12. November 2019

Is Europe the new Friend of China

Contrary to recent studies, the future of Chinese investments in Europe remains positive. Here is why. Sign up and download the report to get full insights!

China's Innovation Power

OF THE 3.3 MILLION PATENTS registered worldwide in 2018, almost one in two now comes from China. That is almost three times more applications than from the USA, indicated by the recently published report by World Intellectual Property Indicators. The average Chinese works 8.4 hours a week longer than the average German. Or how Ephraim Kishon would state it: "The Asians have conquered the world market with unfair methods - they work during working hours."

China = Education Hub

THE "WAR" IS NO LONGER fought simply regarding technology leadership or access to natural resources. The focus is on future generations and their education. China has developed into an "Education Hub" over the last decade with more than 600,000 students studying abroad, mainly in the US and the UK, but also with more than 400,000 students coming to China mainly from the neighboring countries. The number of Americans coming to China to study decreases and Europeans are generally still hesitant to come to China for their education.

China as a Key Driver for Transactions in Europe

IN THE LAST 12 YEARS, China has become one of the key investors in Europe. Germany, for example, experienced an increase of 7,000% in investment volume from China since 2006.

China's Interest in High-Value B2B Remains Strong

SINCE THE BEGINNING OF 2019 however, according to the Consultants of EY, only a little bit more than 80 China - Europe acquisitions have been successfully closed. This is a decrease of 30% in comparison to last year. Correspondingly, the investment volumes have fallen significantly. In comparison to the big boom year of 2016 with an investment volume of USD 85bn, the volume decreased down to USD 2.4bn in the first half of 2019. In Germany, this is reflected in 11 deals concluded with an investment volume of only USD 500m. The main reasons for this decline are the impact of the ongoing trade conflicts with China and the USA, further geopolitical issues as well as China's focus on its slowing domestic market growth.

ALTHOUGH, INVESTMENTS HAVE DROPPED on high levels in 2019, the Chinese demands for attractive European business will further grow in short to mid-term. Yet, the Chinese interest is more focused and differentiated than ever before. IEG can confirm that Chinese companies are still highly interested in high-value B2B business models to get access to the attractive European markets and customers as well as in solidly engineered and well-known local premium B2B brands. The prejudice of buying cheap manufacturing equipment to transfer to China is history. Although fundamentally different in many aspects to Europe, China has become one of the most innovative countries worldwide (e.g. Artificial Intelligence, Robotics, Battery Tech, Clean Tech, Government and Network Tech, and many more) and this is just the beginning.

" Since the USA no longer wants to sell to China, this seems to me to be an opportunity for Europe to develop more strongly."

Ren Zhengfei, Founder Huawei Technology

The Outlook is Promising

CHINESE INVESTORS HAVE ALWAYS HAD a more long-term approach in investing compared to Europe or the US. A good example is Geely's most recent investment in Volocopter, the flying car developer with the intention to bring airbone cars to China. Given the political struggle between China and the US, IEG strongly believes that Europe can benefit from the situation if they are able to keep their economic freedom.

BY 2030, CHINA WILL DOMINATE the global economy with an expected GDP of 2x compared to the US and nearly 10x compared to Germany's GDP. The most recent decision by the German government in mid-October to allow Huawei to participate in the construction of their high-speed 5G network - despite heavy pressure from the US against it - is a clear indicator that an economic-friendly situation with Europe and China will continue.

Last but not least, another important change in China will lead to an increase in overall investments from China into Europe. Chinese state-owned enterprises (SOEs) received updated KPIs as performance indicators. One very important KPI update includes the percentage of revenues from overseas in relation to total group revenue. Based on our information, many SOEs will only be able to achieve these KPIs by successful foreign acquisitions. Consequently, we see an increasing number of China-Europe deals to come.


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Stay tuned - the IEG - Research Team will continue to provide insights into the most thriving markets, about industry-decisive transactions and the hottest topics on a regular basis.






Picture of Ren Zhenfei © South China Morning Post

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