The new reality…China is a 2 trillion dollars global investor

Article published by the Legal Magazine, 13th of April 2019

China’s great investment potential drove Ms. Gherghina Oana Ruxandra, Managing Partner of Gherghina Law Firm , to conduct an analysis of the investment sectors, global transactions, and China’s investment trends for 2019. The results of the study confirm that China’s opening to foreign direct investment FDI comes in the global context in which Chinese companies continue to seek access to new markets and, implicitly, to new opportunities to obtain profits from financial investment by implementing the strategy “Going Global” in Beijing.

Romanian Prime Minister Viorica Dăncilă had a meeting with Chinese Prime Minister Li Keqiang on Friday, in which she stated her interest in involving Chinese companies in public-private partnership projects.

According to a government press-release, “Prime Minister Viorica Dăncilă has provided information on the recent changes to the public-private partnership legislation and has stated the interest in involving Chinese companies in PPP projects.”

Investments outside the country offer China the opportunity to consolidate its own economy but also to exert its economic power to increase its influence abroad, and Romania can take advantage of this strategy to increase the volume of foreign investment in our country.

Boosted by Beijing’s “Going Global” strategy, which encourages investment in foreign markets, Chinese companies have actively expanded their global footprint in recent years and explored investment opportunities in several sectors such as energy, health and construction . The value of investments and constructions belonging to Chinese companies abroad since 2005 has soared to 2 trillion dollars, according to the American Enterprise Institute .

” By analyzing the global context of Chinese companies’ interaction, we have come to the conclusion that flexible, interculturaly orriented and imaginative organizations that apply fair and transparent strategies will have the greatest success in conducting FDI transactions with China.Whether we are talking about PPP, M & A, or joint ventures, Romania needs to take this opportunity . ”  Gherghina Oana

China’s slowdown in economic growth and the tightening of regulation both inside and outside the country have changed the global environment for Chinese foreign investment. To help customers make the right decisions in this evolving environment, Ms. Av. Gherghina Oana, conducted a study targeting the latest trends in Chinese foreign direct investment.

China comes out shopping around the world in 2019

As a result of the research, public information revealed that in the last five years the volume of transactions was generally stable in Europe, but in 2017 in the US they declined by 20% compared to 2014 levels, slightly recovering in 2018. 
The average business size has fallen in both regions, namely in Europe from $ 512 million in 2017 (oversized by the ChemChina-Syngenta hyperdeal) to $ 130 million in 2018, and in the US from $ 207 million in 2017, to just 44 million in 2018. In conclusion, total investment in the two regions fell from $ 111 billion in 2017 to $ 30 billion in 2018. Similar low levels were last recorded in 2013 and 2014.

It is noticed that Chinese foreign direct investment in Europe has far outstripped US investment in 2018. As compared to 2017, US flows have experienced another sharp decline, while Europe has declined more modestly but still significantly. Analyzing the causes of declining Chinese investment in the US, it was concluded that the downward trend in investment was generated by a cumulus of factors such as the continued tightening of Chinese regulatory control over foreign capital flows, the change in US foreign investment policy direct trade in China, as well as a deterioration in economic relations between the two countries.

With regard to Europe, $ 43 billion of ChemChina-Syngenta’s hypermarket exploded in the 2017 chart, which could make the results of 2018 seem disastrous, but excluding this transaction, the FID drop in Europe is minimal, the trend towards USA being ascendant.

Massive asset sales?

In addition to limiting investments abroad, tightening Chinese financial conditions has prompted significant Chinese asset sales in 2018. Chinese companies sold assets of 13 billion US assets and 5 billion in Europe. Chinese companies also announced last year sales of $ 12 billion in Europe and the US, sales to be completed in 2019. Being well-known China’s investment interest in advanced technologies, it was noticed that asset sales focused on real estate, hospitality (hotels, restaurants, etc.) and entertainment.

The structure of China’s FDI sector varied between Europe and North America in 2018, largely due to two influences, the various political and regulatory paintings in the two regions, and the Chinese restrictions on certain investments that mainly affected flows in North America .

The most important direct investment sectors in China in 2018

Chinese direct investment in Europe focused on the automotive industry – 17%, Financial and business services – 15% 
IT – 14%, and in the US – 38%, Health and Biotechnology – 19%, Entertainment, Media and Education – 12%

From the data analyzed, it has been concluded that cinese investments have increased significantly in several Western European countries last year, including France, Sweden, Luxembourg, Denmark and Spain, but also several economies in Central and Eastern Europe – Hungary, Croatia, Poland and Slovenia, Greenfield’s investments in production and renewable energy being a key factor.

Trends for 2019

An overview of the transaction market for 2019 suggests a very different picture for China’s direct investment between Europe and North America, with Europe currently running over $ 20 billion in ongoing transactions, highlighting – there is a robust appetite for investment in the region among Chinese organizations.

Regarding regulation, regional prospects are more coherent. The legislative climate both in the US and in Europe poses significant risks and uncertainties to Chinese investors, and this situation can be exploited by Romania. The new US investment analysis legislation, FIRRMA, has created an unpredictable context for foreign investment.

While remaining open to Chinese investment, European countries also revise their investment analysis approaches.In this context, Chinese investors could be particularly affected by these legislative changes, which allow governments to control their investment in government funding or policy, focusing on countries with greater openness to foreign investment, as is Romania.