After the last month’s announcement stating that Italian tyre maker, Pirelli, is to be bought for €7.1 billion by China’s National Chemical Corp raised up many questions. Is this the first of many European acquisitions that Chinese investors may engage in?
According to global merger and acquisition tracker Dealogic, Chinese foreign direct investments amounted to $18bn in 2014. This sum is even double the figure of 2013, which undoubtedly quantifies how significant the Chinese expansion into Europe may be.
“Chinese investment in Europe has become much more diverse in recent years and is now extending into all parts of Europe. What we’re seeing is the maturing and normalization of Chinese investment processes in line with the international economy.”
Thomas Gilles, Chairman of the EMEA-China Group, Baker & McKenzie
The past couple of years appear to demonstrate the manner by which this “normalization” period is going to have a somewhat steeper line.
This situation brings forth both advantages and disadvantages.
By attracting new investors, European companies acquire a valuable source of cash, which could be invested in new developing new technologies. Despite the vast sums invested, the European economy does not take advantage of all the benefit, since 86% of total investments represents acquisitions and only 14% represents greenfield projects and expansions- the kind of investments that spur economic activity and growth.
This trend appears more prominent in Western European countries and there are no clear signals to indicate that the Chinese investors will bet on Eastern European countries. The most attractive countries for investors appear to be as follows:
- United Kingdom: $16bn
- Germany: $8.4bn
- France: $8bn
- Portugal: $6.7bn
- Italy: $5.6bn
- Netherlands: $4bn
- Hungary: $2.6bn
- Sweden: $2bn
- Spain: $2.5bn
- Belgium: $1.2bn
In 2014, the Chinese investors were mainly attracted by the following sectors: agriculture, energy and real estate but analysing the numbers for the 2000-2014 we can see that the second most important sector was automotive at $7.7bn.
However, becoming a mature economy, the signals demonstrate that investors are very flexible and able to adapt and invest in different industries with big future pay-outs. This fact is confirmed by Toby Clark, Head of Investment Banking at CICC Europe, who explains:
“The mix of industries Chinese investors are interested in has shifted rapidly, reflecting the changing position of Chinese firms in global value chains and the evolution of China’s policy framework for outbound FDI”
Pirelli’s acquisition is not the first major Chinese investment in Europe, this year. Two important leisure brands, Club Med and Louvre Hotels Group are to be acquired for $4.3bn and $1.5bn respectively.
If the phenomenon continues this way and most probably it will, maybe we should think: Is it China going to buy Europe, piece by piece?