Chinese outward foreign direct investment

By Richard Hoffmann, ECOVIS Beijing

China’s economy is changing immensely fast over the last years. As China is prioritizing on economical success, they have moved towards a new political direction. One of the first Chinese OFDI (Outward Foreign Direct Investment) flows in Germany was the establishment of Baosteel’s headquarter in 1993. However, this was an individual case. The real boom of Chinese investors started with the publishing of the 10th five-year-plan in 2000 when China announced the “Zouchuqu” – “Going global” strategy.
The economic crises definitely helped Chinese companies with the decision to invest in German companies, as it caused the selling prices to drop. Though this may not have been the main factor, it definitely contributed to making it easier.

Chinese perspective:

Clearly there are several advantages for Chinese companies to invest in European markets. The first thought that might pop up would be the access to the intellectual property and closing it down after transferring that knowledge back to China. As recognized above, one of the main advantages is the access to the advanced German technology. But in fact, Chinese companies’ notice the necessity of an establishment in Europe and the importance of strengthening the research and development capabilities. Therefore, for instance, in the case of the German company Putzmeister all employees were retained. Chinese companies also have the opportunity to enlarge their product portfolios with new technologies. Some of the Chinese investments were prompted by a desire to extend the buyer’s value chain by integrating upstream or downstream development and production steps. Last but not least, Chinese companies can secure their market position with Germany as the center of Europe. The new owners are using their acquisitions to extend their research and development capabilities, establish new sales locations and expand their customer and logistic networks.

Industries:

Main industries are:

• Electronics
Electronics have always been a big issue in China. Though formally known for their cheap, low quality production, China has now gained a good reputation for high-end products. Chinese companies now invest huge amounts of money into R&D and in the conservation of knowledge. Examples in this industry are Huawei and Lenovo

• Regenerative energy
One of the biggest problems in China is the air pollution. Renewable energies are an important issue, even though it’s still a small amount of power generation. But China is one of the leading providers of wind, solar and hydraulic energy. And as Germany has the leading technology in renewable energies, Chinese companies are willing to invest. Examples in this industry are Goldwind and Suntech.

• Mechanical engineering
Germany’s reputation for engineering capabilities is quite strong and China lacks in exactly these qualities and innovation capabilities. But with raising competitiveness in China, the need to invest in R&D was clear, ultimately improving the overall quality and technology within the Chinese market. Chinese mechanical engineers used to concentrate mainly on the Chinese market but as the competitiveness increased, they have started to expand into foreign countries as well. Examples in this industry are Baosteel and AT&M.
• International Conglomerates

International conglomerates, like trading firms or logistic companies, have all different objectives to invest in German companies. Example in this industry is LinkGlobal.

German perspective

As we discussed the advantages for Chinese companies, what does it mean for German companies?

German companies can definitely profit as well since there will be a transfer of knowledge between the Chinese and German companies. The purchasing of German companies during the economic crises also gave them the chance to keep producing in their capacity and save endangered jobs. Furthermore, they profit from the transfer of knowledge between Chinese and German companies. And in some cases, there was even the opportunity to expand to the Asian market. But as everything has two sides, there are also disadvantages. Besides the ending of long-established enterprises, there might also be a leakage of intellectual property .

All in all it depends on the interest of the Chinese enterprise.
We regularly help foreign companies to find suitable and respectable Chinese Investors. If you need further information about how we can assist you getting aquired and want to find Chinese investors please contact us.

with contribution of Brigitte Both (ECOVIS Beijing)

Richard Hoffmann is a Partner at ECOVIS Beijing China. Richard obtained an honor’s degree in law and worked in Germany, America and China for various prestigious law firms prior to joining ECOVIS. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV. Contact: richard.hoffmann@ecovis.com Ecovis Beijing is the trusted tax and legal advisor of several embassies and official institutions in China. It specializes in mid-sized international companies and focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up to our Newsletter or give us a call  +86 10-65616609 (ext 811/806)   or contact us directly via Beijing@ecovis.com