Chinese investment in Europe on rapid rise

17 january 2013

LONDON – China’s investment deals in Europe first surpassed Europe’s in China in the first quarter of 2012, with 32 investments from China’s mainland and just 26 deals made by European companies in China, according to a PwC report released on Thursday.

The report, “China Deals; A fresh perspective,” from PwC’s emerging markets group, showed there has been a steady rise in the value and volume of mainland Chinese investments in Europe over the last six years despite recent signs of a slowdown in China’s economic growth and the continuing uncertainties of the eurozone crisis.

Chinese investments in Europe increased from just 11 deals in 2006 to 61 in 2011, while those from Europe to China declined from a peak of 163 deals in 2006 to a low of 85 in 2009, narrowing down the gap between the two sides.

Meanwhile, Europe’s investment to China has recovered since 2009 as European investors pushed for growth through deals in China’s faster growing market. In 2011, European investors completed 125 deals in China.

Chinese state-owned enterprises have led the way in investing in Europe, as noted by the report, and its privately owned businesses are now also looking to expand by acquiring companies overseas and in a range of sectors.

PwC’s report said that Germany and France have surpassed Britain’s dominant investment relationship with China in either way in recent years. Germany has become the biggest European destination for Chinese M&A transactions in the past 15 months, while 2011 saw France overtake Britain as the largest investor in Chinese M&A.

The report also said Chinese companies have generally bought smaller percentage stakes in European businesses but for larger sums of money, whereas European investments tended to invest smaller sums for large stakes, due to different focus in the investment strategies of Chinese and European businesses.

Most valuable deals done by the Chinese in Europe were in the energy, utilities, mining and infrastructure sectors, with 12 of the 20 largest deals since 2006 were in these sectors and seven were worth between one and six billion euros.

In terms of deals volume, the most transactions are in industries such as industrial products, telecoms, media and technology, and retail and consumer.

Allan Zhang, a director at PwC who advises on outbound deals from China, said that the on-going eurozone uncertainties, in the eyes of some Chinese investors, have improved their chances of striking good deals with debt-ridden European companies.

“With their growing awareness of European assets, Chinese bidders are likely to become more common in the future. Britain-based asset holders should therefore be seriously considering China as a means of achieving full or partial exits from their investments,” Zhang said.

However, according to Zhang, “because of the lengthy Chinese regulatory process, they need to think about engaging with Chinese investors earlier and managing an active and effective communication process to have the deal done in good time.”