economic and trade relations between italy and china
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ECONOMIC AND TRADE RELATIONS
BETWEEN ITALY AND CHINA: TRENDS AND PROSPECTS
Background paper
by Alessia Amighini*
意中
Distributed on the occasion of the BFCI - Business Forum China-Italy (May 5th 2016)
2
* The opinions expressed herein are strictly personal and do not reflect the position of ISPI, and/or
the Business Forum.
Alessia Amighini is Senior Associate Research Fellow at ISPI. She is Assistant
Professor of Economics and International Economics at the Department of
Economic and Business Studies (DiSEI) at Piemonte Orientale University (Novara,
Italy), and Adjunct Professor of International Economics at Sacred Heart University
(Milan, Italy)
The Italian Institute for International Political Studies (ISPI) is an independent think tank
serving as a resource for government officials, business executives and everyone
wishing to better understand international issues.
Founded in Milan in 1934 thanks to the support of a group of businessmen led by
Alberto Pirelli, founder of Pirelli S.p.A., ISPI is Italy’s main forum for debate on
international affairs, with a focus on both world regions and global issues.
In close cooperation with the Italian Ministry of Foreign Affairs and International
Cooperation, as well as with leading Italian companies, ISPI promotes political,
economic and cultural dialogues with countries of particular interest to Italy such as
France, Germany, Mexico, Russia and Switzerland.
Thanks to its own permanent research programs, ISPI periodically publishes Reports
and holds conferences to give firms better knowledge of the political and economic
dynamics in specific countries. These activities also include the annual China
Watcher conference.
© 2016 ISPI
First edition: 2016
ISPI. Via Clerici, 5 20121, Milano www.ispionline.it
All Rights reserved. No part of this paper may be reprinted or reproduced or utilised in any form or by
any electronic, mechanical, or other means, now known or hereafter invented, including photocopying
and recording, or in any information storage or retrieval system, without permission in writing from the
publisher.
3
Contents
Executive Summary p. 4
1. Rising economic complementarities between Italy and China p. 6
2. Increasing interdependence through trade p. 11
3. Growing interest of Chinese direct investment in Italy within the EU p. 22
4
Executive Summary
The recent global crisis has confirmed that in an increasingly interconnected
global economy, all countries’ fortunes are interdependent and good economic
and trade relations are vital for the growth of global welfare. Chinese
growth as the second largest world economy and her rising integration in the
global economy over the last three decades are major sources of such
interdependence, as Chinese firms are now active actors in a vast number of
agricultural, industrial and services sectors. The inclusion of China into an
increasing number of global and regional value chains makes it key for both
China and all her major trading partners to further improve their cooperation,
both in bilateral and multilateral contexts.
The dynamism of the Chinese economy has spurred growth in the rest of the
world over the last three to four decades, and at the same time China’s growth
heavily benefited from intense bilateral trade and economic relations with the
most advanced and industrialised economies. In the context of the global
trade slowdown that followed the recent world recession, China has
remained a major partner for many emerging and industrialised
economies, including Italy. The current economic rebalancing in China
signals a transition towards a more sustainable and efficient economy, and
represents a major source for a higher interdependence between China and the
rest of the world. The potential for bilateral cooperation is larger today
than ever.
Italy has always been a major trading partner for China, as the two economies
share a number of similarities and complementarities in production structures.
The economic and trade relations between China and Italy have shown
increasing signs of growing interdependence over the last decade, through
both trade and investment. China and Italy are increasingly intertwined through
trade, as a rising share of each country’s exports include imports from the other
country. This is a sign that a number of manufacturing sectors that are the
backbone of economic activity in both countries are increasingly
interdependent.
5
Besides, both the Italian and Chinese economies are heavily export-oriented,
and they both rely on an increasing share of foreign inputs in their exports. In
addition, Italy increasingly relies on foreign inputs embedded in production
exports, with China having a growing share. The latter increased more than any
other foreign inputs since 1995, and amounts now to around 1.5%, similar to
that of the United States. At the same time, the share of Italian inputs in
Chinese production and exports increased in many sectors. Therefore, China’s
further export capacity partially depends on collaboration with high-tech
enterprises in highly industrialized countries, such as Italy.
Moreover, new sectors are emerging as increasingly important for the
future bilateral relations between China and Italy. In particular, growth
projections and the increasing food spending in China, together with the rapid
aging of its population, and their combined effect on health care spending, will
open up new possibilities for cooperation in agroindustry and pharmaceutical
sectors, where Italian skills, expertise and products can perfectly match the
growing sophistication of Chinese consumers. Likewise, Chinese producers have
a huge potential to upgrade into high-value added supply chains where Italy has
developed some of the world’s most advanced skills and technologies.
Italy and China are also increasingly linked through direct investments.
In 2015, Europe surpassed North America as the first destination for Chinese
outbound direct investments, and this is largely due to the large investment
share in Italy, which has become the top destination in Europe, hosting the
biggest Chinese deal in Europe so far. The potential complementarities between
the two countries are on the rise in many food, manufacturing and services value
chains. Italian and Chinese businesses can certainly collaborate more and
more in a vast number of economic activities in both goods and services
sectors, which go far beyond the traditional mature industries that have grown
mainly through production volume and market expansion, to include more
innovative and advanced sectors such as healthcare, environmental protection,
green farming, industrial upgrading, urban planning, and sustainable
development.
Building new interdependencies and leveraging new and old
complementarities will allow China and Italy to remain at the forefront of
the global economy.
6
1. Rising economic complementarities between Italy and China
Since the global crisis started in 2008, the world has come to realize how dependent
global growth is on the fate of the Chinese economy. China is not only a big exporter
of low-price products, thus being a formidable competitor, but also a major
importing country. Economic complementarities are high and rising between China
and her major trade partners, including most notably Europe and Italy.
China’s export capacity and upgrading may further benefit from the collaboration
with high-tech enterprises in highly industrialized countries, such as Italy. China can
export because it imports energy resources and raw materials that are lacking in the
country, especially from other emerging economies, such as Brazil, Indonesia and
Russia. Moreover, it acquires technology and industrial machinery from the highly
industrialized countries, whose companies choose China not only to exploit the cost
benefits, an aspect that is becoming less important given the rapid rise in Chinese
wages compared to that of its neighbouring countries, but more importantly to
oversee the most dynamic market in the world.
.
If China rebalances, as has been happening since the second half of 2014, its import
demand decreases, bringing down half of the world’s exports, which has driven
growth over the past few years. The recent data from Germany show that even the
so-called “locomotive of Europe” was indeed affected by the drop in Chinese
imports of machinery and equipment, the pride of the Mittelstand. For Italy, this is a
threefold shock: Chinese demand for the Made in Italy is decreasing, the German
sectors of mechanical engineering, with which Italy is intertwined, are suffering, and
China’s further export capacity and
upgrading may further benefit from the
collaboration with high-tech enterprises in
highly industrialized countries, such as Italy
7
the energy-exporting countries (including Russia), which had supported Italy’s
exports in many sectors during the recent past, are entering into a crisis phase.
There is another source of complexity, which is likely to gain more and more
importance in the future. The rapid growth in China over the past three decades has
in fact contributed to foster growth in many of the most technologically advanced
European industrial sectors. China's increasing production and export capacity in a
vast and increasing number of consumer goods has benefited from imported
machinery and tools from industrial economies, including Italy. As a matter of fact,
specialised industrial machinery, which is one of the most important flagship sectors
for Italian exports, shows deep and rising complementarities with Chinese export
capacities.
Despite other markets are more important than China for Italy, it is necessary to go
beyond the aggregate figures to really gauge what the possible consequences of
today’s Chinese economic rebalancing may be for our economy.
Despite the fact that Italian exports are mainly directed towards the European Union
(55%) and the U.S. (7.5%), the Chinese market was recently the most dynamic for Italian
exports (+ 18%), being second only to the U.S. market, which in 2015 grew more than
any other (+ 36% compared to 2014). On the contrary, European demand for Italian
goods is in a stasis (exports to Germany increased by only 1%, while exports to France
by 5%). Moreover, for some Italian export sectors (paper, leather, metals and fertilizers)
China is a very important market (well over 10% of the total), and a sharp slowdown in
its demand could severely affect them, without necessarily manifesting itself at the
aggregate level, given their relatively low share in total national exports.
The integration of China into many
production chains, from information
technology equipment and clothing to cars,
is the cornerstone of globalization, but also
the source of new interdependencies
8
TABLE 1.1 - SHARE OF CHINA IN ITALIAN EXPORTS
China’s share
of exports by sector
Sector’s share of
Italian exports
Paper pulp and waste paper 49,2 0,1
Leather, skins and furs, unbleached 21,5 0,1
Metal ores and metal scrap 14,9 0,2
Fertilizers and crude minerals (excluding
coal, petroleum and gemstones)
14,3 0,2
Machinery and equipment for metal
processing
7,7 1,4
Leather and skins and processed leather
goods and processed fur
6,8 1,1
Coffee, tea, cocoa, spices and
related products
6,2 0,6
Machinery and equipment specialized for
specific industries
5,1 5,5
Industrial machinery and equipment for
general use and parts
4,3 10,1
Travel goods, handbags and similar 4,1 1,3
Source: A. Amighini, “Effetto Cina sull’export”, lavoce.info, March 22, 2016, elaboration from Eurostat
If it is true that the sectors most dependent on Chinese demand weigh little on the
total of Italian exports, the machinery sector, though, is less exposed to the fate of
Chinese demand (the main sectors of specific- and general-purpose instrumental
machinery exports to China are respectively 4.3% and 5.1%), but they represent
The sectors most dependent on Chinese
demand weigh little on the total of Italian
exports. Instead, the specific- and general-
purpose machinery sectors are less exposed
to Chinese demand, but they represent
respectively 10.1% and 5.5%
of total Italian exports
9
respectively 10.1% and 5.5% of total Italian exports. As a consequence, the direct
impact of the Chinese economic rebalancing may be limited, but it will be heavily
concentrated on a few important sectors.
For the two most important sectors (general-purpose and specific instrumental
machines), the main market is no longer the European Union because it represents
less than half of the exports and this differentiates it from the average in many other
sectors. Moreover, even though direct exports to China weigh relatively little, BRICS
have become important markets, and if China’s slowdown drags down the other
economies (as is already happening), these shares will readjust. As for the United
States, on which it is said we should rely to raise exports, it in reality has a limited
presence in these sectors.
TABLE 1.2 - DESTINATION OF ITALIAN MACHINERY EXPORTS
Machinery for
general purposes
Machinery for
specific purposes
UE28 47,5 38,3
of which Germany 11,9 7,1
ExtraUE28 52,5 61,7
of which the United
States
7,3 8,5
BRICS 11,7 15,3
of which China 3,9 5,5
Source: A. Amighini, “Effetto Cina sull’export”, lavoce.info, March 22, 2016,
elaboration from Eurostat
The most important impact will, however, be indirect. For what concerns Italy, our
country participates in European production chains led in part by Germany - the
main market for Italian exports in many sectors of mechanical engineering – which is
in turn highly exposed to the Chinese market, whose slowdown thus indirectly
affects our exports. A quick way to evaluate this indirect impact is through the
calculation of the elasticity of exports: between 2002 and 2014, that of Italy to
Germany increased by 15% in the area of specialized machinery, compared to the
variation of German exports to China of 124% (i.e. an elasticity equal to 0.12).
During the same period, Italian exports to Germany increased by 239% in the field
of general-purpose machinery, compared to a change in German exports to China of
374% (i.e. an elasticity of 0.64). This means that, on average, for every percentage
point increase in German exports to China in each of these two sectors, Italian
exports increased by 0.12% and 0.64%.
10
As a result, when Chinese imports started to slow down considerably, Italian exports
were affected as well, probably much more than was expected just from looking only
at the data on the weight of China on Italian exports. The reason has to do with the
fact that part of Chinese demand from Italian companies stems from the orders of
Chinese companies to the German. According to OECD data, from 1995 to 2011
(latest available data), the Italian input content in German exports of machinery rose
from 1 to 3.5 billion dollars. These figures, while on one hand confirming that in the
context of a German-led Europe the importance of the Chinese market for Italian
companies goes far beyond the bilateral export value, on the other hand suggest that
the challenge of competitiveness for our products in China is played in Beijing as
much as in Berlin.
FIGURE 1.1 - VALUE OF ITALIAN INPUT IN GERMANY’S MACHINERY EXPORT
(MILLION $)
Source: A. Amighini, “Effetto Cina sull’export”, lavoce.info, March 22, 2016, elaboration on data from OECD-TiVA database
11
2. Increasing interdependence through trade
Bilateral trade flows show high interdependence between the Italian and Chinese
economies. Both Italian imports from and exports to China have been increasing
over the last few years. Italian exports to China show a strongly increasing trend,
with a 21.1% rise since 2010. Unlike exports, Italian imports from China are still
2.2% down compared to the 2010 level. However, imports have recovered since
2013, after a decline in Italian demand in the aftermaths of the global crisis.
FIGURE 2.1 - AGGREGATE TRADE FLOWS BETWEEN ITALY AND CHINA, 2010-2015
Source: Elaboration from Eurostat
Bilateral trade flows show high interdependence
between the Italian and Chinese economies. Both
Italian imports from and exports to China have
been increasing over the
last few years
0
5000
10000
15000
20000
25000
30000
35000
Jan.-Dec. 2010 Jan.-Dec. 2011 Jan.-Dec. 2012 Jan.-Dec. 2013 Jan.-Dec. 2014 Jan.-Dec. 2015
mill
ion
eu
ros
Import from China Export to China
12
SECTOR TRADE TRENDS
Complementarities are strong in major industrial sectors that are the
backbone of economic activity in both countries.
Italian exports to China increased by 21.1% between 2010 and 2015.
They are very concentrated on a few number of sectors, led by
Machinery and mechanical appliances, which, however, have declined
by 17.2% throughout those years. Other main exports have increased
over the same years, most notably Vehicles (+164.2%), Pharmaceutical
products (+362%), Apparel and clothing (+210%), Furniture (+171.6%)
and Leather articles (+322.9%).
Italian imports from China are also very concentrated on a few sectors,
mainly machinery (18.8% of total Italian imports from China in 2015)
and mechanical appliances (16.1% of total Italia imports from China in
2015). The top 10 import sectors account for 68.3% of total imports from
China.
Italian imports from China have increased since 2013 mainly due to
strong demand in major industrial sectors such as Machinery and
mechanical appliances (+18.9%), Iron and steel (+81%) and Optical,
photo and measuring apparatus (+53.1%).
TABLE 2.1 - ITALIAN TOP 10 IMPORTS FROM CHINA
Sector 2010 2011 2012 2013 2014 2015 %
2015
Electrical machinery 7,282,351,419 7,141,774,661 4,673,287,546 4,024,410,758 4,373,689,902 5,295,166,395 18.8
Machinery and mechanical appliances 3,802,723,438 4,455,679,010 4,563,368,096 4,241,926,331 4,456,754,480 4,522,054,212 16.1
Apparel and clothing (not knitted) 1,874,535,987 1,888,769,192 1,581,652,771 1,403,621,103 1,503,078,915 1,630,308,807 5.8
Iron and steel 789,165,279 958,703,971 563,723,483 613,136,382 1,003,071,369 1,430,175,978 5.1
Apparel and clothing 1,620,474,994 1,601,881,544 1,373,005,197 1,225,130,236 1,251,265,973 1,280,666,729 4.5
Optical, photo and measuring apparatus 752,280,472 789,283,950 839,044,879 844,988,820 944,714,065 1,151,443,901 4.1
Organic chemicals 663,161,577 774,296,011 812,231,843 775,980,005 808,397,642 1,012,254,127 3.6
Leather articles 980,338,336 988,494,713 956,531,673 847,631,532 913,526,762 1,006,944,926 3.6
64 819,289,205 849,725,139 823,263,459 799,743,075 848,688,609 966,426,087 3.4
Furniture 798,643,406 764,670,634 709,376,353 711,266,575 813,480,135 930,618,546 3.3
Source: Elaboration from Eurostat
TABLE 2.2 - ITALIAN TOP 10 EXPORTS TO CHINA Sector 2010 2011 2012 2013 2014 2015 % 2015
Machinery and
mechanical appliances
4,105,037,686 4,513,398,155 3,508,713,879 3,609,158,196 3,695,218,147 3,400,576,917 32.6
Vehicles 241,809,330 379,906,545 401,357,051 654,447,868 952,705,319 638,925,466 6.1
Electrical machinery 586,290,472 513,971,729 378,469,566 467,111,716 498,424,941 503,702,986 4.8
Pharmaceutical products 106,475,674 185,748,011 186,723,807 298,408,379 357,459,297 491,885,672 4.7
Optical, photo and
measuring apparatus
256,952,637 262,547,479 315,564,901 329,859,937 430,301,108 478,789,728 4.6
Apparel and clothing,
not knitted
121,948,401 180,077,852 253,619,874 301,617,741 361,291,128 378,174,251 3.6
Plastics 280,234,051 266,647,231 252,948,675 254,489,331 302,428,392 363,286,434 3.5
Furniture 117,551,677 160,719,495 164,470,149 206,427,001 251,003,243 319,321,652 3.1
Raw hides and skins and
leather
301,985,547 334,576,209 294,853,636 325,654,625 310,581,964 302,923,661 2.9
Leather articles 68,816,177 126,179,012 170,131,866 215,369,821 250,974,872 291,005,581 2.8
Source: Elaboration from Eurostat
MACHINERY AND MECHANICAL APPLIANCES
Source: Elaboration from Eurostat
ELECTRICAL MACHINERY
Source: Elaboration from Eurostat
-120
-100
-80
-60
-40
-20
0
20
40
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Jan.-Dec.2010
Jan.-Dec.2011
Jan.-Dec.2012
Jan.-Dec.2013
Jan.-Dec.2014
Jan.-Dec.2015
mill
ion
eu
ros
mill
ion
eu
ros
Machinery and mechanical appliances
Balance (right) Imports Exports
-800
-700
-600
-500
-400
-300
-200
-100
0
0
1000
2000
3000
4000
5000
6000
7000
8000
Jan.-Dec.2010
Jan.-Dec.2011
Jan.-Dec.2012
Jan.-Dec.2013
Jan.-Dec.2014
Jan.-Dec.2015
mill
ion
eu
ros
mill
ion
eu
ros
Electrical machinery
Balance (right) Imports Exports
16
VEHICLES
Source: Elaboration from Eurostat
OPTICAL, PHOTO AND MEASURING APPARATUS
Source: Elaboration from Eurostat
-50
-40
-30
-20
-10
0
10
20
30
40
0
100
200
300
400
500
600
700
800
Jan.-Dec.2010
Jan.-Dec.2011
Jan.-Dec.2012
Jan.-Dec.2013
Jan.-Dec.2014
Jan.-Dec.2015
mill
ion
eu
ros
mill
ion
eu
ros
Vehicles
Balance (right) Imports Exports
-80
-70
-60
-50
-40
-30
-20
-10
0
0
200
400
600
800
1000
1200
1400
Jan.-Dec.2010
Jan.-Dec.2011
Jan.-Dec.2012
Jan.-Dec.2013
Jan.-Dec.2014
Jan.-Dec.2015
mill
ion
eu
ros
mill
ion
eu
ros
Optical, photo and measuring apparatus
Balance (right) Imports Exports
17
FURNITURE
Source: Elaboration from Eurostat
APPAREL AND CLOTHING (NOT KNITTED)
Source: Elaboration from Eurostat
-80
-70
-60
-50
-40
-30
-20
-10
0
0
100
200
300
400
500
600
700
800
900
1000
Jan.-Dec.2010
Jan.-Dec.2011
Jan.-Dec.2012
Jan.-Dec.2013
Jan.-Dec.2014
Jan.-Dec.2015
mill
ion
eu
ros
mill
ion
eu
ros
Furniture
Balance (right) Imports Exports
-200
-180
-160
-140
-120
-100
-80
-60
-40
-20
0
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Jan.-Dec.2010
Jan.-Dec.2011
Jan.-Dec.2012
Jan.-Dec.2013
Jan.-Dec.2014
Jan.-Dec.2015
mill
ion
eu
ros
mill
ion
eu
ros
Apparel and clothing (not knitted)
Balance (right) Imports Exports
18
LEATHER ARTICLES
Source: Elaboration from Eurostat
PLASTICS
Source: Elaboration from Eurostat
-100
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
0
200
400
600
800
1000
1200
Jan.-Dec.2010
Jan.-Dec.2011
Jan.-Dec.2012
Jan.-Dec.2013
Jan.-Dec.2014
Jan.-Dec.2015
mill
ion
eu
ros
mill
ion
eu
ros
Leather articles
Balance (right) Imports Exports
-50
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
0
100
200
300
400
500
600
700
800
900
Jan.-Dec.2010
Jan.-Dec.2011
Jan.-Dec.2012
Jan.-Dec.2013
Jan.-Dec.2014
Jan.-Dec.2015
mill
ion
eu
ros
mill
ion
eu
ros
Plastics
Balance (right) Imports Exports
19
PHARMACEUTICAL PRODUCTS
Source: Elaboration from Eurostat
RAW HIDES AND SKINS AND LEATHER
Source: Elaboration from Eurostat
0
5
10
15
20
25
30
35
40
45
0
20
40
60
80
100
120
Jan.-Dec.2010
Jan.-Dec.2011
Jan.-Dec.2012
Jan.-Dec.2013
Jan.-Dec.2014
Jan.-Dec.2015
mill
ion
eu
ros
mill
ion
eu
ros
Pharmaceutical products
Balance (right) Imports Exports
0
5
10
15
20
25
30
35
0
10
20
30
40
50
60
70
Jan.-Dec.2010
Jan.-Dec.2011
Jan.-Dec.2012
Jan.-Dec.2013
Jan.-Dec.2014
Jan.-Dec.2015
mill
ion
eu
ros
mill
ion
eu
ros
Raw hides and skins and leather
Balance (right) Imports Exports
20
IRON AND STEEL
Source: Elaboration from Eurostat
APPAREL AND CLOTHING (KNITTED)
Source: Elaboration from Eurostat
-160
-140
-120
-100
-80
-60
-40
-20
0
0
200
400
600
800
1000
1200
1400
1600
Jan.-Dec.2010
Jan.-Dec.2011
Jan.-Dec.2012
Jan.-Dec.2013
Jan.-Dec.2014
Jan.-Dec.2015
mill
ion
eu
ros
mill
ion
eu
ros
Iron and steel
Balance (right) Imports Exports
-180
-160
-140
-120
-100
-80
-60
-40
-20
0
0
200
400
600
800
1000
1200
1400
1600
1800
Jan.-Dec.2010
Jan.-Dec.2011
Jan.-Dec.2012
Jan.-Dec.2013
Jan.-Dec.2014
Jan.-Dec.2015
mill
ion
eu
ros
mill
ion
eu
ros
Apparel and clothing (knitted)
Balance (right) Imports Exports
21
ORGANIC CHEMICALS
Source: Elaboration from Eurostat
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
0
200
400
600
800
1000
1200
Jan.-Dec.2010
Jan.-Dec.2011
Jan.-Dec.2012
Jan.-Dec.2013
Jan.-Dec.2014
Jan.-Dec.2015
mill
ion
eu
ros
mill
ion
eu
ros
Organic chemicals
Balance (right) Imports Exports
22
3. Growing interest of Chinese direct
investment in Italy within the EU
After having been a big recipient of foreign direct investments (FDIs) for more than
two decades, China has become an important outbound investor, especially since the
so-called Go Global Strategy was launched in 1999, as an effort by the Chinese
government to promote investments abroad.
The government, together with the China Council for the Promotion of
International Trade (CCPIT), introduced several schemes to assist domestic
companies in developing a global strategy to exploit opportunities for expanding in
international markets. Since then, Chinese companies, especially State Owned
Enterprises (SOEs) and mostly large companies, but increasingly also medium-sized
ones, have invested overseas to diversify their assets and location portfolios. In
recent years, especially since 2006, China has accelerated its outward expansion
through FDIs, and in 2013 became the third-largest foreign investor in the world,
while remaining a top destination for global investments (the largest outside of the
OECD) (UNCTAD 2015). In particular, in 2014 China’s outstanding investment
stock amounted to around 730 billion US$, which is around 3% of all outward FDI
in the world (UNCTAD 2015). In terms of destinations, the largest share of Chinese
FDI stock is located in Hong Kong (58%) and, overall, 84% of the entire stock is
directed to other developing countries (in particular, Southeast Asia, 5% and sub-
Saharan Africa, 3%). The EU (6%) and the US (3%) are major destinations among
advanced economies; besides, it is worth adding that FDI stocks directed to Europe
increased by around 77 times from 2003 to 2012, an increase which is much higher if
compared with the US, where Chinese FDIs have risen by 47 times (UNCTAD
2014).
23
Figure 3.11 shows the geographical distribution of Chinese FDIs in the EU-27.
Between 2003 and 2014, the countries receiving the largest number of investments
were Germany, the United Kingdom, France, the Netherlands, Italy and Spain.
These countries account for almost 76% of the total of Chinese investments in
Europe. Other important destinations are Hungary, Ireland, Poland, Romania and
Sweden. Interesting differences emerge when comparing the geography of
investments according to their entry mode. Greenfield deals are more widespread
across the EU, and in addition to the top six countries are also located in Central and
Eastern Europe (mainly in Bulgaria, Hungary, Poland and Romania). Instead, M&As
are much more concentrated in the EU “core” as well as in the Northern EU
countries (i.e. Finland and Sweden).
FIGURE 3.1 - THE GEOGRAPHY OF CHINESE INVESTMENTS IN THE EU (2003-2014)
Data source: A. Amighini et al. “Chinese Multinationals in Europe” elaborated from fDi Markets and BvD Zephir
1 This section heavily draws on A. Amighini, (forthcoming), Chinese Multinationals in Europe (with V.
Amendolagine and R. Rabellotti).
24
Figure 3.2 shows the greenfield entry mode is by far the most preferred, reaching
83% of the total investments (1029 out of 1234). Greenfield investments were on the
rise up to 2011 and then started declining, while Chinese M&As have been increasing
all through the considered period, although at a slower pace.
FIGURE 3.2 - CHINESE FDI TO THE EU (2003-2014)
Data source: A. Amighini et al. “Chinese Multinationals in Europe” elaborated from fDi Markets and BvD Zephir
The greenfield entry mode constitutes 83%
of the total investments
Chinese outbound foreign direct investment
(OFDI) in Europe hit a record high in 2015,
highlighting the potential for increasing
complementarities between Chinese and
European industrial sectors
25
Table 3.1 provides a snapshot of the top destination countries in terms of number of
investments by Chinese companies. Within the time period 2003-2014, Germany was
by far the top destination for Chinese investments, receiving 37% of total
investments (458 deals): 39% of total greenfield projects (404 deals) and 26% of
M&As (54 deals). The United Kingdom follows at a certain distance with less than
half of the investments directed to Germany (202) but, at the same time, a number of
M&As that is only slightly lower than Chinese M&As in Germany (41). Other
European countries receiving a large number of investments from China are France
(104), Netherlands (66), Italy (57) and Spain (49).
TABLE 3.1 - TOP DESTINATIONS IN THE EU (# OF DEALS AND %)
M&A
(%)
GREENFIELD
(%)
TOTAL
(%)
Germany 54 (26.3) 404 (39.3) 458 (37.1)
United Kingdom 41 (20) 161 (15.6) 202 (16.3)
France 27 (13.2) 77 (7.5) 104 (8.4)
Netherlands 24 (11.7) 42 (4.1) 66 (5.3)
Italy 16 (7.8) 41 (4) 57 (4.6)
Spain 6 (2.9) 43 (4.2) 49 (4)
Total above 168 (82) 768 (74.6) 936 (75.8)
Total EU-27 205 (100) 1029 (100) 1234 (100)
Data source: A. Amighini et al. “Chinese Multinationals in Europe” elaborated from fDi Markets
and BvD Zephir
Since China began to shift its focus from
developing to high-income economies
Europe became a leading destination
for its investment
26
Table 3.2 shows that Chinese FDIs in Europe are very concentrated not only in
terms of destination countries (as seen in Table 3.1), but also of target sectors. In
particular, almost half of Chinese investments (47.7%) is directed to only four
industrial sectors: electronics (128 deals), machinery & engines (114),
communications (97) and automotive (62). Moreover, the machinery & engines
sector hosts the largest number of M&As (35, i.e. 20.8%), while the electronics and
communications sectors receive the largest amounts of greenfield-type FDIs (114
and 97, respectively).
TABLE 3.2 - TOP DESTINATION SECTORS IN THE EU-27 (# DEALS AND %)
(2003-2011)
SECTOR M&A (%) GREEN (%) TOT. (%)
Electronics 14 (8.3) 114 (16.9) 128 (15.2)
Machinery & engines 35 (20.8) 79 (11.7) 114 (13.6)
Communications 0 (0.0) 97 (14.4) 97 (11.5)
Automotive 13 (7.7) 49 (7.2) 62 (7.4)
All sectors 168 (100) 673 (100) 841 (100)
Data source: A. Amighini et al. “Chinese Multinationals in Europe” elaborated from fDi Markets and BvD Zephir
27
Table 3.3 shows the distribution of Chinese FDIs across the top destination sectors
and the main EU destination countries, showing a very concentrated pattern. The
machinery & engines sector receives the largest share of Chinese investments in
Germany and the UK (45.6% and 33.1% of total investments, respectively); in Italy
and Spain the most targeted sector is electronics (33.3% and 64.3%, respectively);
finally, communications is the top destination sector in France (48%) and in the
Netherlands (along with electronics with 28.6%).
TABLE 3.3 - INVESTMENTS IN TOP DESTINATION SECTORS WITHIN TOP DESTINATION
COUNTRIES
(#DEALS AND %) (2003-2011)
France Germany Italy Netherlands Spain UK Total
Automotive 0 (0.0)
19 (12.7)
8 (29.6)
3 (21.4)
0 (0.0) 16 (34.8)
46 (16.7)
Communications 12 (48.0)
17 (11.4)
8 (29.6)
4 (28.6)
5 (35.7)
16 (34.8)
62 (22.6)
Electronics 4 (16.0)
45 (30.3)
9 (33.3)
4 (28.6)
9 (64.3)
5 (10.9)
76 (27.6)
Machinery & Engines
9 (36.0)
68 (45.6)
2 (7.5) 3 (21.4)
0 (0.0) 9 (19.5)
91 (33.1)
Total 25 (100)
149 (100)
27 (100)
14 (100)
14 (100)
46 (100)
275 (100)
Data source: A. Amighini et al. “Chinese Multinationals in Europe” elaborated from fDi Markets and BvD Zephir
Chinese investment looks for quality
industries: half of OFDI to Europe
is directed to electronics, machinery &
engines, communications and automotive
28
Table 3.4 lists the six investing companies with more than 10 deals, which account
for around 16% of all Chinese FDIs in the EU-27. Investors relying on complex
entry mode strategies (i.e. both greenfield and M&As) belong to the capital- and
knowledge-intensive manufacturing sectors, such as automotive (SAIC), chemicals
(China National Chemical), and energy (Suntech Power Holdings). In addition,
investors in the services sector (ICBC) and the electronics industry (Huawei and
ZTE) only rely on the greenfield entry mode.
TABLE 3.4 - TOP INVESTORS (# DEALS AND %) (2003-2011)
Data source: A. Amighini et al. “Chinese Multinationals in Europe” elaborated from fDi Markets and
BvD Zephir
Company M&A (%) GREEN (%)
TOTAL (%)
Huawei Technologies 0 (0.0) 52 (7.7) 52 (6.2)
ZTE 0 (0.0) 24 (3.5) 24 (2.8)
China National Chemical 9 (5.3) 13 (1.9) 22 (2.6)
Industrial and Commercial Bank of China (ICBC)
0 (0.0) 15 (2.2) 15 (1.8)
Shanghai Automotive Industry Corporation (SAIC)
3 (1.8) 8 (1.2) 11 (1.3)
Suntech Power Holdings 1 (0.6) 9 (1.3) 10 (1.2)
All investors 168 (100) 673 (100) 841 (100)
29
Figure 3.3 shows that the majority of Chinese greenfield investments in the EU-27
between 2003 and 2014 served commercial purposes (47.7 %) in so far as they were
connected to Sales, Marketing and Retail activities. Headquarters and Manufacturing
activities are also important, as they represent respectively 21% and 17.8% of all
activities. Finally, innovative activities (i.e. R&D, Design, Development and Testing,
Training), along with Logistic and Distribution activities, currently represent a smaller
share of Chinese investments (respectively, 9.5 % and 4 %).
FIGURE 3.3 - DISTRIBUTION OF INVESTMENTS ALONG THE VALUE CHAIN (2003-2014)
Data source: fDi Markets and BvD Zephir
The geography of Chinese investments
differs according to the business activities
undertaken: HQ and INNOVATION are
concentrated in the EU core
30
Figure 3.4 presents the trend of different business activities. Interestingly,
commercial activities have been decreasing over the last few years, while investments
associated with higher-value added activities, such as strategic and innovative
activities, have been – albeit slowly – increasing. Furthermore, deals related to
manufacturing activities also follow an upward trend.
FIGURE 3.4 - INVESTMENTS OVER TIME ALONG THE VALUE CHAIN
Data source: A. Amighini et al. “Chinese Multinationals in Europe” elaborated from fDi Markets and BvD Zephir
31
Figure 3.5 shows the geography of Chinese investments in the EU-27 appears to vary
according to the targeted business activities. In particular, while commercial activities
are more homogeneously spread out among European countries, higher value-added
activities (“HQ” and “INNOVATION”) are more concentrated in the EU “core”
destinations, such as France, Germany, Italy, the Netherlands and UK. Finally,
manufacturing activities are mostly associated with investments undertaken not only
in some EU “core” countries, such as France, Germany and UK, but also in some
lower labour cost economies in the eastern part of the EU (i.e. Poland and Romania).
FIGURE 3.5 - MAP OF CHINESE INVESTMENTS IN EU27 BY VALUE CHAIN STAGE
(2003-2014)
Data source: fDi Markets and BvD Zephir Data source: A. Amighini et al. “Chinese Multinationals in Europe” elaborated from fDi Markets and BvD Zephir
32
Figure 3.6 shows that Chinese FDI in Europe increased exponentially over the last
five years, averaging more than 10 billion euros, a ten-fold increase compared to the
previous five years. The greatest increase occurred in 2015 when Chinese FDI in the
EU reached 20 billion euros, up by 44% compared to 2014, and this increase was
largely due to ChemChina’s acquisition of Italian tire producer Pirelli, the biggest
Chinese takeover in the EU so far.
FIGURE 3.6 - CHINESE OFDI IN EUROPE HITS A NEW RECORD HIGH IN 2015
VALUE OF CHINESE OFDI TRANSACTIONS IN EU ECONOMIES
(EUR million)
Source: Rhodium Group
33
Figure 3.7 shows that Chinese FDI in Europe targeted a number of different sectors,
with the automotive sector in top position (due to the major deal with the Italian
company Pirelli). The remaining sectors show a wide range of interests by Chinese
firms seeking for technology, including information and telecommunication
technology (NXP Semiconductors’ RF business) and brands, as well as real estate
and hospitality (Louvre Hotels, Club Med), and financial services (SNS Reaal’s
insurance unit, Banco Espirito Santo’s investment banking unit).
FIGURE 3.7 - CHINESE INVESTORS ARE TARGETING A MORE DIVERSE MIX OF SECTORS
DISTRIBUTION OF CHINESE OFDI IN THE EU BY INDUSTRY 2000 - 2015
(EUR million)
Source: Rhodium Group
34
Figure 3.8 shows that private investors are increasing their shares of total Chinese
FDI: in 2015, they hit the record level of 6 billion euros. Compared to the last
decade, private firms have become important foreign investors. However, State-
owned investors continue to account for the majority of China’s EU OFDI, and the
share even increased last year compared to 2014.
FIGURE 3.8 - STATE-OWNED INVESTORS STILL ACCOUNT FOR THE MAJORITY OF
CHINESE FDI IN EUROPE
SHARE OF CHINESE OFDI IN THE EU BY INVESTOR TYPE 2000 - 2015
Source: Rhodium Group. State-owned entities refer to companies that are at least 20% owned by the government, sovereign
entities, and central SOE’s; private entities refer to companies with less than 20% ownership by the government, sovereign
entities, and central SOE’s.
The initiative of the New Silk Road is a
rising opportunity to strengthen economic
relation between Europe and China
35
Figure 3.9 shows Italy has became a growing destination for China’s outbound FDI,
being the recipient of the largest investment in Europe in 2014. Other investments
include the purchase of a 35% stake in CDP Reti by State Grid Corp. in November
of the same year, and the acquisition of a 40% stake in Ansaldo Energia by Shanghai
Electric Group Co. earlier in 2014. People’s Bank of China has also invested minority
stakes in some of Italy’s biggest companies, including Fiat Chrysler Automobiles,
Telecom Italia, Assicurazioni Generali, Eni and Enel.
FIGURE 3.9 - TOP FIVE EU RECIPIENTS OF CHINA’S OFDIS (2014)
Source: Rhodium Group
Source: China Investment Tracker
Year Month Investor Quantity in Millions
Share Size Transaction Party Sector Subsector
2008 June Zoomlion $250 60% Compagnia Italiana Forme Acciaio Real estate Construction
2010 May Jiangsu Zongyi $200 Energy Alternative
2011 November
Huawei $130 Technology Telecom
2012 January Shandong Heavy $460 75% Ferretti Transport Shipping
2012 December Zoomlion $240 40% Compagnia Italiana Forme Acciaio Real estate Construction
2014 March SAFE $2.760 2%, 3% Eni, Enel Energy
2014 May China Power Investment
$560 40% Ansaldo Energia Energy
2014 July SAFE $520 2% Telecom Italia Technology Telecom
2014 July SAFE $110 2% Prysiam Technology Telecom
2014 July SAFE $280 2% Fiat Transport Autos
2014 August SAFE $630 2% Generali Finance
2014 October SAFE $140 2% Mediobanco Finance Banking
2014 November
State Grid $2.500 35% CDP Reti Energy
2014 December SAFE $100 2% Saipem Energy Oil
2015 June ChemChina $7.860 26% Pirelli Transport Autos
2015 June SAFE $1.220 2% Intesa Sanpaolo Finance Banking
2015 July Fosun $380 Real estate Property
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