalPrivateEquity,forUSD1billion.
Othersignificanttransactionscouldtakeplaceintheenvironmentalsector.
TheseincludeanagreementreachedbyBeijingEnter-prisesHoldingfortheacquisitionofEEWEnergy,aGermancompanyspecialisinginwastemanagementandcleanener-gysolutionsforcompaniesandhomes,forUSD1.
6billion;theacquisitionofAldgateTowerintheCityofLondonbyChinaLifeInsurance;andthepurchaseof17ColumbusCourtyardinCanaryWharfbyHNA.
Moreover,2016hasbroughtthelong-awaitedawardofthePortofPiraeusinAthenstotheChinaOceanShippingCompany(COSCO)group,inatran-sactionthatcouldentailaninvestmentofuptoUSD1.
5billion.
Lastly,inadditiontoChineseFDIintheEuropeanUnion,ChemChina–whichwasalreadyatthecentreofthelargestChineseinvestmentinEuropein2015–couldoncemoreclo-sethebiggestChineseinvestmentdealabroadin2016,inaEuropeancountry,albeitoutsidetheEuropeanUnion:Swit-zerland.
Specifically,2016couldbringconfirmationoftheacquisitionofSwissseedgiantSyngentainwhatwouldcons-titutethelargestforeigninvestmenttransactionintheworldtodate,possiblyamountingtoUSD43billion.
Theinvestmentrationaleforthetransactionisclear:Chinahas21%oftheworldpopulationbutonly9%ofarableland.
11DataprovidedbyCuatrecasas,Gonalves&Pereira12DataprovidedbyACCI-Cataloniaregionalgovernment48ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeOn23JunetheUnitedKingdomagreedinareferendum–al-beitbyaverysmallmajority–toleavetheEuropeanUnion,the-rebycommencingtheprocessofdepartingfromtheEuropeanprojectinwhichithasplayedapartsince1973.
WhetherornotthisnewscenariowillleadtotheUnitedKingdombecomingmoreorlessattractivetoforeigninvestorswilldependmainlyontwofactors.
Ontheonehand,theexitnegotiationsbetweenLondonandBrussels,thecentralscenariobeingan"amica-bledivorce"wherebythepotentialnegativeimpactonthetwoeconomiesiskepttoaminimumwherebothtradeandfinancialinvestmentareconcerned.
Ontheotherhand,thecompensa-tionandincentivesofferedtoforeigninvestorsbytheBritishgovernment,whichhavealreadybeguntobeannounced,suchasthereductionincorporateincometaxto15%proposedbyGeorgeOsborne,ChancelloroftheExchequer.
Inparticular,theimpactofthisnewscenarioonChinesein-vestmentintheUnitedKingdomshouldbeconsidered.
UptonowtheUnitedKingdomhasbeenthemaindestinationforChineseinvestmentintheEuropeanUnion,accountingforacumulativeamountofUSD21.
73billionfrom2010to2015,faraheadofotherlargeEuropeaneconomiessuchasItaly,Fran-ceorGermany.
Althoughintheshorttermcertainoperationsmaybepostponedduetothecurrentuncertainty(the"waitandsee"approach),adropinChina'sinvestmentsintheUKisnotexpectedinthemediumtolongterm,andinanycasenotallinvestmentswouldbeequallyaffectedbyBrexit;itmayevenhaveapositiveimpactinsomecases.
Firstly,inthecaseofinvestmentsaimedataccessingtechno-logyandstrategicassets,whichwillforeseeablybethemoti-vatingfactorbehindmostoperationsinthecomingyears,asexplainedthroughoutthisreport,theBrexiteffectshouldbeneutral.
Chinesecompanieswillcontinuetoinvestinfirmsthatprovidethemwithcomparativeadvantagesinternationally,astheyarealreadydoinginotheradvancedcountries,regardlessofwhetherornottheyformpartofsupra-nationalprojects,asisthecaseinEurope.
Forexample,asignificantChinesetran-sactionintheEuropeanregionthatmaybefinalisedthisyearistheacquisitionoftheseedsgiantSyngenta,aSwissfirmoutsidetheEuropeanUnion.
Secondly,asregardsinvestmentsaimedataccessingthecon-tinentalEuropeanmarket,eitherthroughexportsorfinancialtransactions,ChineseinvestmentsmaybenegativelyaffectedbytheUnitedKingdom'sdeparturefromtheEuropeanUnion.
InanycasetheimpactonexportsshouldnotbeexcessiveasthisfactorhaslittlebearingonChineseinvestmentsintheUnitedKingdom;indeed,exportsmayhardlybeaffectedatallifLondonandBrusselsreachatradeagreementthatisad-vantageousforbothparties,asisexpected.
TheimpactcouldbegreaterforChinesefinancialfirmsinterestedinestablishingtheirEuropeanheadquartersinLondon,anattractivehubforChineseinvestorsandbankswishingtoaccessvariousfinan-cialmarketsandassets,includingissuesandtransactionsinyuan.
Thisalsodependsontheextenttowhichtheinternatio-nalfinancialoperatorsstopusingtheCityastheirmainEuro-peanfinancialhubandleavetheUnitedKingdom.
Thirdlyandlastly,inthecaseofpropertytransactionssuchasrealestateacquisition–forwhichthecityofLondon,compa-rableonlytoNewYork,hasbeenthemaindestinationofChi-neseinvestorsuptonow–orminorityshareholdingsinotherassets,includingstate-ownedassets,theeffectcouldbepo-sitive,giventhelowerpricesasaresultofthesuddendeclineinvalueofthepoundsterlingcomparedtoitspre-Brexitlevels.
AnotherpotentialpositiveimpactoftheUnitedKingdom'scu-rrencydepreciationcouldbeanincreaseinChinesetourism,whichwouldalsobeanincentiveformoreinvestmentsinthissector,ashasalreadyhappenedincountriessuchasSpainandFrance.
Tosumup,atESADEChinaEuropeweconsiderthattheUni-tedKingdomwillcontinuetobeoneofthemainrecipientsofChinesecompanies'globalinvestmentsandthatthepositiveornegativeeffectofBrexitwilldifferdependingontheinves-tor'stargetsector.
Box1.
TheUnitedKingdomandthenewBrexitscenario49ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEurope2.
2ComplementarynatureofEuropeanandChineseinitiatives:adriverfornewinvestmentThelarge-scaleinvestmentandinnovationprogrammesen-teredintobytheEuropeanUnionandChinainthelasttwoyears,andcurrentlybeingimplemented,complementeachotherinwaysthatshouldstrengthenthelinksbetweenthetworegionsandstimulateChineseinvestmentintheEuro-peanUnionoverthecomingyears.
Specifically,theEuropeanFundforStrategicInvestments(EFSI),ashort-termplanbetterknownastheJunckerPlan,andHorizon2020,along-termplan,couldhelpstimulateChineseinvestmentinEurope.
OntheChineseside,theOneBelt,OneRoad(OBOR)projectisalreadyresultinginahighernumberofChineseinvestmentsinEurope,primarilyintheinfrastructureandlogisticssectors.
IntroducedinJuly2015,theJunckerPlanistheEU'smainprogrammeforstimulatingdemand.
Brussels'aimisforthePlantoactasacatalysttogenerateinvestmentsof315bi-llion(USD345.
24billion)inEuropeupto2018,takingadvan-tageoftheabundanceofliquidityandthecurrentlowcostofcapital,asinterestratesareatanall-timelow.
Despiteinitialscepticismamongbothpublicagenciesandtheprivatesec-torinEurope,thePlanhasbeguntoproducethefirstresultsasapromoterandcatalystfornewinvestment.
ByJuly2016,theplanhadgivenrisetoinvestmentsof115.
7billion(USD126.
04billion),37%ofthetargetforthethree-yearplan,in-volving289transactionsin26ofthe28statesthatmakeuptheEuropeanUnion13.
AccordingtotheEuropeanInvestmentBank(EIB),thecountriesthathavemadethegreatestuseoftheplanareFrance,Italy,theUnitedKingdom,Germany,Slo-vakia,BelgiumandSpain.
UntilJuly2016,74%ofprojectsbyvolumewereintheenergysector,R&D&i14andSMEs(seechart11).
TheChineseauthoritieshaveshownaninterestintakingpartintheJunckerPlanthroughinvestmentsandprojectsofbe-tween5billionand10billion(USD5.
48billion-USD10.
96billion),andinSeptember2015aworkinggroupwascreatedtopushforwardtheprojectsintowhichtheseresourceswillbechannelled.
IfChinadoeseventuallycontribute10billion(USD10.
96billion)totheJunckerPlan,itwillbecomenotonlythefirstnon-Europeancountrytotakepartinthescheme,butalsooneofitsbiggestbackers.
InthisrespecttheprojectsfinancedtodateareinlinewiththosealreadybeingfinancedorcarriedoutinotherregionsbyChina,particularlyinener-gyandtechnology.
Furthermore,accordingtoJean-ClaudeJuncker,PresidentoftheEuropeanCommissionandpromo-terofthePlan,theEFSIcouldbeextendedbeyond2018.
ThepurposeofHorizon2020isfortheEuropeanUniontoattainapositionofgloballeadershipincorporateinnovationandtoactasacatalystforvariousinitiativesthathaveastheirpurposetomakeEuropeabenchmarkacrossdifferentindus-triesinthefuture.
Thebudgetforthisinitiativeis80billion(USD87.
68billion),tobeinvestedinthe2014-2020period.
Chinahadalreadyplayedaprominentroleasfinancierandexecutorofprojectsunderthe7thFrameworkProgrammeoftheEuropeanUnion,andhasnowbeeninvitedtoplayanac-tiveroleinresearchanddevelopmentprojectsincludedintheHorizon2020initiative.
TheEuropeanUnionhaspublishedalistoftendersforEuropeanprojectsinwhichChinahasbeenspecificallyinvitedtotakepart.
NotethatChinaandtheEuro-peanUnionhaveaco-financingmechanisminplaceforthepurposeofconductingjointresearchprojects15.
Besidesjointresearchprojects,whatistrulyinterestingaboutHorizon2020isthatitwillcontributetoshiftingtheEuropeancorporatescenariotowardsnewsectorsandactivitiesthataddconsiderablevalue,asthesearepreciselytheareasChi-neseinvestorsaremostinterestedinduringthisnewphaseoftransformationoftheproductionmodel.
Brussels'aimisforEuropeanindustrytomakeadvancesinsectorssuchasgreentechnologies,biotechnology,nanotechnologyandthemaritimeindustriesasthesearethetypesofassetsthatChi-neseinvestorswillbelookingforinEuropeancompaniesinthecomingyears.
AsforChineseinitiatives,EuropeisacornerstoneoftheOBORproject,inviewofits500millionconsumersthatmakeitthelargestaffluentglobalmarket,anditspositionasChina'smaintradingpartner.
TheOBORinitiativewillfuelinvestmentinEu-ropethroughathreefoldstrategy.
Firstly,throughthepartici-pationofChinesecompaniesinEuropeaninfrastructureandlogisticsplatforms,withthedualaimofcontrollingthedis-tributionchainofChineseproductsandexpandinglogisticscapacity.
Investmentsofthisnaturehavebeenseenrecently.
13http://www.
eib.
org/efsi/14Research,developmentandinnovation15See:https://ec.
europa.
eu/programmes/horizon2020/sites/horizon2020/files/List%20of%20calls%20targeting%20China%20in%20Horizon%202020%20work%20programme%20for%202014%20and%202015_2.
pdfProjectsapprovedundertheJunckerPlan,bysector,asapercentageofthetotal(untilJuly2016)Chart1126556122325Source:EuropeanInvestmentBank(EIB)SMEsR&D&iEnergyDigitalTransportationEnviromentSocialinfrastructure50ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeInthelasttwoyearsChinahasinvestedinvariousinfrastruc-tureprojectssuchasports,foremostamongstwhichareBarcelona(Spain),Naples(Italy)and,morerecently,Piraeus(Greece),andairports,suchasToulouse(France)andMan-chester(UnitedKingdom).
Secondly,theChinesegovernmentisalreadyworkingonlandinfrastructureinvariouscountrieswithaviewtoreducinglo-gisticstimesandcosts.
Oncetheyarecompleted,theywillprovideChinesecompanieswithanadditionalincentivetoinvestinEurope.
Thirdly,thereareclearsynergiesbetweentheplansforEuro-pesetoutintheOBORprojectandthoseoftheaforemen-tionedJunckerPlan,whichcouldstimulatejointinvestmentsinwhichtheAIIB,oneofthemainfinanciersoftheChineseinitiative,couldtakepart.
Nevertheless,itishopedthattheEuropeanUnion,whichatthemomentisfocusedonurgentmatterssuchastheUnitedKingdom'sexitfromtheEU,therefugeecrisisortheapprovalofthethirdGreekbailout,willinthenearfuturepaymoreattentiontotheintegrationofthetwoinitiatives.
2.
3ChineseinvestmentintheUnitedStatesandtheEu-ropeanUnion.
WhatarethedifferencesChineseinvestmenthasrisensharplyinrecentyearsinboththeEuropeanUnionandtheUnitedStates,reflectingthegrowingpresenceofChinesecompaniesinthetwoecono-mies.
In2015,thelastfullyearforwhichdataareavailable,thevolumeofChineseinvestmentreachedanall-timehighofUSD31.
38billionintheEuropeanUnionandUSD15.
3billionintheUnitedStates16.
BotheconomiessharecommonfeaturesthatsupporttheinterestofChinesecompaniesininvesting:poli-ticalandmacroeconomicstability;alarge,high-incomemar-ket;highlyqualifiedtalentandlabour;high-techcompanies;andbrandsthatenjoyglobalrecognition.
Furthermore,theauthoritiesinboththeEuropeanUnionandtheUnitedStatesareveryinterestedinattractingChineseinvestment,asshownrepeatedlythroughbilateralmeetingsheldatthehighestlevel,andbotharecurrentlyengagedintalksaimedatsigninganewinvestmenttreatywithChina.
Insummary,inacontextofgrowinginvestmentbyChinaindevelopedcountries,theEuropeanUnionandtheUnitedStatesconstitutetheprimeinvestmentdestinationsforChinesecompanies.
Neverthe-less,therearesignificantdifferencesintermsofthepatternofChineseinvestmentoneithersideoftheAtlantic.
Thesedifferencesmainlyrelatetotheinvestmentsectors,thenatureoftheinvestorcompany(state-ownedorprivate)andthetypeoftransaction(M&Aorgreenfield).
Possiblythemaindifferencebetweenthepatternofinvest-mentbyChinesecompaniesintheUnitedStatesandthatinEuropeliesinthepreferenceofAsiancompaniesforcer-tainsectorsineachofthetwoeconomies.
Chineseinvestorsshowgreaterinterestinthetechnologysectorandtheenter-tainmentindustryintheUnitedStates,whereasinEuropetheyfavourenergy,logisticsandinfrastructure.
TechnologygiantssuchasHuawei,ZTE,TencentorBaiduhavemadesignificantinvestmentsinbothEuropeandtheUnitedStates.
However,thenumberofmajortransactionsinthelatterisobservedtobehigher.
Large-scaletechnologydealsintheUnitedStatesdatebacktotheacquisitionofIBMbyLenovoin2005inwhatwasthefirstmajortransactioninthissectorbetweenChinaandadevelopedcountry.
ItdemonstratedChina'scapacitytobecomeaglobalplayerinsectorsotherthancommodi-tiesandminerals.
Sincethen,Lenovohasbeeninvolvedinotherweightydeals,thelatestbeingin2015whenitacqui-redMotorolaMobility,atransactionvaluedatUSD3.
14billion.
Furthermore,ChineseinvestorsarebeginningtoinvestinUSstart-upswithincreasingfrequency.
Alibaba,thee-commercegiant,recentlyacquiredSnapChat,aCalifornia-basedstart-upspecialisingininstantmessaging,forUSD200million,andChinaLifeInsuranceinvestedUSD200millioninUber(whichwouldsubsequentlyinvestinitsbiggestrivalinChina,themo-bilityapplicationDidiChuxing)17-18.
Inadditiontothetechnologysector,ChinesecompanieshaveshowngreatinterestininvestingincertainsectorsrelatedtotheentertainmentindustryintheUnitedStates.
China'sfond-nessforthissectoralsoreflectstherationaleofacquiringstakesingloballeadersintheentertainmentsector,someti-mescontrollingtheentirevaluechain,fromfilmproductiontocinemas.
Inoneofthelargestdealseverseeninthehistoryoftheentertainmentsector,DalianWandaacquiredACM,achainofcinemasuntilthenownedbyUSprivateequitygiantApollo&Bain,forUSD2.
5billion.
Inadditiontoapenchantformovietheatremanagement,ChineseinvestorshavealsoshowninterestinchannellingfundsintoHollywoodproductioncompaniestogainaccesstotheworld'slargestfilmmarket,investinginfirmssuchasSXTEntertainment,inwhichChine-seprivateequityfundHonyCapitalhasacquiredaninterest.
16DataonChineseinvestmentintheEuropeanUnionfromESADEChinaEurope;dataonChineseinvestmentsintheUnitedStatesfromRhodiumGroup.
Accordingtodatafromthelattersource,ChineseinvestmentintheUnitedStatesinthefirsthalfof2016reachedUSD18billion,whiletransactionsvaluedatUSD33billionwereexpectedtobeconcluded.
ThereforeChina'sinvestmentintheUnitedStatesin2016couldexceeditsinvestmentintheEuropeanUnion(http://rhg.
com/notes/chinese-fdi-in-the-us-tripling-down-on-america)17ThefactthattheUnitedStateshasbecomeatargetmarketforChinesecapitalonthetechnologyfront,attheexpenseofEurope,reflectsthetechnologicaldividebetweenthetwosidesoftheAtlantic.
TheUnitedStatesinvestsmoreinR&DthanEuropeandhasamuchmorehighlydevelopedventurecapitalindustry.
Americansaremoreentrepreneurial,andtheregulatoryenvironmentismorefavourableforinnovation.
ItisthereforeunderstandablethatwhenChinesecompaniesseektoac-quirecapitalstakesinhighlyinnovativetechnologycompanies,theirpreferencesliewiththeUS.
Lookingjustatthenumberofunicorns(start-upsvaluedatoverUSD1billion),theUnitedStatesishometo128unicorns,comparedto38inEurope.
18SeveralrecentprojectspresageasurgeofinterestinthetechnologysectorinEurope,althoughwithoutreachingthelevelsattainedintheUS.
Secondly,inthepreviouseditionofthisreport,wealreadycommentedonthegrowinginterestinEuropeanstart-ups,asborneoutin2016bytheannouncementmadebyCocoonNe-tworks,aninvestmentgroupbackedbyChinaEquityGroupandHanxinCapital.
InvestorshaveannouncedthecreationofaventurecapitalfundbasedinLondonwithaseedcapitalofUSD721millionthatwillinvestinEuropeantechstart-ups.
ThisisthefirstfundbackedbyChineseinvestorsactingaslimitedpartnerships(LPs),anditwouldmeanchannellingfinancingfromChinaintohigh-risk,scalableprojectsinEurope,anovelinitiativewithconsiderableroomforgrowth.
51ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeConversely,Europeistherecipientofalargervolumeofin-vestmentintheenergysectorthantheUnitedStates.
Invest-mentsintheenergysectorcomprisedifferenttypesofassets:interestsinpublicservicescompanies,forexampleinItaly(CDPReti)andPortugal(EnergiasdePortugal),windfarmsinGermany(Meerwind),andevennuclearenergyplantsintheUnitedKingdom(HinkleyPoint).
ThisverynotablepresencereflectstheaforementionedEuropeanreceptivenesstoChi-neseinvestmentinstrategicsectors.
AnothersectorwhereEuropelooksmoreattractivethantheUnitedStatesistrans-portationandlogistics.
ThisreflectsthefactthattheEuropeanUnionisChina'sfirsttradingpartnerandisalignedwiththeexpansionplansfortheregionassetoutintheOBORinitiati-ve.
IntheUnitedStates,jointtransactionsinthetransportationandlogisticssectoramounttoUSD175million,whereasjustCOSCO'sinvestmentinthePortofPiraeus(Greece)substan-tiallyexceedsthisvolume.
Inadditiontothesetransactions,othermajordealshavetakenplaceinSpain(PortofBarcelo-na),Belgium(ZeebruggePortterminal),theUnitedKingdom(HeathrowairportinLondon),Germany(Hahnairport)andItaly(portofNaples).
Furthermore,althoughnotatransactionspecificallytargetinginfrastructure,theacquisitionoftheIrishaircraftleasingcompanyAvolonbytheHNAGroup,valuedatUSD7.
6billion,standsout.
Inadditiontothepatternofspecialisationbysector,anotherofthebasicdifferencesbetweenthepatternofChineseinvest-mentintheEuropeanUnionandthatintheUnitedStatesisthattheformerismoreopenthanthelatterregardingChineseparticipationinpublicassets.
Inrecentyears,severalcorpora-tegroupsfromChinahavebeguntoacquirepartorfullstakesinalargenumberofstate-ownedassetsinEurope.
Itbearsmentioningthatin2015ChineseSOEs19,whichincludecom-paniesspecialisinginenergyandinfrastructure,accountedfor70%ofinvestmentintheEuropeanUnion,comparedto34%intheUnitedStates20.
Anotherimportantdifferencerelatedtothepreviousoneisthatinvestmenttransactionsinwhich"nationalinterests"mi-ghtbeinvolvedaresubjecttoapprovalbytheCommitteeonForeignInvestmentintheUnitedStates(CFIUS),agovernmentcommitteesetupin1975duringGeraldFord'stermasPresi-dent.
ThisagencyhasnoequivalentinEurope.
ThisCommit-teereviewsforeigninvestmentsininfrastructure,telecommu-nications,publichealthcare,technologyandothersensitivesectors.
Forexample,in2012,ontherecommendationoftheCFIUS,PresidentObamablockedtheacquisitionbyRallsCorp,aprivateChinesegroup,ofawindturbinemanufacturerinthestateofOregon.
In2005,alsoontheCFIUS'srecom-mendation,CongressopposedthesaleofUnocal(UnionOilCompanyofCalifornia)totheChineseNationalOffshoreOilCorporation(CNOOC),eventhoughthelatterhadsubmittedahigherbid.
UnocalwasfinallysoldtotheChevronGroup.
IntheabsenceofacommitteeequivalenttotheCFIUS,Euro-peisseenbyforeigncompaniesasprovidinggreatercertaintyandamoreopenframeworkforinvestment.
Notably,in2016certainmovementshavetakenplacealertingagainstexcessi-veChineseinvestmentinsomeEuropeanassets.
Forinstan-ce,PresidentFranoisHollandewarnedoftheincreaseinJinJiangGroup'sstakeinAccorhotels,andGermany'sMinisterofFinancehascalledforprotectionforEuropeantechnology.
OnelastdifferencebetweenChina'spatternofinvestmentinthetworegionsistherelativeweightofeachtypeoftransac-tion.
IntheUnitedStates,M&Atransactionsaremorepre-valentthantheyareintheEuropeanUnion.
AlthoughEuro-pehasprovidedthebackdropforalargernumberofM&AtransactionsthantheUnitedStates,transactionsintheUni-tedStatesfarexceedthosecarriedoutinEuropebyvalue.
Infact,inthe2010-2015period38%oftransactionsintheUSinvolvedM&A,comparedto62%forgreenfieldprojects;whereasinEurope75%ofdealswereM&Acomparedto25%greenfield21.
However,ifweconsidertotalinvestmentvolumeintheUnitedStates,M&Aaccountsfor90%oftotalinvest-ment,with10%ingreenfieldprojects,22whereasinEuropetheformeramasses82%ofdeals,comparedto18%inthecaseofgreenfieldprojects.
ThesedifferencessuggestthatChinesecompaniesareforcedtomakealargerinvestmentwhenbuyingoracquiringstakesinUScompanies,whichare,onaverage,largerthantheirEuropeancounterparts.
19EstablishingasharpdistinctionbetweenpublicandprivatecompaniesinChinaisverycomplexanddifficulttodoaccurately.
Inprinciple,adistinctionisusuallymadeforcompaniesthatdependontheStateCommissionforsupervisionandadministrationofthe106largestcompaniescontrolledbySASAC,thegovernmentagencythatholdsownershipstakesinmanylargeChinesecompanies.
Inactualfact,alargenumberofcompanies,despitebeingprivatised,maintainformalorinformallinkswiththegovernment.
Thus,anyattemptatsegmentingpublicandprivateconcernsshouldbeundertakenwithcaution.
20DatafortheUnitedStatestakenfromRhodiumGroup'sChinaInvestmentMonitor21DatafortheUnitedStatestakenfromRhodiumGroup'sChinaInvestmentMonitor22"Bird'sEyeView:ComparingChineseInvestmentintoNorthAmericaandEurope".
Baker&McKenzie.
2016.
52ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeAuthor:NúriaBetriuiSánchezDirector-GeneralofIndustryfortheCataloniaregionalgovernmentandChiefExecutiveOfficerofACCI–CataloniaTrade&InvestmentBox2.
Catalonia:gatewaytoEuropeInanincreasinglyinterconnectedworld,acountry'scompetiti-venessisnotdirectlyproportionatetoitssize,butrathertothestrategiesitpromotestosupportinnovationandinternationa-lisationandtomeetcompanies'needs.
Inthisregard,low-po-pulationcountriessuchasSweden,DenmarkandFinlandarerenownedworldwidefortheircompetitivenessandfortheirfullintegrationintheglobaleconomy.
WithapopulationsimilartoDenmark'sandGDPandexportssimilartoFinland's,Cataloniaisonalevelplayingfieldwiththeseinternationalbenchmarks.
IfwelookcloselyatCatalonia,wefindanenterprisingregionwithanindustrialbaseandadiversifiedeconomy,thatisinno-vativeandopentotheworld.
Inshort,Cataloniaoffersvaluetothecompaniesalreadyoperatingthere,aswellastofirmsthatareconsideringsettingupinEuropeandthosealreadybasedinEuropebutlookingforasecondlocationor"secondfootprint".
Inallofthesecases,CataloniayieldsopportunitiestoconnectChinawiththeinternationalmarketsandtoprovideChinesecompanieswithahighlycompetitiveenvironment.
Competitive,industrialanddiversifiedeconomyCatalonia'sentrepreneurialtraditionhascreatedadynamiceconomywithalmost600,000companies,mostofwhich(99.
8%)aresmall-ormedium-sized.
Thisentrepreneurshiphashistoricallybeencloselylinkedtoindustrialactivity.
CataloniaisoneofEurope'sstrongestindustrialdrivingforces.
Atpresent,20%ofGDPisgeneratedbyindustry(ifindustry-re-latedservicesarealsoincluded,thisproportionexceeds50%).
ThisfigurepositionsCataloniaabovetheEuropeanaverageandalreadymeetstheobjectivesetbytheEUfor2020.
Howe-ver,wearefacedwiththechallengeofreaching25%,whichwillbecloselylinkedtothedevelopmentofindustry4.
0orthefour-thindustrialrevolution,uponwhichCatalonia'sindustrialpolicywillrevolveinthecomingyearsinordertoshapethefuture.
TheCatalanbusinessarenaishighlydiversifiedandalthoughareassuchasfood,chemicals,andtheautomotiveorpharma-ceuticalindustriesareveryrelevant,noneofthesesectorsac-countsformorethan15%oftheindustrialGVA.
Thesecompa-niesalsoenjoyanofferingofspecialisedandhighadded-valueservicesinfieldssuchasR&D,design,logistics,ICTandsha-red-servicecentres.
Inshort,diversificationandthepresenceofcompletevaluechains,whichincludethemanufacturingprocessandassociatedservices,offersignificantopportunitiestoforeigninvestors,whowillbemetwithanextensivenetworkofsuppliers,partnersandcustomersinCatalonia.
InvestorswillalsofindthatCataloniaisfullyintegratedintheglobaleconomy.
WhileCataloniaaccountsfor0.
1%oftheworld'spopulation,itisresponsiblefor0.
4%oftheworld'stra-de.
Catalanexportsroseby6.
1%in2015toover63.
8billion,makingitthesixthEurozoneeconomyintermsofgrowthrate.
Thisgoodperformanceinforeignmarketsislargelyduetothebusinessarena'scommitmenttoinnovation.
Accordingtothe2015CataloniaInnovationSurvey,overhalfofCatalancompa-nieswithmorethannineemployees(54%)carriedoutsometypeofinnovation-relatedactivitylastyear.
Thepercentagein-creasessignificantlyinthecaseofindustrialcompanies(68%).
ThesurveyalsoclearlyshowsthatCatalancompaniesincludeinnovationandinternationalisationintheirbusinessstrategy.
Inthisregard,57.
2%ofinnovativecompaniesmadeexportsin2015.
Moreover,oneinfiveCatalancompanies(19%)formspartoftheglobalvaluechains.
Thesearecompaniesthatex-portandimportregularlyandhaveastronginnovationlineofactivity,asover79.
3%ofthemconfirmedtheyhadinnovatedin2015.
ChineseinvestmentinCataloniaCataloniaisaveryattractiveregionforforeigninvestment;thefactthatover6,450foreigncompaniesarelocatedthereisproofofthis.
Also,accordingtoinformationfromfDiMarkets,in2015CataloniawastheleadingregioninWesternContinen-talEuropeandthefourthinallofEuropeintermsofinvestmentvolumesreceived(approximately5.
2billion).
Theaddedvalueoftheseinvestmentsshouldalsobenoted,asCatalonialedthewayinattractingR&DinvestmentprojectsinWesternContinentalEuropeintermsofthevolumeofinvest-mentandnumberofjobscreated.
Theoutlookforthefutureisalsopositive.
AccordingtofDi'sEuropeanCitiesandRegionsoftheFuture2016/17ranking,CataloniaisthebestregioninSouthernEuropeinwhichtoinvestinthenexttwoyearsandBarcelonaistheEuropeancitywiththebeststrategytoattractinvestment.
Inrecentyears,CataloniaandChinahavestrengthenedtheirrelations,bothatinstitutionallevelandthroughactivepresenceandthedevelopmentofjointactivitieswithspecificregionsorbenchmarkfinancialplayers.
Thispromptsanincreasingnum-berofcompaniestooptforCatalonia.
ChinahasinvestedinvarioussectorsinCataloniaandatdiffe-rentendsofthevaluechain,asislogicalinsuchadiversifiedeconomy.
Examplescanbefoundintheformofcompaniesfromvarioussectors,suchasindustry(ChinaNationalBlues-tarGrouporHuayi),technology(LenovoortheHongKongcompanyCronosTelecom),logistics(COSCOortheHongKong-basedHutchisonWhampoa),financialservices(Chi-naConstructionBank),entertainment(acquisitionofR.
C.
D.
EspanyolbythechairmanofRastar)anddistribution(BrightFood).
53ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeTheseoperationsalsodemonstratetheopportunitiesCataloniahastoofferinvarioustypesofinvestment.
Theexampleslistedincludegreenfieldinvestments,jointventuresandsuccessfulmergerandacquisitiontransactionswithalong-termvisionofthebusinessrelationshipbetweenCataloniaandChina.
SuchisthecaseofthepurchaseofthebiggestCatalangroupinthedistributionsector,MiquelAlimentació,bytheChinesefoodanddistributiongiant,BrightFood.
ThistransactionhasturnedtheCatalangroupintoaplatformfortheexportoflocalpro-ductstoChina.
InvestmentbytheChinaCertification&InspectionGroup(CCIC)hasalsofosteredthetradealliancebetweenCataloniaandChina.
Thisstate-ownedcertificationcompanyoptedforBarcelonatosetupalaboratoryspecialisinginautomotivepro-ductsandcertainconsumergoods,suchasmachineryortoys.
TheBarcelonalaboratoryassuresCatalonia'spositionasanexportgatewaytoChina.
AgoodindicationoftheperformanceofChineseinvestmentinCataloniaisthenumberofChineseprojectsthathavemateria-lisedthroughCataloniaTrade&Investment,aunitthatspecia-lisesinattractinginvestmentwithinACCI,apublicagencyoftheCataloniaregionalgovernmentthatworkstopromotethecompetitivenessofCatalanbusinesses.
In2015,Chinawasthesecondcountryoforigin(alongsideFrance)ofinvestmentprojectsundertaken,andalsointermsofinvestmentvolume.
Inparticular,sevenprojectsentailingin-vestmentofover27millionwerecompleted,farexceedingrecordsforpreviousyears.
IdealecosystemtoattractChineseinvestmentChineseinvestmenthasexpandedinrecentyears,butCata-loniastillhasthepotentialtoattractasubstantialportionofChina'soutboundFDIdestinedforEurope.
Thisistrueeitherinthecaseofafirstestablishment,whichservesasanentrypointnotonlytotheEuropeanmarketbuttotheEMEAregionasawholeandevenasabridgetoLatinAmerica,orforasecondinvestmentor"secondfootprint".
Catalonia'seconomicstructureandecosystemhavealltheele-mentsnecessarytomaketheregionahubforattractingChi-neseinvestment.
Thisecosystemisunderpinnedbytop-levelinfrastructure,abenchmarkinnovationsystem,apowerfulICTsectorandgoodpositioninginfutureareassuchase-commer-ce,amongotherfactors.
InfrastructureandlogisticstrengthCataloniahasalogisticvocation:itsgeostrategiclocation,ne-tworkoftransportinfrastructure,consumptioncapacityandthestructureofitsbusinessarenamakeitoneofthemainEu-ropeanhubs.
Withitsextensiveconnectivitynetworkanditsefficientlogis-ticsinfrastructure,Catalonia'sareaofinfluenceencompasses400millionconsumerswhoaccountfor60%oftheEuropeanUnion'sGDPandwhocanbereachedin48hours.
ConnectionwiththisareaisfacilitatedbyassetssuchasthePortofBarcelona,thebiggestportinSpainintermsoftheva-lueofproductsimportedandexported,andwhichhostsoneofthemostmodernterminalsinEurope,theBarcelonaEuropeSouthTerminal(BEST),operatedbyHutchisonPortHoldings.
ThePortofTarragona,withitsdockspecialisinginchemicals,isalsonoteworthy,asisBarcelonaairport,withalmost200worldwidedestinationsandexcellentconnectionswithAsia.
BarcelonaistheonlycityinSouthernEuropewhichhasaninternationalportandairportaswellasroadandraillinksallwithina10-kilometreradius,makingitanidealhubforshort-andlong-distancedistribution.
Whereinfrastructureisconcerned,Cataloniaemergesasthefirst-rankinglogisticsareaoftheIberianPeninsula,withover6millionm2ofconstructedwarehouses.
Italsohasadiversi-fiedlogisticsarenathankstothepresenceofglobaloperators,e-commercespecialistsandcouriercompanies.
ThevalueofalltheseassetsisshownthroughtheBarcelonaChina'sEuropeanLogisticsCenter(BARCELOC)programme,ajointdevelopmentofCataloniaTrade&Investment(Directo-rate-GeneralofIndustry-ACCI),thePortofBarcelonaandBarcelonaCityCouncilaimedatattractingproductionanddis-tributioncentresofChineseand,ingeneral,Asianindustrialandlogisticscompanies.
Cataloniaoffersthebestrangeoflo-gisticsservicestodistributeChineseandAsianindustrialpro-ductsintheIberianPeninsula,SouthernEurope,NorthAfrica,WestAfricaandLatinAmerica.
BenchmarkinnovationandR&DsystemCataloniaisaninnovativeregion,withaninternationallyrecog-nisedscientificandtechnicalposition.
Itgenerates1%ofglobalscientificoutput,tentimesmorethanexpectedonthebasisofitspopulation.
Itboastsexcellentscientificinfrastructure,suchastheBarcelonaBiomedicalResearchPark,theBarcelonaSupercomputingCenter,hometotheMareNostrumcompu-ter,theALBAsynchrotron,theInstituteofPhotonicSciences(ICFO)andIdiada,oneofthemainsuppliersoftechnologicalandtestingservicesintheautomotivesectorworldwide.
IthasindustrialtechnologysupplierssuchasEurecat,alargetechnologicalhubinCatalonia,whichbringstogethercentresofexcellenceinbigdata,advancedmanufacturing,industrialrobotics,watermanagement,textileinnovationandplasticsprocessing.
ItalsohasentitiesaccreditedwiththeTecnioseal,awardedtothedevelopersandprovidersofthemostinnova-tivetechnologies.
AgoodexampleofthesuccessoftheCatalaninnovationsys-temaretheresultsinraisingEuropeanR&Dfunds,grantedincompetitivetenderingprocesses.
SincethecommencementoftheHorizon2020programme,Cataloniahasreceivedatotalof310million,whichaccountsfor2.
7%ofthefundsgrantedintheEUasawhole.
54ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeThisfavourablepositionopensdoorsforforeigninvestors,ena-blingthemtofindtop-levelpartnersinCataloniatodevelopinnovativeproposals.
Italsohelpsthemtofindbothconsolida-tedcompaniesandstart-ups,affordingthemaccesstoglobalmarkets,giventhesoundinternationalperformanceoftheCa-talanbusinessarena.
ICTecosystem:opportunitygeneratorICTisoneofthesectorsthathasgrownthemostinCataloniainrecentyears,generatingnewactivitiesandeconomicoppor-tunities.
Onefactorthathasfostereditsgrowth,particularlyintermsofmobilecommunications,isBarcelona'spositionasMobileWorldCapitaluntil2023andtheMobileWorldCon-gress,thesector'sbiggesttradefairworldwide.
TheMobileWorldCongressisalsoabridgebetweenCataloniaandChinaintermsofliaisonandtechnologicalcooperation,asshownbythehighnumberofChineseexhibitorsatthelastedition(174).
TherelevanceofBarcelonaTechCityshouldalsobenoted;thisinitiativeisopentoallmembersofthedigitalandtech-nologicalbusinessecosysteminBarcelonaanditsobjectiveistoconsolidateandstrengthenthisemergingsectorandputBarcelonainabenchmarkpositionontheinternationaltech-nologicalscene.
Goode-commercepositionCloselylinkedtotheaforementionedfactors(logistics,infras-tructureandthegrowthoftheICTsector),thereisanothercon-tributingfactortothecreationofanoptimalecosystemforChi-neseinvestment,namelythepotentialofe-commerceanditsabilitytogeneratesignificantbusinessforthelogisticssector.
In2015thee-commercemarketinEuropeovertooktheUSAandChinaforthefirsttime.
Thismarketisforecasttocontinuegrowing,particularlyinSouthernEuropeancountries,wherespendingperinhabitantisstilllessthaninNorthernEurope.
Spainisthethirdmarketworldwide(afterRussiaandBrazil)forAliexpress,Alibaba'sinternationale-commercesalesportal,anindicationofthepotentialofSpainandCatalonia.
Anothermarketwithgreatpotentialfore-commerceistheMENAregion(MiddleEastandNorthAfrica).
Cataloniahasthegeographicalposition,theculturalproximityandthelo-gisticstrengthnecessarytoservethesemarketsandmeetcustomers'expectations;theseaspectsareattheheartofthee-commercebusinessmodel.
E-commerceneedsaspecificandadvancedtypeoflogisticsthatisscalableandabletorespondtorapidgrowth.
LogisticscompaniesmakeintensiveuseofICTandrequireeasyaccesstosea,airandlandtransporttoreachspecialisedareasfortheiractivity.
TheseneedshavebeenvaluedbytheUSmultinationalAma-zon,whichrecentlyacquired150,000m2oflandtobuildalogisticscentre.
ThisinvestmentatteststoCatalonia'spotentialfore-commerceandfordistributioninSouthernEuropeandNorthAfrica.
AgovernmentonthesideofChineseinvestorsAlloftheseelementsmakeCataloniaanideallocationforChi-neseinvestment,andthisisoneofthemainlinesofactionoftheCataloniaregionalgovernment,throughACCI-CataloniaTrade&Investment.
Withthisgoalinmind,allianceshavebeenformedwithpublicandprivateagents,includingESADE,thePortofBarcelona,BarcelonaCityCouncil,andtheregionalgo-vernmentsofvariousChineseprovincessuchasGuangdongandJiangsu.
SpecificcommunicationsandpromotionactionsforChinahavealsobeensetinmotion,andaservicesofferinghasbeentailor-madeforChinesecompanies.
WewishtobeclosetoChineseinvestorsinordertoascertaintheirneedsinthefield,whichiswhywehavehadadirectpre-senceinChinasince1988.
Cataloniacurrentlyhasanetworkof36foreigntradeandinvestmentoffices,threeofwhicharelocatedinChina(Beijing,ShanghaiandHongKong).
Inshort,theCataloniaregionalgovernmenthasthewillandthecapacitytoaccompanyChineseinvestmentprojects,regard-lessoftype(greenfield,mergersandacquisitions,reinvest-ments,R&Dinvestments,etc.
),inordertomaximisetheirpos-sibilityofsuccess.
CataloniahasalltheelementsnecessarytoconnectChinesecompanieswithEuropeandtheCataloniare-gionalgovernmentwishestobetheirmainallyinachievingthis.
55ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEurope3.
ChinacastsitseyeonSouthernEurope:investmentinItaly,Spain,PortugalandGreeceThesharpincreaseinChineseinvestmentinSouthernEuro-peancountriescanessentiallybeattributedtotwofactors,oneofwhichisapplicabletoallofEuropewhilsttheothersetstheseeconomiesapart.
ThefirstfactoristheaforementionedupturninChineseinvestmentacrossthecontinentasawhole,whichisaimedatgainingafootholdinthelargestconsumermarketintheworldandseekingoutassetsthatcanhelpitscompaniescompeteatagloballevel.
ThefactoruniquetoSouthernEurope,however,istheopportunitypresentedtoforeigninvestorsinlightoftheeconomiccrisis,thebruntofwhichhasbeenbornebySouthernEuropeancountries.
OfparticularinteresttoChineseinvestorswasthedropinas-setprices,includingthevalueofcompanies(bothlistedandunlisted),properties,offices,industriallandandlabour.
ThisscenariohasaffordedChineseinvestorsagreaterknowledgeofthepotentialofthesecountries,enablingthemtoidentifynewbusinessopportunities.
IntheyearsimmediatelyfollowingtheEurozonecrisis,spe-cifically2015and2016,theeconomiesofSouthernEuropemanagedtoovercometherecessionandareonceagaininanewgrowthcycle,despiteongoingchallengesandroomforimprovement.
Italy,thefourthEuropeaneconomy,grewby0.
8%in2015,itssharpestincreaseinthelastsixyears;Spainadvancedby3.
2%andpresentedthelargestgrowthofallthemajorEuropeaneconomies;Portugalreportedgrowthof1.
5%,itsbestsince2010;andwhilstGreeceshrankby0.
2%,thisnegativegrowthwasfarremovedfromthe9.
1%dropinGDPwitnessedin2011.
Nevertheless,inthemajorityofthesecountries,therecoveryineconomicgrowthhasyettobringaboutthesamelevelofforeigninvestmentasthatreceivedin2010.
BasedonUNCTADdata,foreigninvestmentstockinthesefourcountriesin2015waslowerthanin2010withtheexceptionofItaly,whereithasremainedpracticallylevel23.
Againstthisbackdrop,ChinaisoneofthecountriesleadingthechargeintermsofinvestmentinSouthernEurope,coun-teringthesluggishnessshownbyotherinternationalinves-tors,andisoneofthemainsourcesofforeigncapitalfortheseeconomies.
SouthernEuropeancountriesstandoutasoneofthemaintargetsofChinesefirmswhentheylooktoEuropewithaviewtowideningtheexposureoftheirportfoliostothisregion,accessingnewcustomergroupsorfullyorpartiallyacquiringanindustrialcompany.
Thisgroupofcountriesre-ceivedinvestmenttotallingUSD370millionin2010,11.
8%ofthetotalforEurope,whilstthecumulativevolumeofin-vestmentshadmultipliedby2015toexceedUSD25billion,or28.
3%ofthetotal(cumulativeChineseinvestmentinthe2010-2015period).
WhyareChineseinvestorsinterestedinSouthernEu-ropeancountriesInordertoanswerthisquestion,adistinctionmustbedrawnbetweeneachcountry,asthepatternandnatureofChinesecapitaldifferinItaly,Spain,PortugalandGreece.
ItalyattractsthemostcomplexChineseinvestment,encompassinganex-tensiverangeoftransactionsandeconomicsectors.
SpainwasthelastmajorEuropeaneconomytoreceiveChinesefunds,althoughasecondwaveofgreaterinvestmentinalar-genumberofsectorshasalreadybegun.
InthecaseofPor-tugal,whichenjoyedarushofChineseinvestment(2011-14)underitsprivatisationplan,investorinterestwasreaffirmedin2015withtheconsolidationoftheinvestmentsalreadymadeandtheentryofnewplayersattractedbyboththepublicsec-torandprivatecompanies.
ChineseinvestmentsinGreecehavebeenconcentratedinapromisingtransactionwithcon-siderablestrategicimplications:theCOSCOShippingGroup'sbidforthePortofPiraeus.
Thepatternofinvestmentineachofthesefourcountriesandthemaintransactionscarriedoutareexaminedbelow.
23Moreover,theproportionofinvestmentinthefourcountriesanalysedisreducedifweightedbythesizeoftheireconomies:thefourcountriesrepresent21%oftheEuropeaneconomy,buttheirweightasapercentageofthetotalforeigninvestmentchannelledintotheregionasawholeis12.
8%.
Ofthefourcountriesanalysed,onlySpainandPortugalhavereceivedforeigninvestmentcommensuratewiththesizeoftheireconomy,whilstinvestmentinItalyandGreecehasbeenproportionatelybelowtheirGDP.
56ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEurope3.
1.
Italy,akeydestinationforinvestmentbyChine-sefirmsChinesecompanieshavebeendrawntoItaly,oneofthemaintargetsofChineseinvestmentinEurope,sincetheFDIdoorsbegantoopen.
Thefirsttransactionstookplaceintheearly1980swhensmallrepresentativeofficesweresetuptocon-ducttradingactivities,asinthecasesofBankofChinainMilanandNanjingMotorCorporationinTurin.
Chineseinvest-mentinItalyhassincecontinuedtogrow,especiallyaftertheturnofthecentury,withincreasinglycomplexinvestmentsencompassingawiderrangeofeconomicsectors24.
TodayItalyisthesecondrecipientofChineseFDIinEuropeintermsofcumulativeinvestment(2010-15)accordingtotheESADEChinaEuropedatabase,withanestimatedUSD15.
01billionchannelledintoItalybyChina.
Towardstheendofthisperiodatotalof417ItaliancompanieswerepartlyownedbyChinesefirms(313bycompanieslocatedinmainlandChinaand104byHongKong-basedfirms)employing22,800workers,ac-cordingto"FondazioneItaliaCina"data.
ForChineseinvestors,Italyisnotonlythefourthlargesteco-nomyinEuropewithamarketofcloseto60millionconsu-mers,italsooffersawiderangeofsectorsofsignificantin-terest,frominternationallyrenownedagribusinessproducts,tohighlyspecialisedindustrialbusinessclusters,aswellaspremiumbrandsintheluxurygoodssectorandlow-riskstra-tegicassets,suchasthoseusedintheenergysector.
ChinaalsoperceivesItalyashavingahighlyqualifiedworkforcethatiscloselylinkedtoitsindustrialsector,anditistheSouthernEuropeancountryinwhichChinesefirmshaveconcentratedtheirinvestmentinR&Dcentres.
Todate,ChineseinvestmentinItalyhasmainlycentredonthemanufacturingsector(intheformofcompanyacquisitionsandthestart-upofindustry-appliedR&Dcentres)andtheenergysector,althoughnotabletransactionshavealsobeencarriedoutinotherareasofactivity.
IndustrialinvestmentconformstoapatternalreadyobservedinotherEuropeancountries:acquisitionofaminorityormajo-rityshareholdinginacompanythatishighlyspecialised–typi-callyinaproductwithmajorgrowthpotentialinChina–soastoaccessitsknow-howandtechnology.
AnotableexampleofthisstrategywastheacquisitionofCIFA(CompagniaItalianaFormeAcciaioSpA),anindustrialcranesandcementproduc-tionspecialist,bytheChineseconstructionandengineeringcompanyZoomlionHeavyIndustry(60%)andtheinvestmentfundsHonyCapital,MandarinCapitalPartnersandGoldmanSachs(40%)in2008.
Thetransaction,atthetimethelargesteveracquisitionofanItalianindustrialcompanybyaChinesecompany,wasaimedatcreatingtheleadingpropertycons-tructiongroupintheworldandimprovingtheChinesefirm'sproductioncapacitysoastoincreaseitspresenceinthelocalandinternationalmarkets.
Morerecently,in2015,ZoomlionandthefundMandarinCapitalacquireda75%stakeinLa-durner,afamilybusinessengagedinenvironmentaltechno-logy,forUSD73million.
Thisacquisitionwascarriedoutasameansofgainingdirectaccesstotechnologicalknow-howintheenvironmentalsegment,withtheaimofcompetinginthedomesticmarket,inacountrywithanurgentneedforenvi-ronmentalsolutions.
ThelargesttransactionbyaChinesefirminItaly–andindeedEurope–todatealsoaroseintheindustrialsector,namelytheUSD8.
9billionacquisitionofPirelli&C.
SpA,thefifthlargesttyremanufacturerintheworld,byChinaNationalChemicalCorp(ChemChina).
Throughthistransaction,theChinesefirmintendstosupplytyrestotheleadingautomobilemanufactu-rersinitshomecountry,atatimeofintensedemandforhi-gh-endautomobilesandelectricvehicles.
Althoughthedeci-sion-makingcentrewillinitiallyremaininItaly,certainactivitiesrelatingtothedesignanddevelopmentofnewmodelscouldpotentiallyberelocatedtoPirelli'splantinYanzhou,China.
MentionshouldbemadeoftheinvestmentchannelledintoR&Dcentrestodevelopinnovativeindustrialproducts,suchashomeappliancesandautomobiles25.
Bywayofexample,HuaweihasuptofourR&DcentresinItalythatemployatotalof100workers,includingmostnotablythe"CentroGloba-lediCompetenzaMicrowavediMilano",anadvancedcentreforthedevelopmentofthelatestgenerationofmicrowaves.
Intheautomobilesector,inwhichItalyhasalongindustrialtraditionespeciallyintermsofdesign,Chinesefirmshavesetupvariouscentrestodevelopnewproducts.
Notableexam-plesincludeChangan,whichestablisheditsEuropeanDesignCentreinTurinin2006,itsfirstR&DcentreoutsideofChina;AnhuiJanghuai,anothercarmanufacturer,whichsetupitsJAC-ItalyDesignCenterinTurinin2007;andKeewaymotor,amotorcyclemanufacturerthatalsoownstheBenellibrand,whichchosePesaro(Italy)forthelocationofoneofitsR&Dcentres.
Theoverallstrategybehindinvestmentsintheenergysectordifferstothatemployedfortransactionscarriedoutinindus-trialsectors.
Theformermostlycomprisepartialpurchasesofstate-ownedassetswithapredictableandstableexpectedreturn,whereintheinvestorshavelittleornointentionofta-24CarloPietrobelli,RobertaRabellotiandMarcoSanfilippo.
"ChineseFDIstrategyinItaly:the"MarcoPolo"effect"Int.
J.
ofTechnologicalLearning,InnovationandDevelopment,Vol.
4,No.
4,201125MarcoSanfilippo.
"ChineseinvestmentsinItaly:Facingrisksandengagingopportunities",IstitutoAffariInternazionali(2014)57ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropekingcontroloftheirmanagement.
Thehighest-volumeopera-tionwasthatcarriedoutbyStateGridCorporationofChina,thebiggestelectricitycompanyintheworld,initspurchaseofa35%stakeinthestate-ownedelectricitycompanyCDPRetiforUSD2.
81billion.
Thetransaction,finalisedin2014,isthelargestcarriedoutbytheChinesefirmoutsideofitsborders,andthegreatestpurchaseofstate-ownedassetsinItalytodate.
DuringthatyearFondoStrategicoItaliano(ahol-dingcompany80%ownedbyCassaDepositiePrestitiand20%ownedbyBancad'Italia)reachedanagreementwiththeChinesefirmShanghaiElectricforthesaleofa40%interestintheelectricitycompanyAnsaldoEnergia.
ThecompaniesalsoagreedtocreatetwojointventuresinordertosetupasharedR&DcentreandtojointlymanufacturegasturbinesfortheAsianmarket.
Moreover,thePeople'sBankofChina(PBC),thecountry'scentralbank,tookrespectiveholdingsof2.
071%and2.
102%intheoilandgascompanyENI(EnteNazionaleIdrocarburi)andtheelectricitycompanyENEL(EnteNaziona-leperl'EnergiaElettrica),twostate-ownedenergygroupsandthetwolargestItaliancompaniesbymarketcapitalisation.
Inbothcases,theChinesebank'sholdingismerelysymbolic,laggingconsiderablybehindthoseofotherprivateorinstitu-tionalforeigninvestors.
AlthoughChineseinvestmentinItalyhascentredonthein-dustrialandenergysectors,forwhichaclearinvestorpatterncanbediscerned,Chinesecompanieshavealsoinvestedinothersectors,suchasfinance,infrastructure,luxurygoodsandfootball.
Inthefinancialsector,thetransactionsperfor-medtodatehavebeennotableintermsoftheminorityhol-dingsinvolved,withinvestorsaspiringtobepassivesharehol-dersratherthantogaincontrol.
ThePeople'sBankofChinahasgraduallyaccumulateda2.
014%holdingintheinsurancecompanyAssicurazioniGenerali,a2.
001%interestinMedio-banca,a2.
005%stakeinUniCreditanda2.
010%holdinginMPS(MontedeiPaschidiSiena),inadditiontovariousotherminorityinterestsinthefinancialandenergysectors.
Asre-gardsinfrastructure,mirroringeventsinotherEuropeancoun-triessuchasFranceorGreece,ChineseinfrastructureandlogisticsfirmsarechannellinginvestmentintoItalyinordertoimproveandexpandtheircommercialcapacity.
ExamplesofthisstrategyincludetheinvestmentsmadebyCOSCOinthePortofNaples,byChinaShippingCompanyinthePortofGenoaandbyIZP,alogisticsande-commercefirm,inParmaairport.
TheseprojectscouldconvertsuchinfrastructureintopointsofentryforChineseproductsintoEuropeundertheOBORinitiative.
Asidefromthesebusinessacquisitions,weshouldalsohighli-ghtthepurchasebytheprivategroupFosunoftheUniCreditgroup'sformerheadquartersatthePalazzoBroggiinMilan,valuedatUSD381million,inoneofthelargestrealestateoperationscarriedoutinEuropelastyear.
YEARACQUIREEBUYERVALUE($MILLION)SECTOR12015Pirelli&CSpAChinaNationalChemicalCorp-ChemChina8,982Manufacturing22014CDPRETIStateGridCorpofChina2,811Energy32015UniCreditPeople'sBankofChina804Financial42016ACMilanAlibaba765Sports52015AssicurazioniGeneraliPeople'sBankofChina570Financial62014AnsaldoEnergiaShanghaiElectric560Energy72012FerrettiShandongHeavyIndustry460Manufacturing82014PalazzoBroggiFosunInternationalLtd381Realestate92016InterSuning295Sports102008CompagniaItalianaFormeAcciaioZoomlion264ManufacturingThe10largestinvestmentsbyChinesefirmsinItaly(2010-2016)Table2Source:ESADEChinaEuropedatabase58ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeIntheluxurygoodssector,theChineseretaildistributorTrinitytookcontrolofCerrutiin2011,whilsttheWeichaiGroupac-quiredyachtmakerFerrettiin2012.
Thesetransactionsreflectastrategytoaccessexclusivebrandspositionedinthehighpurchasingpowersegmentsoastomeetthegrowingde-mandfortheseproductsfromChineseconsumers.
FollowingapatternalreadyseeninothermajorEuropeanfoot-ballleagues,duringtheyeartheChineseelectronicsgoodsspecialistSuningacquireda70%stakeinInterMilanfor270million26(USD295million).
Suningalsoownsthelargestclubofitsprovince,JiangsuSuning,andhaspreviouslysignedsponsorshipagreementswithFCBarcelonaandLiverpool.
Thepurchaseofa70%stakeinthehistoricteamACMilanbye-commercegiantAlibabafor700million(USD765million),scheduledforcompletiontowardstheendofthefirsthalfof2016,isalsosignificant.
JackMa,chairmanofAlibabaandthesecondrichestmaninChina,alreadyhasapresenceintheworldoffootballastheownerofGuangzhouEvergrandeTaobao,oneofthetopclubsintheChineseSuperLeague.
Inconclusion,ownershipofleadingItaliancompaniesasso-ciatedwiththe"MadeinItaly"brandhasgraduallybeenglo-balisedinrecentyears.
OtherthanthecompaniesreferredtowhichhavebeenwhollyorpartiallyacquiredbyChinesefirms,manyotherfirmswithalongindustrialtraditionhaverecentlyopeneduptoforeigncapital.
Forexample,a25%interestinAlitaliawassoldtotheFrench-DutchgroupAirFrance-KLMin2009,whilstPininfarina,adesigncompanyofreferenceintheautomotivesector,wassoldtotheIndiangroupMahindrain2015.
Nevertheless,theseacquisitionshavenotresultedintheIta-liangovernmentadoptingagreaterprotectioniststance.
Onthecontrary,theItalianadministrationhasproventobeapar-tisanofglobalisationandcompetition,andhasevenencou-ragedstate-ownedenterprisestobemoreopentoforeigncapitalthroughthe"FondoStrategicoItaliano".
Foraslongastheprivatesectoriswillingtosellcompaniesandthepu-blicsectorisopentoforeigncapital,ItalywillremainahighlyattractiveoptionforChineseinvestors.
Accordingtothe"Fon-dazioneItaliaCina",thesectorsthatwillpresentopportunitiesforgreaterChineseinvestmentinthecomingyearsareenergyefficiencyandenvironmentalprotection,informationtechnolo-gy,biotechnology,advancedmachineryproduction,alternati-veenergies,newmaterialsandecologicalvehicles.
TheItaliangovernmenthopestoincreasetheweightofthesesectorsfrom5%ofGDPin2010to15%in2020.
3.
2.
Spain,thelastgreatconquestofChinesefirmsinEuropeAlthoughChineseinvestmentinSpainisarecentphenome-non,havingarrivedlaterthaninothermajorEuropeanecono-miessuchastheUnitedKingdom,France,GermanyorItaly,ithasgrownexponentiallyinrecentyears.
China'scumulativeinvestmentinSpainsince2010stoodatjustoverUSD2bi-llioninlate2015andannualinvestmentforthatyearaloneex-ceededtheamountreceivedinthefivepreviousyears(2010-2014).
CumulativeinvestmentrosefromUSD920millioninlate2014toUSD2.
05billionattheendof2015,pushingSpainuptwoplacesinasingleyearamongthemaincountriesoftheEuropeanUnionreceivinginvestment27.
However,SpainisstillsomewayoffreceivingthemorethanUSD15.
01billioninvestedinItalyortheUSD7.
23billionchannelledintoPortu-galduringthesameperiod(2010-2015).
Nevertheless,althou-ghSpaincontinuestolagbehindtheothermainEuropeancountries,anddespitethenegativeexperienceoftheWandaGroup,thedataindicateapotentialfuturesecondwaveofChineseinvestmentintothecountry,whichcouldfostergrea-terinvestmentthanthatwitnessedtodate.
Despitehavingvirtuallynooperationsuntilrecently,numerousChinesecompanieshavesetupinSpainforthefirsttime.
Ba-sedondatafromtheESADEChinaEuropeObservatory28,atotalof96Chinesecompaniescurrentlyoperateinthecoun-try(seetable3)comparedwiththe74identifiedbythisOb-servatoryayearago.
ManyleadingpublicandprivateChinesecompanieshaverenewedtheirfocusonSpaininrecentyears,suchasthetechnologycompaniesHuawei,ZTEandLenovo;thehouseholdappliancemultinationalHaier;majorcompa-niesinthelogisticssectorsuchasCOSCO,ChinaShippingandKerryLogistics;thebanksCCB29andICBC30;aswellasothermultinationalssuchasAirChinaandKeewaymotor.
Despitethepoliticaluncertaintymakingitsmarkonthecu-rrentscenario,bothatnationallevelandincertainautono-mousregions,2016isexpectedtobeayearofgrowthforbothestablishedcompaniesandnewarrivals,thelatterofwhichincludeAviationIndustryCorporationofChina(AVIC),amanufacturerfortheaeronauticssector,andShanghaiKai-chuang,afoodcompanywhichenteredtheSpanishmarketbyacquiringlocalfirms.
SpainpresentsthreedistinguishingfeaturesasregardsChi-neseinvestment,whichiteithershareswithotherEuropeancountriesorwhichsetitapart.
Firstly,foreigninvestorshavebeenabletotakeadvantageoftheopportunitiesthathavearisenasaresultoftheeconomiccrisis.
However,Spainhasnotwitnessedanymajorsell-offsofstate-ownedassetsinanysectorconsideredstrategic.
Althoughfirmswereapproachedandinterestwasexpressed,suchasinthecaseoftheChi-neseStateGridvis-à-visthedistributorRedEléctricadeEs-26http://deportes.
elpais.
com/deportes/2016/06/06/actualidad/1465200422_637633.
html27Spainrosefrom11thto9thplaceintermsofcumulativeinvestment.
SeeESADEreportChineseinvestmentinEurope(2015)28TheObservatorythatmonitorsthepresenceofChinesebusinessesinSpainalsomonitorsfirmsfromHongKong29ChinaConstructionBank30IndustrialandCommercialBankofChina59ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropepaa(REE)31,ortheconglomerateFosunwithrespecttothepublic-privateinsurancecompanyCESCE32,noneoftheseagreementsultimatelycametofruition.
Thefirsttransactionintheenergysector,valuedat1.
25billion33(USD1.
37billion),wascarriedoutin2015andcomprisedthepurchaseofMadri-leaReddeGas34bytheDutchpensionfundPGGM,theChi-nesegroupGingkoTreeInvestment,theChineseinvestmentarmofSAFEandtheFrenchfirmEDFInvest35.
TheChinesefundSAFE'sparticipationinthepurchasehasbeenvaluedatUSD730million,China'sbiggestinvestmentinSpaintodate.
InApril2016,theUK-basedLancashireCountyPensionFund(LCPF)joinedtheseownersbypurchasinganindirect12.
5%holdinginthedistributorMadrileaReddeGas(MRG),the-rebycontributingtotheexpansionofthebusiness36.
Infrastructurehasproventobeanotherstrategicsector,al-thoughonlyonemajortransactionhasbeencarriedouttodate:theinvestmentmadebytheHutchisonWhampoaGroup37(HongKong)inthePortofBarcelonaterminalin2008,whichstandsatatotalof580million(USD633.
5million)38.
In2015thePortofBarcelonaextendedtheconcessiontoHut-chisonforafurther15years,reaffirmingthislargeHongKonggroup'scommitmenttoSpainandputtingthecountryonthemapofpotentialpartnerswithintheOBORinitiative.
TherehasalsobeenalargenumberofsmalleroperationsthatareofhugestrategicvalueinfosteringbilateraltradeandinvestmentbetweenChinaandSpain,suchastheopeningofthecertifi-cationlaboratorybytheChinaCertificationInspectionGroup(CCIG)atthePortofBarcelona.
Secondly,theleadershippositionenjoyedbynumerousSpa-nishcompaniesinLatinAmericaandtheirpresenceacrosstherestofEuropehaveluredinvestmentandfosteredstrate-gicalliancesbetweenChineseandSpanishcompanies.
Forinstance,initsrivalrywithAméricaMóvil(ownedbyMexicanCarlosSlim)forleadershipintheLatinAmericantelecom-municationsmarket,theSpanishfirmTelefónicahasanin-terlockingshareholdingwithChinaUnicomthroughwhichnumerouscommonprojectshavebeendeveloped,suchasthejointventureSmartStepsDigitalTechnologyCompany31See:http://www.
elmundo.
es/elmundo/2012/07/01/economia/1341170651.
html32See:http://www.
elconfidencial.
com/empresas/2015-04-08/la-irrupcion-del-fondo-chino-fosun-pone-en-jaque-la-privatizacion-de-cesce_755102/33TheCompanyhasdebtof755million(USD824.
7million)whichhasbeenassumedbythebuyers34http://economia.
elpais.
com/economia/2015/04/22/actualidad/1429685724_267114.
html35http://www.
europapress.
es/economia/noticia-morgan-stanley-vende-madrilena-red-gas-edf-gingko-tree-pggm-20150422181928.
html36http://www.
cuatrecasas.
com/es/actualidad/notas_prensa/cuatrecasas_asesora_a_lancashire_fund_en_la_adquisicion_del_125_de_madrilena_red_de_gas.
html37ThevalueofthisinvestmentisnotincludedintheUSD2.
05billioncumulativeinvestmentinSpainduring2010-15asthedatabasedoesnotincludeinvestmentsfromHongKongcompaniesinanyofthecountriesincludedinthisstudy.
38http://www.
lavanguardia.
com/20150924/54435447546/el-puerto-de-barcelona-amplia-la-concesion-de-hutchinson-15-anos-eduardo-magallon.
html39https://www.
telefonica.
com/documents/23283/4482359/NdP_TEF_CU_Smart_Steps.
pdf/343f3978-742a-4281-af2e-a1bf24a12899version=1.
040https://www.
telefonica.
com/es/web/sala-de-prensa/-/telefonica-y-huawei-impulsaran-juntas-los-servicios-de-hogar-digital-en-latinoamerica41http://www.
eleconomista.
es/empresas-finanzas/noticias/7651645/06/16/ZTE-y-Telefonica-construyen-la-primera-red-comercial-VoLTE-FMC-IMS-en-Peru-y-para-Telefonica-Latinoamerica.
html42https://actualidad.
rt.
com/actualidad/192245-china-inversiones-proyectos-america-latina43See:http://economia.
elpais.
com/economia/2016/07/11/actualidad/1468242358_411828.
html44http://cincodias.
com/cincodias/2015/09/30/empresas/1443611253_471821.
htmlLimited39(55%heldbyChinaUnicomand45%byTelefónica)createdrecentlytoprovidebigdataservicesinChina.
OtherChinesetechnologygiants,suchasHuaweiandZTE,arealsoworkingwiththeSpanishfirmonseveraljointprojectsinLatinAmerica.
ThecollaborationwithHuaweihasfocusedondigi-talhomeservicesinLatinAmerica40whilstoneofthelatestcollaborationprojectswithZTEhasbeentorolloutaVoIPsysteminPeru41.
Beyondtelecommunications,therehasalsobeenactivityintheoilsector.
In2010theoilgiantChinaPetro-leum&ChemicalCorporation(Sinopec)acquireda40%inte-restintheSpanishcompanyRepsolinBrazilbysubscribingtheentirecapitalincreaseofUSD7.
1billion.
ThisincomingChinesecapitalisaimedatsecuringtheoilgiant'sstakeinthejointexplorationoftheoilfieldsintheareasofGuaráandCarioca.
SinopeccontinuedtobuysharesinotherEuropeancompanies,suchasGALPinPortugal,facilitatedbycoopera-tionagreementssignedbetweenBrazilandChina42.
Thirdly,ChinesecompanieshaveshownparticularinterestintheSpanishagribusinesssector,whereagreaternumberoflargetransactionshavetakenplacethaninotherEuropeancountries.
In2014,theFosunGroupacquireda20%holdinginOsborne,thefoodandbeveragescompany,althoughthisstakeiscurrentlyundersale43.
In2015theBrightFoodGroup,whichspecialisesinfooddistributionandhadalreadyacqui-redaUKfoodcompany,purchasedtheentiresharecapitaloftheCatalancompanyMiquelAlimentaciófor110million(USD120million),inthefifthlargesttransactioncarriedoutinSpain.
ThroughthisoperationBrightFoodhopestobecomethemainChineseimporterofSpanishfoodbrands,startingwiththecontracttodistributeCodorníusparklingwinesinChina,whilesimultaneouslycreatingaplatformforglobaldis-tributionusingthedistributionnetworkestablishedbyMiquelAlimentació44.
AnotheroperationintheagribusinesssectorwasthepurchasebyChangyuPioneerWine(theleadingwineproducerinChina)ofa75%stakeintheNavarresewineryMarquésdeAtriofor35million(USD38million)in2015.
603EHenmingS.
L.
RenewableenergiesXinhuaNewsAgencyCommunicationsAirChinaLimitedSucursalenEspaaAirtransportAirSeaWorldwideSpainS.
L.
TransportationandlogisticsANSTEELSpainS.
L.
SteelandothermaterialsANTAITradingS.
L.
Tourism-HotelsArandaCoatedSolutionsMetalsandmetallurgyAviationIndustryCorpofChinaAVIC(AritexCadingS.
A.
95%)ManufacturingBAOSTEELEspaaS.
L.
SteelandothermaterialsBluestarSiliconasEspaaS.
A.
ChemicalsBrightFood(Group)CO.
(MiquelAlimentació100%)FoodandbeveragesBurwillHoldingsLtd.
TradeandsteelBYDEspaaElectricvehiclesCandyNoveltyWorks(Au'someCANDIESEUROPES.
L.
(HK))FoodandbeveragesCathayPacificAirways(HK)AirtransportCCSChinaClassificationSocietyCorporateservicesChangyuPioneer(MarquésdelAtrio75%)FoodandbeveragesChinaCertificationInspectionGroupCoLtdSucursalenEspaaCorporateservicesChinaConstructionBank(Europe)S.
A.
SpanishBranchFinancialChinaNationalFisheriesCompanyFoodandbeveragesChinaShippingSpainAgencyS.
L.
TransportationandlogisticsChinaUnicom(SmartStepsDigitalTechnologyCo.
,Ltd.
55%)TelecommunicationsCHINTEnergyS.
L.
U.
ElectricalmaterialsChongqingKangdeIndustrial(Group)Co.
,Ltd.
(HotelBarcelóSantiago-Canarias)Tourism-HotelsCiticHICGandaraCensaS.
A.
U.
MaterialsandmetallurgyCITSChinaInternationalTravelServiceLtd.
TourismCNCCChinaNationalChemicalCorporationChemicalsCOSCOIberiaS.
A.
TransportationandlogisticsCRONOSTelecom(HK)TelecommunicationsCROWNRelocations(HK)TransportationandlogisticsCZICCChinaZhenjiangInternationalEconomicConstructionDALIANWANDAGroup(ClubAtléticodeMadrid20%)RealestateandsportsDaxiongSpainS.
L.
U.
MetalproductsDHZCreativeProductionCultureandleisureindustryDownGalaxyInternationalLtd(IlionStudiosSA)CultureandleisureindustryELAICulturalSL.
TourismandcultureElkemIberiaSL(ChemChinaGroup)RenewableenergiesESPRITHoldingLTDFashionFidelidadeInsuranceFosunGroup(Osborne20%)FoodandbeveragesGIGABYTETechnologyEspaaSLTelecommunicationsGoldbridgeBruderS.
A.
AutomobileaccessoriesGrandViewContainerTradingTransportationandlogisticsGREESpainCorporationS.
L.
AirconditioningequipmentHaierEuropeTradingS.
R.
L.
SucursalenEspaaElectricalappliancesHebeiIronandSteelGroup(DUFERCOESPAAS.
L.
)MetallurgyHISENSEElectronicIberiaS.
L.
ElectricalappliancesHISOFTTelecommunicationsHNAGroup(29.
5%ofNHHoteles)Tourism-HotelsCOMPANYSECTORChinesecompanieswithapresenceinSpain(2016)Table3ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEurope61COMPANYSECTORHuaweiTechnologiesEspaa,S.
L.
TelecommunicationsHuayiCompressorBarcelonaS.
L.
ComponentsforequipmentHutchisonWhampoaGroup(HK)TransportationandlogisticsIndustrialandCommercialBankofChina(Europa)S.
A.
SucursalenEspaaFinancialservicesJiangsuGPROGroupCo.
,Ltd.
(HotelValparaísoPalace&Spa)Tourism-HotelsJiangsuSunrainSolarEnergyCo.
,Ltd.
RenewableenergiesJinkoSolarRenewableenergiesKeewaymotorEspaa,S.
L.
AutomotiveKerryLogisticsTransportationandlogisticsKing&WoodMallesonsSJBerwin(HK)LegalservicesLEE'SFoodIbéricaSLFoodandbeveragesLenovoIberiaTelecommunicationsLinkInternationalSports(GranadaCF)SportsindustryLOUVREHOTELSESPAASL(JinJiangGroup)Tourism-HotelsMadrileaReddeGas(GingkoTreeInvestmentSAFE)EnergyMandarinOrientalHotelGroup(HK)Tourism-HotelsMaxchiefInvestmentsLtd.
IndustrialfurnitureMelcolPropertyTourismandleisureMideaEuropaElectricalappliancesMINDRAYMedicalEspaaSLMedicaldevicesMinmetalsEspaaS.
L.
U.
MetallicmaterialsMOTICSpainS.
L.
U.
MedicaldevicesOP-POWERRenewableenergiesNanfangPumpIndustryMaterialsandequipmentRastarGroup(ElEspanyol85%)ToysandleisureSanhuaInternationalEuropeS.
L.
ElectroniccomponentsSANYEuropeanMachineryS.
L.
ConstructionmachineryShanghaiGreenlandShenhuaF.
C.
(LicenceforClubdeFútbolCracks)SportsindustryShanghaiKaichuangLtd)(HijosdeCarlosAlboSL)FoodandbeveragesShandongHeavyIndustryGroup(Ferretti)MaritimeequipmentShuanghuiGroup(CAMPOFRO)FoodandbeveragesSINOCHEMEspaaPetrochemicalsSINOVELWINDSpainS.
L.
RenewableenergiesSIUFASHIONS.
L.
(NeoConceptGroup)FashionSOLARFUNPOWERHoldingsLtdRenewableenergiesSUNFORLIGHTS.
L.
LightingmaterialsTP-LINKTechnologiesCo.
,Ltd.
TechnologyTRINASOLARRenewableenergiesVERDINIAGardenSL(Hispano-ChineseJV)ArchitectureandengineeringVitaGreenEuropaS.
A.
PharmaceuticalsWuhanDoubleCoLtd(MediaBaseSportsSL46%-(Desports)CultureandsportsindustryWuxiSuntechPowerCo.
,Ltd.
RenewableenergiesYINGKEADARVELawFirmLegalservicesYINGLIGreenEnergySpainS.
L.
U.
RenewableenergiesYiwubuy.
come-commerceZhejiangChiminPharmaceuticalCoLtd(LinearChemicalsSL)PharmaceuticalindustryZOPOShenzhenZOPOCommunications-equipmentLimitedTelecommunicationsZPMCShanghaiZhenhuaHeavyIndustryCo.
,Ltd.
MachineryandequipmentZTECorporationSucursalenEspaaTelecommunicationsSource:ESADEChinaEuropeObservatory(June2016)ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEurope62ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEurope45See:http://cincodias.
com/cincodias/2016/07/04/empresas/1467640429_039246.
html46http://economia.
elpais.
com/economia/2016/06/21/actualidad/1466524228_331038.
html47See:http://ccaa.
elpais.
com/ccaa/2016/07/20/madrid/1469002712_874509.
html48http://www.
expansion.
com/catalunya/2015/11/02/56375e8cca4741fd528b45e1.
htmlAcquisitionsintheagribusinesssectorhavecontinuedthrou-ghout2016.
ShanghaiKaichuangconcludedthepurchaseofGrupoAlbo,acanningcompanybasedinGalicia,for61million(USD67million).
ThisoperationformspartoftheChi-nesefirm'sstrategytogainashareinthirdmarketsinwhichtheSpanishfirmhasasignificantcommercialpresence,suchasEurope,LatinAmericaandAfrica.
Lastly,thewebportalAlibabarecentlymetwiththeSpanishFoodandBeveragesFederation(FIAB)todiscusstheinclusionofSpanishfoodproductsinitsportfolio45.
InrecentyearsChinesefirmshavelookedbeyondtheagri-foodsectortoopenuptonewareas,culminatinginno-teworthytransactions.
In2013,inthemidstoftheChineseoutboundtourismboom,theHNAGroupbegantopurchasestakesinSpanishhotelchainNH,andcurrentlyholdsa29.
5%interestinitscapital.
ThetransactionnotonlygrantedtheChi-nesegroupaccesstotheworld'ssecond-rankingcountryintermsofinboundtourists,butalsotothehotelnetworkandmanagementexpertiseofasuccessfulandhighlyinternatio-nalisedgroupsuchasNH.
FortheSpanishchain,inadditiontothecapitalinflow,theentryoftheChineseshareholderfa-cilitateditslaunchintotheAsiancountry'scomplextourismsectorthroughtheincorporationofajointventure–HNA-NHHotelManagementJointVentureCompany–in2014.
Despitecertainrecentmanagementtensions,theCEOofNHHotelGrouphashighlightedthegroup'spositiveoutlookfor201646,forecastingEBITDAof190million(USD207.
5million).
In2016ChinaAviationIndustryCorporation(AVIC)acquireda95%interestinAritexCadingfromtheCatalancompanyComsaCorporaciónforUSD56million.
AritexCading,alsobasedinCatalonia,specialisesinthesupplyofautomaticas-semblysystemsfortheaeronauticalandautomotivesectors.
ItsclientsincludeAirbus,MercedesandVolkswagenanditalsohasaproductionplantinLatinAmerica.
ThisbusinessacquisitionwasthefirstofitskindinthespecialisttechnologyindustrialsectorinSpain.
SuchoperationshaduntilthenbeenseeninNorthernEuropeancountries,especiallyGermany.
Inthetechnologicalarea,JTSI,aChinesefundquotedontheShenzhenstockexchange,hasrecentlyannounceditspur-chaseoftheSpanishengineeringcompanyEptisafromthefundMagnumCapitalIndustrialPartnersthroughthesubs-criptionofasharecapitalincreaseofUSD17.
5million.
Anothernotabletransaction,inthiscaseintheindustrialsector,wastheacquisitionofGándaraCensa,aboilerworksfirmspe-cialisinginminingmills,bytheconglomerateCITICforUSD61millionin2010.
Followingtheacquisition,theChinesefirminvestedUSD22millioninanewindustrialbayandmachinerytoexpandtheSpanishcompany'sproductioncapacityandfullyconsolidateitsownpresenceininternationalmarkets.
YEARACQUIREEBUYERVALUE($MILLION)SECTOR12015MadrileaRedGasGingkoTreeInvest.
(SAFE)730Energy22014EdificioEspaaDalianWandaGroup369Realestate32013NHHotelesHNA306Tourism42016RCDEspanyolRastar137Sports52015MiquelAlimentacióBrightFood120Agribusiness62016HijosdeAlboShanghaiKaichuang69Agribusiness72015MelcoPropertyMelcoLot65Realestate82010GándaraCensaCITICGroup63Industrial92014ClubAtléticoMadridDalianWandaGroup61Sports102016AritexCadingAVIC56IndustrialThe10largestinvestmentsbyChinesefirmsinSpain(2010-2016)Table4Source:ESADEChinaEuropedatabase63ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeTheonlynotabletransactiontodateintherealestatesec-torhasbeenthepurchaseoftheEdificioEspaabuildingbytheDalianWandaGroupfor368million(USD403million)in2014.
Thiscentral-Madridassethadbeenunoccupiedforanumberofyears,andDalianWandaintendedtorefurbishandconvertitintoahotelandbusinessapartments.
Theopera-tionencounteredcertainproblemsrelatingtopermitsfortherestorationworksandthepropertywasultimatelysoldontoaprivateSpanishinvestorinsummer2016forahigheramountthatinitiallypaid,generatinggainsfortheChineseinvestor47.
DalianWandaalsocontinuestoholdits20%stakeinthesha-recapitalofClubAtléticodeMadrid,whichitacquiredforUSD49.
3million.
Turningtothesportssector,whichhasbeenthetargetofma-jorinvestmentinvariousEuropeancountriesinrecentyears,theChineseelectronictoysandvideogamefirm,Rastar,ac-quireda40%stakeinRealClubDeportivoEspanyoldeBar-celonafor65million48(USD71million)in2015.
TheRastarGroupincreaseditsholdingto85%foratotalvalueofUSD137millionin2016andisexpectedtoacquirefurtherinterestsbeforeyearend.
Tosummarise,althoughSpainwasthelastmajorEuropeaneconomytoreceiveChinesefunds,onceChinesecompanieshadbecomeestablishedinthecountry,theyshowedgreatinterestinexploringnewopportunities.
Despitecloseto100Chinesecompaniescurrentlyoperatinginthecountry,SpainhasyettoseeanyinvestmentsofthemagnitudewitnessedinGermany,France,Italy,PortugalandIreland.
SpainhasoneofthewidestgrowthmarginsamongstEuropeancountriesduetoitspotentialandthebusinessopportunitiespresen-tedinvarioussectorssuchastourism,realestate,logistics,agri-foodandtheindustrialsector.
Asaresult,theChineseconquestofSpainisexpectedtocontinuetogatherpaceoverthecomingyears.
64ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeChinaisthesecondlargesteconomyintheworldandhasthepotentialtoovertaketheUnitedStates.
Itseconomyhasunder-goneannualdoubledigitgrowthfortwodecades.
Despiteitsgrowthhavingslowedto"just"7%,Chinacontinuestoactastheworld'sfactoryandasanindustrialenginethatdrivestheglobaleconomy,makingprogressincutting-edgeandtechno-logicalsectors.
What'smore,giventherisingmaturityofitsdomesticeconomy,Chinaispromotingtheinternationalisationofitsbusinessesandinvestmentinforeignmarkets.
AccordingtoarecentreportfromBaker&McKenzie,ChineseinvestorsploughedarecordUSD40billionintoEuropeandNorthAmericain2015,ofwhich70%flowedintofoursectors:tourism,automotive,financialservicesandinformationtechnology.
Barcelona,amagnetforinvestmentprojectsInthepasttwoyears,thegeneraltrendhasbeenforChina'sinvestmentstoincreasethroughmergersortheacquisitionofSpanishcompanies.
Recentexamplesincludethe2015acqui-sitionofMiquelAlimentacióbyShanghaiBrightFoodGroup,andthepurchaseofAritex(aeronauticsandautomobilesector)byAVIC,AviationIndustryCorporationofChina,atthestartof2016.
AnothernotableprojectistheestablishmentofaEuropeanbasefortheindustriallaboratoryChinaCertificationandIns-pectionGroup(CCIC),aEuropeaninspectionandcertificationcompanyforindustrialproductsbeingexportedtoChina.
ThisgreenfieldFDIprojectwassetupinBarcelonaatthestartof2015andiskeytoenablinglocalandEuropeancompaniestoselltheirproductsinChinawiththe"CC"certificationawardedbythe"laboratory"inBarcelona.
Thiscentrecurrentlycertifiesautomobilepartsbutwillsoonbeextendingitsactivitytoleathergoodsand,furtherdowntheline,totheagri-foodsector.
Additionally,Barcelonaisworkingonotherinvestmentprojectsinsectorssuchassharedservicesande-commerce,whereithasanextensiveecosystemoftechnologicalcompaniesandthecapacitytoattractinternationaltalentwithlanguageskillsandexperience.
Barcelonaisamagnetforinternationaltalentintheformofpeopleseekingtoenjoythequalityoflife,thecultu-ralofferingandtheprofessionalopportunitiesprovidedbythecity,whointurnbringtheirculturalandlinguisticdiversityandprofessionalexperience.
Whencombined,thenewarrivalsandthelocalcitizensmakeupaveryattractiveofferingoftalentforforeigncompaniesandcontributepositivelytotheenrichmentofanalreadyvibrantbusinessecosystem.
Barcelona,alogisticshubBarcelonaisundoubtedlyamajorlogisticscentrefortheMedi-terraneanandSouthernEurope.
ThePortofBarcelonaoffersservicessuchashandling,warehousingandpreparationofgoodsfordispatchtotheirfinaldestination.
Otheradvantagesareshort-distancedeliverytotheMediterra-neanareaandNorthAfricanmarketand,mostimportantly,ac-cesstolocalindustrialsectorssuchasautomotive,chemicals,textilesandtheagri-foodbusinessinthemetropolitanareaofBarcelona,aswellastherestoftheEuro-Mediterraneanmar-ket.
Thecitycouncilhasthereforejoinedthe"BARCELOC"ini-tiativebeingpushedbytheregionalgovernmentofCataloniaandthePortofBarcelonatopromoteBarcelonaasalogisticshubintheMediterraneanandagatewaytoSouthernEuropeforChinesecompaniesandinvestors.
China,animportantmarketforBarcelonaTheChinesemarketisapriorityforBarcelona.
Elevenyearsago,BarcelonaCityCouncil,throughthecitydevelopmentde-partment,wasthefirstpublicauthoritytocreatea"ChinaDesk"mannedbyaMandarin-speakerfamiliarwithChinesecultureandcustoms.
Thisisfundamentalsoastofacilitatecommuni-cationswithChinesebusinessownerswishingtodobusinessorinvestinthecity.
AkeyobjectiveoftheChinaDeskistohand-lepotentialinvestmentprojectsandassistwiththeirsmoothin-tegrationintothecity,aswellastoprovideadequatemonitoringservicestoChinesecompaniesestablishedinBarcelona.
InadditiontoassistingpotentialChineseinvestorsvisitingthecity,itisalsoimportanttoestablishapresenceintheChine-semarket.
Tothisend,BarcelonaCityCouncilalsoorganiseseventsinChinatopromoteBarcelonaasabusinesscentreforSouthernEuropeandtheMediterranean.
Theinformationtechnologyandcommunicationssectorshavetwokeyareasintheirsights:ShenzhenandShanghai.
WehaveparticipatedinthelasteighteditionsofthelargesttechnologyfairinChina–theHi-TechFairinShenzhen.
Asaresult,wehavebeenabletoforgeaverycloserelationshipwith"China'sSiliconValley",bothwithitscompaniesanditsinstitutionsandauthori-ties.
TheothertechnologyeventistheMobileWorldCongressShanghai,the"sister"ofthefairheldinBarcelona,whichweattendedthisyearforthesecondtimetoshowcaseoureventforentrepreneursandinvestors,4YFN(FourYearsFromNow),accompaniedby16companies.
Thedesignsectorhasalong-standingtraditioninourcityandhasbeenofvitalimportance.
ThisledtoBarcelonabeinginvitedtothe2014BeijingDesignWeekandtolastyear'sHongKongBusinessofDesignWeek.
Bothoccasionssawthesuccessfulparticipationofcompaniesthatusedtheseactivitiesasasprin-gboardtoentertheChinesemarket.
TheSmartCitiessectorisalsonoteworthy.
BarcelonaisaglobalbenchmarkandeveryNovemberthecityorganisesaninternationalfairandconference,SmartCityWorldCongressandExpo,whichbringsvariouscompanies,authoritiesandins-titutionstogetherinourcity.
Atthenextevent,whichwilltakeplacefrom19to21November2016,wewillhavethepleasureofwelcomingChinaastheguestcountry.
ConnectionbyairSince2014,AirChinahasbeenoperatingthreeflightsaweekconnectingBarcelonatoBeijing.
WearecurrentlyworkingtosecureadirectflighttoShanghai,possiblyby2017.
ThecitycouncilisverycloselyinvolvedinthismatterthroughtheCom-mitteefortheDevelopmentofAirRoutes(CDRA).
Author:BarcelonaCityCouncil.
Enterprise,cultureandinnovationdivision.
CitydevelopmentdepartmentBox3.
Barcelona,theMediterraneanlogisticscentreforChineseinvestorslookingtodobusinessinEurope65ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEurope3.
3.
Portugal,whereChineseinvestmentisconsolidatingandcontinuingtogrowAsinSpain,thepresenceofChinesecompaniesinPortugalisarecentphenomenon,buthasgatheredintensepacesince2011.
Followingtheperiodofprivatisation(2011-14)instigatedunderaplanapprovedbythetroika(theIMF,ECBandEuro-peanCommission),foreigninvestmentinPortugalhasbeguntoconsolidateandinvestors,includingChinesecompanies,havemaintainedtheirinterestinthePortugueseeconomy.
AccordingtotheESADEChinaEuropedatabase,PortugalreceivedUSD7.
23billioninChineseinvestment49inthe2010-2015period(8%ofthetotalforEurope),andwasthesix-th-rankingbeneficiaryofChineseinvestmentintheEuropeanUnion,inthewakeonlyoftheUnitedKingdom,Italy,France,IrelandandGermany.
TheamountsinvestedinPortugalareveryhighincomparisonwithitseconomicweightinEurope.
Ascanbeobservedinchart12,PortugalhasthelargestChi-neseinvestment-to-GDPratioofallEuropeancountries,astrongindicatorofChina'scommitmenttothiscountrywithjust10millioninhabitants,smallerthanthepopulationofBei-jing.
ItisalsosignificantthatPortugalisaheadofcountriessuchasLuxembourg,whichisthetaxandoperatinghead-quartersofnumerousChinesecompaniesandhasapopula-tionofjustover500,000.
WhyhaveChineseinvestorschosenPortugalasoneoftheirpreferredlaunchpadsintotheEuropeanUnionThesharpriseinChineseinvestmentinPortugalcanonlybeunderstoodwithinthecontextoftheeconomiccrisisintheEurozone,specificallySouthernEuropeancountries,whichemergedin2008.
InPortugal,thegovernmentapprovedathree-yearscheme(2011-2014)withthetroika(theIMF,ECBandEuropeanCommission)foranamountof78billion(USD101.
4billion)50.
Theschemesetoutanambitiouspackageofstate-ownedassetstobeprivatised,encompassingthetrans-portation(AeroportosdePortugal,TAP),energy(GALP,EDPandREN),communications(CorreiosdePortugal)andinsu-rance(CaixaSeguros)sectors.
Chinesecapitalhasbeenin-jectedintovariousstate-ownedenterprisesinPortugalaspartofoperationsthathaveentailedmajoradvantagesforbothparties.
ForPortugal,thecommitmentsagreedwiththetroikaweremet,whilstatthesametimethecountrycouldfurtheritseconomicrelationshipwiththesecondglobaleconomy.
FromChina'sperspective,itwastherealisationofanoppor-tunitytoenterintotheEuropeanmarketatattractivepurchasepricesandtoparticipateinlow-riskoperations(thankstotheprofileoftheacquirees),withastableandrecurrentcustomerportfolio.
ThefirsttransactioncarriedoutwastheacquisitionbyChinaThreeGorgesofa21.
35%interestinthestate-ownedenter-priseEnergiasdePortugal(EDP)forUSD3.
51billion(2.
7bi-llion)in2011.
SignificantbenefitsforboththePortugueseandChinesefirmsarosefromthetransaction:thePortuguesefirmobtainedfinancingofUSD1.
1billionfromtheChinaDevelo-pmentBank,allowingittosettleitsfinancialobligationsmore49TheESADEChinaEuropedatabaseonlyreflectsinvestmentfrommainlandChinaforallcountriesoftheEuropeanUnionincludedinthisstudy.
50Averageeuro-USdollarexchangerateof1.
3applied:http://es.
investing.
com/currencies/eur-usd-historical-dataSource:ownresearchbasedonIMFandESADEChinaEuropedataEuropeancountrieswithhighestlevelofChineseinvestmentinrelationtothesizeoftheireconomies(2015)Chart123.
53.
02.
52.
01.
51.
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50ITALIAIRELANDNETHERLANDSUNITEDKINGDOMFRANCEHUNGARYPORTUGALGREECEMALTABULGARIALUXEMBOURGROMANIA3.
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466ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropecomfortably.
Aspartoftheoperation,theChinesefirmalsoundertooktoinvestUSD2.
2billioninrenewableenergies.
TheinvestmenthadstrategicvaluefortheChinesefirmasitgainedaccesstonewmarkets.
Forexample,thetwocom-panieshavecreatedHydroglobal,ajointventuretodevelophydroelectricprojectsinvariousLatinAmericanandPortu-guese-speakingAfricancountries;and,throughCWEInvest-ment,ChinaThreeGorges(CTG)hasacquireda50%stakeinCachoeiraCaldeiraoandJari,theentitiesholdingtherightstodevelophydroelectricplantsinBrazil.
AsinthecaseofSpainwithitsSpanish-speakingex-colonies,oneofthemagnetsforChinesefirmsisPortuguesecompanies'accesstothirdmar-kets,suchasBrazil,butalsoAngolaandMozambique,wheretheEuropeancountryenjoysastrongbusinesspresenceduetoitshistoricallinks.
Moreover,thankstothisopportunity,thereducedsizeofthePortuguesemarkethasnotbeenadraw-backtoinvestorfirmsinterestedinsecuringnewcustomersandconsumers.
Inasecond,similaroperationcarriedoutin2012,theChineseelectricitygroupStateGridCorporationacquireda25%hol-dinginRedeEléctricaNational(REN),thelargestelectricitycompanyinPortugal,forUSD510million(390million).
TheOmanOilfundacquiredtheremaining15%ofthetarget40%interesttobesoldundertheprivatisationplan.
Onceagain,theoperationincludedafinancingfacilityvaluedatUSD880million,grantedtothePortuguesecompanybytheChinaDe-velopmentBank.
Beyondthissale,anumberofothertran-sactionshavealsobeencarriedoutintheenergysector,in-cludingtheinvestmentbyChinaThreeGorgestoacquirea49%stakeinEDPRenováveisforUSD475million.
ThisrushofChineseinvestmentinPortugalhasbeenaccom-paniedbythearrivaloftwolargeChinesebanks–ICBCin2011andtheBankofChinain2012–whichmadesimilarinvestmentsofclosetoUSD30millioneach.
AnothermajoroperationundertakenbyChineseinvestorsinPortugalistheacquisitionofCaixaGeral,thefirstbankinPor-tugalbyvolumeofdeposits,whichinturnownsFidelidade,thecountry'slargestinsurancecompany,bytheprivategroupFosunInternationalLimitedin2014.
TheacquisitionofFideli-dadebytheFosunGrouphadapricetagofUSD1.
36billion(1.
04billion).
Inaddition,theNovoBancoinvestmentbank(BancoEspíritoSantodeInvestimento)wastakenoverbytheChinesegroupHaitongSecuritiesforUSD466millionduringthesameyear.
ThisoperationalsohelpedtheChinesegrouptogainafootholdindifferentmarkets,suchasLondonandNewYork,wherethePortuguesebankalreadyhadastrongpresence.
Asidefromtheoperationscarriedoutundertheprivatisationplan,anumberofothertransactionsnotdirectlyrelatedtothetroikawerealsocarriedoutinthe2011-14period.
Tran-sactionsconductedintheprivatesectorsince2011includeFrenchwatermanagementgroupVeoliaWater'ssaleofCom-pagnieGénéraledesEaux(Portugal),responsibleforwaterpurificationandtreatment,totheChinesefirmBeijingEnterpri-sesforUSD129millionin2013.
Thiswasfollowedbycertaingreenfieldprojectsinthetelecommunicationssector,suchastheinvestmentmadebyHuawei,whichhashadafootholdinPortugalsince2011andhasmadeanumberofsubsequentinvestments,culminatinginthecreationofanR&Dcentre.
In2015ChineseinvestmentinPortugalenteredanewphase,whichseestheconsolidationoftheinvestmentalreadyre-ceivedandthesigningofnewtransactions.
ThemostrecentmajortransactionsincludeFosunInternational'spurchaseofEspíritoSantoSaúde.
Thefirststepstowardsthisacquisitionweretakeninlate2014,withsubsequentdevelopmentsintheformofanamechangeforHospitalLuzSaúdeandthepur-chaseoflandclosetothehospital.
ThetotalinvestmenthasbeenvaluedatUSD621millionandwasincludedintheESA-DEChinaEuropedatabaseinearly2015.
Morerecently,in2015,thee-commercecompanyyuwibuy.
commadeaninvestmenttotallingUSD65million.
AsinotherEuropeancountries,includingSpainandItaly,latelyChine-seinvestorshavealsobeguntopositionthemselvesinthefootballindustryinPortugal.
Forinstance,Ledman,aChinesemanufacturerofLEDlamps,sponsorsthePortugueseseconddivisionchampionship.
Lastly,Chineseinvestorshavealsoundertakenmajorinvest-mentsinPortugalbytakingadvantageoftheGoldenVisapro-grammelaunchedinPortugal,whichgrantsnon-EUcitizensresidencypermits(includingthoseforfamilymembers)forthepurchaseofapropertyoraninvestmentofatleast350,000(approximatelyUSD385,000).
TheaimofsuchinvestmentsisnormallytoenablethefamilymembersofinvestorstoliveincitieswithEuropeanstandardsofliving.
Thisschemewaslaunchedin2012andhasbeenmetwithstrongdemand,ge-neratingmorethan1.
7billion(nearlyUSD2billion)inpro-pertyinvestments,withChinesecitizensamongtheforemost67ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropebeneficiariesofthisinitiative.
AsofMay2016,2,651visashadbeengrantedtoChinesecitizens,accountingfor77%ofthetotalnumberextendedsincethescheme'slaunch.
Anothertransactionmaybesuccessfullynegotiatedinthefi-nancialsectorintheupcomingmonths.
TheFosunGrouphasdeclareditsinterestinacquiringashareholdingofmorethan16%inBancoComercialPortuguês(BCP)throughasharecapitalincrease,whichithopestograduallyincreaseto30%.
Inshort,althoughChineseinvestmentsinPortugalwereinitiallyinresponsetotheopportunitybroughtaboutbyitsprivatisationprogramme,thistrendhassincegivenwaytoasecondstage,buoyedbythepositiveexperienceofChinesecompaniesinthiscountryandsupportedbytheopportunitiesPortugaloffersatindustriallevelandintheservicessector,bothintermsofthelocalmarketandasagatewaytotherestofEuropeandotherPortuguese-speakingcountries.
Inthisrespectnewoperationscanbeexpectedinthefuture,inviewoftheinterestshowntodateinexploringnewinvest-mentopportunitiesavailabletoChinesefirmsandtheover-lapbetweenwhatPortugalhastoofferandtheassetssou-ghtbyChineseinvestors.
Inadditiontothefinancialsector,threeotherareashavebeenofparticularinteresttoChinesecompaniesandcouldbetherecipientsofnewfunds:energy(specificallywatertreatment);medium-sizedcompanieswithaknownbrandimageandapresenceinthirdmarkets,withapreferenceforthosespecialisinginproductssuchaswineoroliveoil;andtheleisureandsportsindustry,withparticularemphasisplacedonhotelgroups,resortsandgolfcourses,aswellasfootballclubs.
YEARACQUIREEBUYERVALUE($MILLION)SECTOR12011EDP-EnergiasdePortugalChinaThreeGorges3,510Energy22014Fidelidade(CaixaGeral)FosunInternational1,360Insurance32015EspiritoSantoSaúde(LuzSaúde)FosunInternational621Healthcare42012REN-RedesEnergéticasNacionaisStateGrid510Energy52012EDPRenováveisChinaThreeGorges475Energy62014BESI-BancoEspiritoSantodeInvestimentoHaitongSecurities466Financial72013CompagnieGénéraledesEauxBeijingEnterprises129Water82015GreenfieldprojectYuwibuy.
com65e-commerce92012GreenfieldprojectICBC31Financial102016EIP-ElectricidadeIndustrialPortuguesaShandongTaikai30EnergyThe10largestinvestmentsbyChinesefirmsinPortugal(2010-2016)Table5Source:ESADEChinaEuropedatabase68ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeChineseforeigninvestmenthasbeengrowingforatleastthelast13years.
Excludingthepurchaseofcurrenciesandfinan-cialproducts,foreigninvestmentcametoUSD118billionin2015andisexpectedtoreachUSD300billionby2025.
Howe-ver,thelargestpercentageincreaseinChineseinvestmentinEuropewasseenin2011,whenitroseby57.
3%on2010.
ThereasonforthisisaconfluenceofopportunitiesandChina'sam-pleliquiditysurplusof2.
47billionofforeigncurrencyreservesrecordedin2011,whichnaturallyinfluencedthemarkedlyex-pansionistpoliciesregardingChineseforeigninvestment,su-pportedbythecentralcommitteesincethefirstdecadeofthecenturyandexpresslystipulatedinChina's12thFive-YearPlanundertheconceptof"Goglobal".
AlthoughPortugalhadalreadybeenattractingChineseinvest-ment(companiessuchasZTE,HuaweiorAPMCQwerealre-adyoperatinginthemarketthroughtheirsubsidiaries),2011markedaturningpointinaprocessthat,threeyearslaterin2014,wouldseethiscountrybecomethefourth-rankingreci-pientofdirectChineseinvestmentinEurope,aheadofcoun-triessuchasGermanyorSpain,positioningitastheEuropeancountrywiththehighestratioofChineseFDItopercapitaGDP,andthereforeoneofthemostattractivedestinationsforChi-neseFDIinEurope.
Thissituationcontinueduntil2015,whenPortugaldroppedoneplacedowntherankstobeovertakenbyGermany,despitebeingfaraheadofcountriessuchasSpainortheNetherlands,whicharehigherupintherankingofEuro-peaneconomies.
ThenotableincreaseinChineseFDIinPortugalfrom2011onwardsisclearlynotunrelatedtotheopportunitypresentedtointernationalinvestorsintheformoftheprivatisationpro-grammeinitiatedthatsameyearincompliancewiththeme-morandumofunderstandingsignedbetweenPortugalandthetroika.
However,thisalonecannotexplainthescaleofthephe-nomenon,norcanitaccountforthesustainedinterestofChi-neseinvestorsinthePortugueseeconomy,whichcontinuestothisday.
Inreality,anopportunitywascreatedbytheexecutionofthisprivatisationprogrammefrom2011onwards,whichbroughttomarketacollectionofhighlyattractivestakesheldbythestateinPortuguesecompaniesofgreatnationalandinternationalre-levance,asevidencedbytheenthusiasticresponsetotheva-rioussaleprocessesandthenotablenumberofinvestorsthatboughtin(notjustChinese,butalsoGerman,FrenchandNor-thAmerican).
EquallyimportantisthefactthatthePortugueseeconomyhasaveryopenattitudetoforeigninvestment,withthegeographicaloriginofcapitalneverhavingposedapro-blemforinvestors.
Lastly,theextraordinaryliquidityavailabletoChineseinvestors–predominantlySOEs–duringtheprivatisa-tionprocessenabledthemtomakethebestoffersandtherebysuccessfullyacquirethestate'sstakesinthemostdesirablePortuguesecompaniesbeingsoldaspartoftheprivatisationprogrammeinitiatedin2011.
Bywayofexample,CGTacquired21.
35%ofEDPinDecem-ber2011for2.
7billionandStateGridacquired25%ofRENfor390millioninFebruary2012.
Bothoperationsgavesubs-tantialvisibilitytotheseinvestmentsinthemarketsinwhichtheparticipatingcompaniesoperate,particularlyinChina.
Thecomplexityoftheoperationsassociatedwiththeseacquisi-tions,whichrequiredadditionalfinancingtobeobtainedfromChinesebankstoacquirethetargetcompanies,coupledwiththegrowinginterestofChineseinvestorsinthenationalmar-ket,ledIndustrialandCommercialBankofChina(ICBC)(inFebruary2012)andsubsequentlyBankofChina(inFebruary2013),twoofthelargestSOEsintheChinesefinancialsector,toopentheirrepresentativeofficesandbranchesinLisbon.
AlsoinFebruary2012,HuaweiinauguratedalargeresearchanddevelopmentcentreinLisbon,therebyreinforcingitspre-senceinPortugalthroughthisnewinvestment,whichhasbeencalculatedataround10million.
ChineseinvestmentinPortugal,whichuntiltheendof2013hadbeenledbythetopSOEsinChina,receivedasignificantboostin2014fromtheChineseprivatesectorthroughFosun'spurchaseoftheportfolioofCaixaSeguros,whichincludesCompanhiadeSegurosFidelidade,for1.
7billion.
Onceun-derthecontroloftheShanghaiconglomerate,inOctober2014itacquired96%ofEspíritoSantoSaúdefor478million,aswellasa5%interestinREN,asubsidiaryoftheSOEStateGrid.
ThefinalChineseacquisitionfor2014wasthepurchaseof100%ofBancoEspíritoSantodeInvestimento(BESI)byHai-tongfor380million.
Movinginto2015,theinsurerHanbangand,onceagain,FosuncompetedtoacquireaninterestinNovoBanco,abusinessvaluedat4billion(temporarilysuspendedbyBancodePor-tugal)and,morerecently,HainanAirlinesindirectlyacquiredaninterest(bypurchasingsharesoftheshareholderAtlanticGateway)inAirPortugal,inadditiontoannouncingthepur-chaseof25%oftheconvertiblebondsofTAPfor30million,whichwereissuedforthepurposeoffinancingthecompany'soperationsinAfricaandEurope.
ThisshowsthattheinterestofChineseinvestorsinPortugueseassetsandcompaniesgoesbeyondtheapparentopportunismthatmayhavebeenafactorinthefirstacquisitions.
AnanalysisofChineseinvestmentinPortugalinrecentyearswouldnotbecompletewithoutlookingattheprogrammeofResidencePermitsforInvestmentActivities(ARI)launchedin2012,wherebycitizensfromcountriesoutsidetheEUaregran-tedaresidencepermitinPortugalforcarryingoutanycategoryofinvestmentactivitydefinedinthelegislation(currentmini-mumamountof350,000).
Untilnow,thisschemehasattrac-tedaround1.
7billioninFDI,mostlyfromChineseinvestors,with77%ofresidencepermitsgrantedforinvestmentactivitiesthusfarhavinggonetoChinesecitizens.
Inadditiontotheun-deniablebenefitsoftheprogrammeasatoolforattractingin-vestment,particularlyfromChina,italsogavePortugalgreatervisibilityamongthemiddleandupperclassfamiliesinChinaAuthors:GonaloBastosLopesandVascoBivardeAzevedo.
Partners–ChinaDeskPortugal.
Cuatrecasas,GonalvesPereira.
Box4.
RecentChineseinvestmentinPortugal69ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropewhomakeuseoftheprogrammeandwhosememberstendtooccupyhighpositionsinthebusinessworld,therebyincreasingthepropensityfornewinvestments,especiallyintherealestateandtouristsectors.
DirectinvestmentinPortugaloriginatingfromChina(includingthespecialadministrativeregionsofMacauandHongKong)between2000and2015totalsaroundUSD10billion,althoughwealsoneedtofactorinthemultipliereffectoftheentryofnewcapitalintothePortugueseeconomy,particularlyinthereales-tatesector,whichhasnotbeenaccountedfor.
ChineseinvestmentinPortugalinrecentyears,whichhasbeenhighlyfocusedontheoperationsofthetargetcompaniesandsettinglong-termgoals,coupledwiththecurrentpropensityofChineseinvestorstoinvestinEurope'stechnologicalsec-torandtheso-calledleisurebusiness,whichencompassestherealestateandtourismsectors,wherePortugalstillhasattractiveassets,wouldsuggestthatthetrenddisplayedbyChineseFDI,particularlyinthelastdecade,willnotreverseinthecomingyearsandPortugalwillcontinuetobeafavouritedestinationforChineseinvestment.
Inthisrespect,thetaxandlegalframeworkinforceinPortugalcurrentlyincludesotherprovisionsthatmayproveespeciallyattractivetonon-Europeaninvestors,including,ofcourse,in-vestorsfromChina.
Inadditiontothegeneralsimplificationandsignificantreduc-tionofthebureaucracyandproceduresassociatedwithmanyaspectsofdoingbusinessinPortugalinrecentyears,thetaxregimesknownastheparticipationexemptionregimeandtheregimefortaxationofpersonsnotordinarilyresidentinthecountryarenoteworthy.
Theparticipationexemptionregimeaffectscorporateincometaxbygrantingatotalexemptionfromcapitalgainstaxfordi-videndsandgainsonthedisposalofshares,includingthosederivedfrominvestmentsoutsidetheEuropeanUnion,therebydefinitivelyestablishingPortugal'splaceasafiscallyattracti-vedestinationforChineseinvestmentbothwithinandoutsidetheEU,withemphasisoninvestmentinPortuguese-speakingcountriessuchastheso-calledPALOPandBrazil.
Theregimefortheindividualtaxationofpersonsnotordinarilyresidentinthecountryisanimportanttoolforattractingtheresidenceofretiredpersons,otherhighnetworthindividuals,orbusinessownersandotherprofessionalsincertainareasconsideredofhighaddedvalue,asitestablishesexemptionsorreductionsintaxationforaperiodof10years,especiallyforincomefrompensionsorfromcapitalinvestedabroad.
Thisregimefortheindividualtaxationofpersonsnotordinarilyresi-dentinthecountrymayalsobeacatalystforattractingChine-seFDIinPortugalasittiesinwiththeprogrammeofResidencePermitsforInvestmentActivities(ARI).
70ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEurope3.
4.
Greece,thestrategicvalueofthePortofPiraeusAshasbeenwelldocumented,Greeceexperiencedthesha-rpesteconomiccontractionduringtheEurozonecrisis,in-flictingdevastatingsocialconsequencesonthecountry:theGreekeconomyhasshrunkby25%sincetheonsetofthecrisis,youthunemploymentstandsat60%and45%ofpen-sionersreceivebenefitsbelowthepovertyline.
Withitspublicaccountsindisarrayandanurgentneedforfinancingtomeetitspaymentsintheshortterm,theGreekgovernmentsignedaninitialbailoutpackage(EuropeanStabilityMechanismorESMProgramme)for110billion(USD132billion)in2010,followedbyasecondbailoutfor130billion(USD156billion)in2012.
Athirdpackagefor86billion(USD94.
3billion)wassignedin2015,andisstillinplace.
Inexchangeforthefi-nancialaidawardedbythetroika,theGreekgovernmentwasrequiredtoimplementsharpcutstoitswelfarestate,toraisetaxesacrosstheboard,andtoselloffstate-ownedassets,inordertoachievegreaterstabilityinitspublicfinancesandfiscalbalanceinthemediumterm.
ThesemeasuresprovokedprofoundsocialunrestinGreece,andreaffirmedthelossofroomformanoeuvreinthepublicaccountsforthegovern-mentinAthens.
Againstthisbackdrop,andinviewofthelackofsupportinEurope,GreecesoughtarapprochementwithothercountriessuchasRussia,IranandparticularlyChina.
China'sinvolvementintheGreekproblemarrivedintheformofdirectinvestmentinrecentyears,specificallythroughanoperationcarriedoutin2016.
TheoperationsundertakenbyChinesecompaniesinGreecehavebeenminimaltodate,theHellenicRepublicbeingoneofthelargestcountriestobeoverlookedbyChinesecapital.
TheBankofGreece'sbreakdownofinvestmentreceivedprovidesdataonthe19maincountriesthathavemadeasignificantinvestmentinthecountry,whichnotablydonotincludeChi-na.
TheminimalpresenceofChinesecompaniesinGreeceisessentiallyattributabletotwofactors.
Ontheonehand,thefragileeconomicsituationofGreecesince2008,whichledtoadebateastothecountry'spossibleexitfromtheEurozone,hascoincidedwiththeperiodinwhichChinesecompanieshavebeguntofunnelfundsintoEurope.
Ontheother,Gree-cehasnospecialistbusinesswithasignificanttechnologicalcomponentthatcouldstirtheinterestofChinesefirms.
Howe-ver,despitethisgeneralisedapathyfromChina,theacquisi-tionbytheshippinggiantCOSCOofthemanagementrightsofthePortofPiraeushasrecentlybeenagreed.
Thisisofma-jorstrategicimportanceandcouldleadtonumerouspositiveexternalitiesforGreece.
Thissalewasagreedaspartoftheaforementionedthirdbailout.
Inexchangeforthisbailout,theGreekgovernmentundertookaprogrammetoprivatisestate-ownedassetsforanamountequivalentto50billion(USD55billion),whichopenedthedoortoforeigninvestmentfromfundsandlargecompaniesseekingtoentertheGreekmarketthroughsuchacquisitions.
Twomajoroperationshavebeenagreedsincetheapprovalofthethirdbailout:privatisationofthemanage-mentof14airports,valuedat1.
23billion(USD1.
35billion),whichwasawardedtotheGermanfirmFraport;andthecon-cessionformanagementofthePortofPiraeus,awardedtotheChina-basedCOSCOShippingGroup.
TheChinesegroup,oneofthelargestinitssectorglobally,submittedabidof1.
5billion(USD1.
64billion)forcontrolof51%ofthestate-ownedcompanyPiraeusPortAuthority,whichmanagesthePortofPiraeus.
Theagreementalsoinclu-descommitmentsfortheChinesefirmtoinvest350million(USD383million)inportinfrastructureoverthenexttenyears.
COSCOhadalreadybeenpresentatthePortofPiraeussince2009throughitsacquisitionofoneofthetwocargoterminalsanditssubsequentconstructionofathirdterminal.
However,theacquisitionofthePiraeusPortAuthorityhasaffordedtheChinesefirmanevengreaterpresenceattheport.
ThepurchasewasofparticularimportanceatthattimeduetoitscompatibilitywiththeOBORinitiative,astheMaritimeSilkRoadshippingrouteendsinGreece.
TheChinesegroup'scommitmenttothePortofPiraeus,aswellasitsinvestmenttoparticipateinitsmanagementandexpanditscapacity,placethegroupinaprivilegedpositionwithrespecttobecomingthemainmaritimegatewayintoEuropeforChineseproductswithintheframeworkoftheOBORinitiative.
Forexample,GreececouldbecometheentrypointforChineseproductsdestinedforEasternandCentralEuropeancountries,aregiontowhichChinaattachesgreatimportance.
Inanyevent,thePortofPiraeusoperationshouldnotbetakenasafinalachie-vement,butratherasasignificantfirststep.
AnypossibilityoftheportinAthenstrulymultiplyingitscapacityandbecomingthemaincommercialmaritimeplatforminEurope,withoutcreatingbottlenecks,willrequirethestart-upofcomplemen-taryinfrastructureandlogisticsservices.
Afurtherconsidera-tionisthatin2015ChinaalsoacquiredaterminalatthePortofKumportinTurkey,locatedontheBosphorusstrait,whichisclosertoEasternEuropeanmarketssuchasBulgariaandRomania.
71ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeTheothermajortransactionwastheentryoftheprivategroupFosun,whichin2011acquireda9.
5%stakeinFolliFollie,aGreekfirmthatdesignsandsellsjewellery,inanoperationva-luedatUSD92million.
ThefinancialdifficultiessufferedbytheGreekfirmasaresultoftheeconomiccrisiswereleveragedbytheChineseconglomerateinordertotakeashareholdingtherein.
TheinvestmentenabledtheChinesefirmtodevelopitsknow-howandproductioncapacitysoastoenhanceitsstandinginthethrivingChineseluxurygoodssector,andallowedtheGreekcompanynotonlytoreduceitsfinancialdifficultiesbutalsotoenterthecomplexChinesemarketwiththeassistanceofalocalpartner.
GreecealsohasaGoldenVisaschemetograntresidencyinthecountrybasedonthevolumeofinvestmentinrealestateassets.
Visasareawardedforinvestmentsofaminimumof250,000(USD275,000),althoughtheschemehasnotpro-venassuccessfulasinPortugal,withjust983GoldenVisasawardedbetweenJune2013andOctober2015,ofwhich335wereforChinesecitizens.
ChineseinvestmentinGreeceisexpectedtocontinuetogrowoverthecomingyears.
ForecastinvestmentstoextendandmodernisethePortofPiraeusshouldgenerateamajortrac-tioneffectandopennewnicheopportunitiesindifferentsec-torsoftheGreekeconomy,whichcouldleadtofurtherChine-seinvestmentinthecountry.
Othermajorprojectsarealsoonthetable,suchasthatplannedbytheBCGIgrouptodevelopahotelcomplexnearthePortofPiraeus,andtheconstructionofKastelliairportonCrete,oneoftheleadingtouristdestina-tionsinthecountry.
Theworksforthelatterhavebeenbudge-tedat900million(USD986million)(tobeco-financedbytheEuropeanInvestmentBank)andarescheduledtotakeplaceoveraperiodoffiveyears.
Thenewairportwouldbethecoun-try'ssecondlargest,afterEleftheriosVenizelosinAthens.
Theworkshavebeenpostponedonvariousoccasions,butavisitbyadelegationfromtheChinaStateConstructionEnginee-ringCorporation(CSCEC),thelargestconstructioncompanyintheworld,andtheMinistryofEconomyinmid-2015augursaswiftlaunchfortheproject.
Moreover,thepossibilityoffurtherChineseinvestmentbeingchannelledintoGreeceaspartofitsprivatisationprogram-meshouldnotberuledout.
GiventhenumerousinvestmentopportunitiessetoutintheAssetDevelopmentPlanandtheclearinterestofChineseinvestorstogainfootholdsinSou-thernEurope,overthecomingquarterswecouldseeChi-nesefirmstakingfurthershareholdingsundertheprivatisa-tionprocessesinforce.
Asshownintable6,theprivatisationprogrammeencompassessectorswhereChineseinvestorshavealreadymadeinvestmentsinEurope,suchastheelec-tricityindustryandwatersupplymanagement.
Chinesecom-panieshavealreadyproventobemorethanwillingtoinjectcapitalintostate-ownedenterprisesasoneoftheirpreferredmethodsforenteringtheEuropeanmarket.
ThepossibilityofnewtransactionsbeingconductedwillthereforedependtoalargeextentonthesuccessofthePortofPiraeusoperation.
51Theinformationisprovidedforinformativepurposesandisnotexhaustive.
Thestatusofsomeoftheassetsmentionedmaysincehavechanged.
Foramoredetaileddescription,see:http://ec.
europa.
eu/economy_finance/assistance_eu_ms/greek_loan_facility/pdf/01_mou_annex1_20150730_en.
pdfASSETDESCRIPTIONPRIVATISATIONMETHODRegionalairportsAirports40-yearconcession+10yearsHellinikonAthensairportSaleof100%ofspecifiedsharesAstirVouliagmenisHotelcomplexSaleofsharesAfandouRhodesTouristdevelopmentSaleof100%ofspecifiedsharesHellenicGasGasdistributionSaleof66%ofsharesPiraeusPortAuthorityPortmanagementSaleof67%ofsharesThessalonikiPortAuthorityPortmanagementSaleof67%ofsharesTrainoseRailwayservicesSaleof100%ofspecifiedsharesAthensAirportAthensairportSaleof30%ofsharesPoseidiChalkidikiTouristdevelopmentSaleof100%ofspecifiedsharesMarkopouloEquestrianSportscentre40-yearconcessionE-auctionPropertiesPropertyauctionsMarinasMarina40-yearconcessionEgnatiaMotorwayMotorway35-yearconcessionHellenicPetroleumOilrefininganddistributionUnderevaluationOTETelecommunicationsUnderevaluationPublicPowerCorporationElectricitySaleof17%ofcapitalEYATHWatersupply(Thessaloniki)Saleof23%ofcapitalEYDAPWatersupply(Athens)Saleof11%ofcapitalPublicGasCorporationImporteranddistributorofgasNoinformationHellenicPostPostalservicesUnderevaluationAssetsincludedinthethirdGreekbailoutTable6Source:HellenicRepublicAssetDevelopmentFund,20155172ChineseinvestmenttrendsinEurope2016-17/ChinacastsitseyeonSouthernEuropeAlessandroArduino.
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pdfBibliography73ChineseinvestmenttrendsinEurope2016-17Thisreporthasbeendrawnupwiththehelpofthefollowingcollaborators:GonaloBastosLopesandVascoBivardeAzevedo.
Partners–ChinaDeskPortugal.
Cuatrecasas,GonalvesPereira.
NúriaBetriu-Director-GeneralofIndustryfortheCataloniaregionalgovernmentandChiefExecutiveOfficerofACCI–CataloniaTrade&InvestmentJudithRomeraandVeronicaTan-BarcelonaCityCouncil.
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QiaoshanXue-ProjectManagerESADEChinaEuropeClubJiangLi-ResearchAssistantESADEChinaEuropeDiseoymaquetación:BJTComunicaciónDisclaimerofliabilityforerrorsoromissionsInviewofthedifficultyandcomplexityofobtainingaccuratedata,althoughmaximumcarewastakenandthegreatestofeffortswasmadeinpreparingthisdatabaseandwhenusingthedatainthereport,theauthorofthisreportassumesnoliabilityforanypossibleerrorsoromissions,orforanydamageandlossderivedfromtheuseoforreferencetotheinformationcontainedherein.
7475Promoter:Collaborators: