Over the past few decades, China has transformed from a developing country into an economic powerhouse that is actively engaged in investing abroad. Although we often hear about China’s numerous investments and domination in Africa, the Middle Kingdom also remains an active investor on the European market.
The scale of investments in Central Europe
According to a report written by Rhodium Group, in 2022 China’s foreign direct investment in Europe amounted to over EUR 7.9 billion, which, however, represents a decrease of 23% compared to 2021 and a regression to the level of investment from 2013. The main investments of the Middle Kingdom are located in the so-called the Big Three, i.e. Great Britain, France and Germany. Between 2012 and 2021, an average of 59% of Chinese investments were in the Big Three countries each year.
Recently, the increased presence of Chinese investments is also noticeable in Hungary, where the total value of investments in the years 2000-2022 amounted to EUR 4.4 billion, which is the highest result in Central Europe. For comparison, the total value of Chinese investments in Poland in the years 2000-2022 amounted to only EUR 2.4 billion. On the other hand, the total value of Chinese investments in the Czech Republic in the years 2000-2022 amounted to EUR 1.3 billion. The situation is identical in Slovakia, where the value of Chinese investments was estimated at EUR 0.1 billion in the same years. In contrast, during the same time period in Germany, the total amount of Chinese investment amounted to EUR 32 billion – several times more than in the whole of Central Europe. However, the level of Chinese investment in the Visegrad Group, although still much lower than the level of the Big Three, is increasing year by year.
It is also worth paying attention to the distrust with which the European Union approaches Chinese investments, as well as the political background of these decisions. In the report on the new EU-China strategy issued in 2021, the European Parliament explicitly described Beijing as an “economic competitor” and “systemic rival”. New regulations on the control of foreign investments in the EU are also gradually emerging (including Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for monitoring foreign direct investments in the Union), which are now applicable, for example, blocking investments in the construction of nuclear power plants in Bulgaria and Romania. Another example may be the ban imposed by the European Commission on the use of Huawei and ZTE equipment in the construction of the 5G network. In Poland, Chinese companies have been completely excluded, which, according to a report prepared by Audytel and Dentons, is associated with a loss of approximately EUR 10 billion in the period 2021-2030. In the Czech Republic, Lithuania and Slovakia, Chinese telecommunications companies are approached with extreme caution. However, Central European countries are not uniform in this sentiment. It is indicated that Hungary is quite willing to use the help of Chinese telecommunications companies.
What are the Chinese investing in?
The main type of foreign investment are the so-called greenfield investments, which involve building an enterprise from scratch, and brownfield investments, which involve using, at least partial, the existing infrastructure. While brownfield investments dominated in Europe so far, in 2022 greenfield investments overtook mergers and acquisitions (M&A), which is the first time since 2008.
Since 2017, a significant change in the profile of Chinese investments in the European Union has been noticed. At that time, not only a gradual change in the main type of direct investment was noticed, but also changes in sectors and even investors themselves. Previous investments largely concerned the energy, real estate and financial sectors, however, as a result of tightened investment control measures in the EU, as well as increased emphasis on reducing financial risk, the share of these sectors in the overall share of foreign investments is gradually decreasing. The above also means that companies under Chinese private law, not just public law, are increasingly becoming investors.
Currently, Chinese companies are increasingly choosing to invest in technology sectors. Investing in and developing battery factories is becoming more common, an example of which is the 100 GWh battery plant in Hungary, for which CATL (China’s Contemporary Amperex Technology Co. Ltd.) allocated EUR 7.34 billion. Another large type of investment of this type is the Hungarian lithium-ion battery factory built by Semcorp, in which a total of over EUR 340 million was invested.
The development and Chinese investments in the automotive market, especially in electric cars, are also noticeable. While Germany still remains the main target for such investments, some companies seem to be considering investing in the markets of Central Europe. For example, the Chinese company BYD dealing with electric cars was considering investing in Hungary and introducing its products to Poland. Moreover, companies such as Sanhua (dealing with car components) and Guotai Huarong (electric car battery components), are in the process of implementing their investments in Poland.
Significant investments are also observed in the logistics center sector. An example of such an investor is GLP, which plans to open a new logistics center in Poland by the end of 2024. Additionally, Tonglinada, through its company Koeman, plans to build new logistics centers near Budapest.
How to increase company’s attractiveness to a Chinese investor?
The Chinese market relies more on building relationships with partners and trust than the European market. A company that wants to attract investors from the Middle Kingdom should consider investing in building relationships with Chinese entities by participating in industry conferences, fairs and organized business meetings.
Many Central European companies are unknown on the Chinese market due to the language and cultural barrier that is difficult to cross, which is why it is worth promoting the company on Chinese social media, such as WeChat, and choosing an appropriate Chinese name for it. The above may make the company stand out and thus contribute to its being noticed by a potential investor.
A Central European company looking for a Chinese investor should also consider contacting a professional entity that will not only properly associate companies, but also manage the investment and help build and maintain business relationships. A law firm familiar with both Chinese and native law may turn out to be an entity capable of comprehensively implementing company’s dream project.
