China’s investment outflows are growing fast and Europe is one of the main beneficiaries of this trend. By the end of 2014, China had invested $54 billion in the stocks of European companies, becoming the fifth largest investor in the Old Continent – after the United States ($3,23 trillion), Canada ($155 billion), Bermuda ($77 billion) and Japan ($56,5 billion).
China’s financial rebalancing towards Europe is part of Beijing’s broader strategy to export capital and political influence. In 2014, China became a net exporter of capital for the first time as the country is implementing legislation that reduces restrictions on outbound investment and encourages companies to look overseas for mergers and acquisitions. In 2013, Chinese outbound investments were at a high of $108 billion, up 23% from a year earlier, bringing total direct offshore investment to $660 billion.
In November 2014, China’s President Xi Jinping announced that Chinese offshore investment will reach $1.25 trillion over the next decade, nearly tripling current Chinese outbound direct investment. This sum includes a $40 billion contribution to the Chinese-led ‘Silk Road Fund’ aimed to invest in infrastructure to support Xi’s vision of a ‘new silk road and maritime silk road’ to link China with Europe and the Mediterranean. Chinese officials have repeatedly declared that Europe is one of the primary destinations of capital outflows, a trend which became evident in the second half of 2014.
While Germany, France and the United Kingdom have long been the preferred destinations of Chinese investments, in 2014 interest for Eastern and Southern Europe has soared, in what has been dubbed as the dawn of a second Marshall Plan for the continent’s troubled periphery. Since Spring 2014, the People’s Bank of China (PBOC) – through its investment arm, the State Administration of Foreign Exchange (SAFE) – has invested more than €3.2 billion on stakes of about 2% each in eight of Italy’s largest companies: Fiat Chrysler Automobiles, Telecom Italia, Prysmian (world’s top cable maker), Generali, Mediobanca, Saipem and state-controlled Eni (oil and gas operator) and Enel (utility). This has made the PBOC the 12th largest investor in Italy’s stock exchange. On top of it, in May 2014 Shanghai Electric Group bought a 40% stake in power engineering company Ansaldo Energia for €400 million and in July, China’s State Grid acquired a 35% stake in energy grid holding company CDP Reti for €2.1 billion.
By the end of January 2015, Beijing had invested more than €5.8 billion in Italy, a sum which represents around 7% of China’s total investments in Europe. The Italian government has supported unwaveringly Chinese investments, a move mirrored by other austerity-hit peripheral countries of the eurozone. In June 2014, Greece and China signed a ship-building deal worth €2 billion, financed by China Development Bank. In Portugal, Chinese investors swept up 45% of the total assets – mainly infrastructure – put up for privatisation under the Economic Adjustment Programme inspired by the EU and the IMF.
Project financing has emerged as one of the most promising areas for Chinese involvement in Southern and Eastern Europe. At the Third Meeting of heads of government of China and the 16 Central and Eastern European Countries (CEECs) held in Belgrade in mid-December 2104, Li Keqiang, the Chinese Premier, pledged to inject more investment to boost infrastructure and sea and land connections between China and the region, in addition to the 69 cooperation projects between China and the CEECs implemented after the second meeting in Romania in November 2013.
The Balkans have become China’s new frontier for investment. On 17 December 2014, China, Hungary, Serbia and Macedonia agreed to build a land-sea express route by expanding the Budapest-Belgrade rail line to Skopje, Athens and the port of Piraeus in Greece – one of the largest container ports in Europe – where Chinese shipping giant COSCO has a 35-year concession for two piers. Needless to say that the corridor will be built and financed by Chinese companies.
A more friendly investment environment – compared with other developed economies such as the US and Japan– and the slower than expected recovery from the debt crisis has made Europe – in particular the periphery – a valuable destination for China as it constantly looks for global opportunities to preserve and increase the value of its reserves.
A longer version of this article is published by ISN Security Watch with the title: China’s financial footprint in Europe