When reading the newspapers and following recent discussions, one might get the impression that Chinese foreign direct investment exceeds the incoming FDI by far. The following post aims to give an introduction to Chinese in- and outbound investment as well as summarizing recent trends and controversial projects.
The majority of FDI to mainland China took place since the 1990s, especially in the last 10 years. Most investments came from Hong Kong and Singapore, followed by South Korea, USA, Macao, Taiwan, Japan and Germany. Since 2011, most FDIs go into the service sector instead of manufacturing as China is not the main target for cheap mass production anymore with loans risen faster than in other south-east Asian countries.
Foreign direct investment of Chinese companies however started merely not before the financial crisis in 2007/08. European and American business got in trouble and accepted investments from Chinese enterprises. The acquisition of the German manufacturer of concrete pumps Putzmeister by China’s SANY Group in 2012 marked the beginning of increased M&A activities of ailing SMEs as well as family-owned businesses in Europe with market leading technology.
The access to technology is not the only reason for Chinese companies to look to the Western market. Market access, resources, brand building and risk diversification are further benefits. The reason for public concern is however the Chinese government’s role in the growth of FDIs. By using China’s national foreign exchange reserves, not only portfolio investments, but also strategic investments are executed in order to gain competitive advantage, upscale the domestic production and enhance future competitiveness e.g. by investing in ports and railways.
The deals of the past years show a shift in Chinese investment patterns from providing capital to European companies, gotten into financial difficulties to investments into market leading high-tech companies with an unique skill set.
The most popular example of Chinese investment with governmental-program capital working behind the scenes is the attempted takeover of Aixtron, a German technology company. It got stopped as there are misgivings about the willful crashing of Aixtron’s share price as well as national security concerns. Another famous FDI that went wrong is the sale of the German Hahn Airport to a Chinese bidder, that revealed to be a fake investor in the end.
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