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Chinese investors receive warm welcome in Europe

Beleaguered EU economies benefit from mergers with and acquisitions by firms from China that take advantage of depressed valuations amid ongoing debt crisis. Toh Han Shih reports for South China Morning Post. June 22, 2012 -- China cannot save the troubled European economy, but Europe will be an important target of Chinese investment in the coming years, analysts say. "It is up to Europeans to resolve the euro crisis. Chinese investment in Europe may be helpful for specific companies or sectors but will not resolve the crisis. Chinese investment may be viewed as a vote of confidence in Europe or an opportunistic attempt to pick up fire-sale assets," said Woo Yuen Pau, president of the Asia Pacific Foundation of Canada, a Canadian think tank on Asia. Peter Williamson, from the Judge Business School of Cambridge University in Britain, said the euro crisis meant governments would be more welcoming of Chinese investment. "European companies that need funding and access to Chinese and other emerging markets will welcome Chinese investments," he said. Belgian Deputy Prime Minister Didier Reynders said at the recent China Global Outbound Investment Summit in Beijing that China was willing to co-operate with the EU. "We have received support from China and the [International Monetary Fund (IMF)]. Belgium is discussing with China investments in areas like water treatment." Reynders also said it would be a catastrophe for Greece to leave the euro. "I will try to persuade Greece not to leave the euro." China backed the European Union during a Group of 20 summit in Mexico on Tuesday by pledging US$43 billion for a firewall fund to stave off future crises. The contribution from China increased to US$456 billion the IMF war chest to help shield countries from fallout from the euro-zone debt crisis. In the first quarter, Chinese investment in Europe was US$1.7 billion, the same as in the first quarter of last year, A Capital, a private equity fund that invests in Europe in partnership with Chinese firms, said. However, excluding the resources sector, the EU accounted for about 80 per cent of China's mergers and acquisitions (M&A) in the first quarter, Andre Loesekrug-Pietri, chairman of A Capital, said. He said Europe accounted for 34 per cent of China's overseas M&A. "A Capital anticipates that proportion will remain stable in the next five years," Loesekrug-Pietri said. China's M&A in Europe total US$3.97 billion so far this year. At the current pace, they will fall short of the US$16.15 billion chalked up last year, according to data from Mergermarket, a media company that provides information on M&A activity. "The EU accounts for 30 per cent of Chinese exports, while the US accounts for 16 per cent. When your biggest customer's home consumption is not bullish, it is in everybody's interest that the situation in the EU gets better," Loesekrug-Pietri said. Felix Egli, a lawyer at Vischer, a Swiss law firm, said: "I see Chinese investment in the EU increasing this year. Chinese like to invest when prices are low. "Chinese companies should not take advantage of the European debt crisis to buy targets that are cheap. Chinese companies think they are getting technology in Europe at a low price, but I don't think it is a smart strategy. If you buy a bankrupt company, the risk is high." Egli cited a case where a Chinese company set up an office in Europe. "The European management cheated the Chinese company when they realised control from China was not efficient. Then the Chinese company had to get out of Europe, and there was litigation," he said. Loesekrug-Pietri said it was a "complete myth" that Chinese companies were buying cheap in the EU. "The good companies are as expensive as ever, some even more so, because of the flight to quality. If you want to invest in Louis Vuitton, it's very expensive, he said." Marshall Nicholson, managing director of China International Capital Corporation said at a recent panel on "Asia M&A in Europe" in Hong Kong: "The problem with M&A is not a lack of funds but lack of credit confidence in Europe. Once you get that resolved, M&A will take off. If you have stability in the market, more Chinese state-owned enterprises will be interested in acquisitions in Europe." Loesekrug-Pietri said: "A lot of the EU's problems stem from perception. The perception of risk has become a real risk, and this is serious. "There is a misunderstanding that because of Europe's sovereign debt crisis, everything in the EU is in trouble. Europe is still a hub for innovation in areas like energy, aerospace, automotive, healthcare." China accounted for 29 of the 948 foreign acquisitions in Europe last year, while Japan made 47 acquisitions totalling US$23.3 billion in Europe, more than China, according to Mergermarket research manager Shunsuke Okano.