EU-China FDI Monitor

Transcription

1 EU-China FDI Monitor 2Q 215 Update: Public Version This report was produced for the European Commission under the China Observatory project. See final page for full disclaimer. 1 East 4 th Street, Suite 361, New York, NY 116 Tel: Fax: Web: Address: 5 Columbus Circle, New York, NY 119 Tel: Fax: Web: 1

2 Foreign Investment in China: Global Trends Foreign Direct Investment Flows in China, 2Q 212-2Q 215 Monthly FDI flows in USD million*, percent year-on-year growth 25, 2, 15, 1, 5, Jun, 212 Aug, 212 Oct, 212 Dec, 212 Feb, 213 Apr, 213 MOFCOM, Utilized FDI (Left Axis) Utilized FDI YTD % YoY Growth, 3mma (Right Axis) Jun, 213 Aug, 213 Oct, 213 Dec, 213 Feb, 214 Apr, 214 Jun, 214 Aug, 214 Oct, 214 Dec, 214 Feb, 215 Apr, 215 Jun, % 25% 15% 5% -5% -15% -25% -35% Official statistics from China s Ministry of Commerce (MOFCOM) show stable inflows of foreign direct investment into China, despite mounting concerns over growth and financial market stability. According to MOFCOM, utilized FDI into China added up to $68 billion in the first half of 215, up 8% from the first half of 214. While the year-on-year growth rate is slightly distorted by a weak base (an anemic 1H 214), the $68 billion of utilized FDI is the highest inflow in the first six months of a year ever recorded. Source: MOFCOM. The regional breakdown provided by MOFCOM shows that the top 1 investors in 1H 215 were Hong Kong, Singapore, Korea, Taiwan, Japan, the US, Germany, France, the UK, and Macau. Utilized FDI from the EU-28 reached $4 billion, up 14% year-on-year. Compared to last year, the fastest growing sectors were financial services (+427%), scientific research (+19%), IT equipment manufacturing (232%), and chemicals (+72%). Unfortunately, we cannot compare MOFCOM s 1H FDI figures with data compiled by the State Administration of Foreign Exchange (SAFE) for Balance of Payments (BOP) purposes, as we lack suitable data points. SAFE recently switched its BOP statistics from the BPM5 to the BPM6 standard, which means a change in the presentation of FDI data from a directional to an asset/liability perspective. This is in principle a positive step, but unfortunately SAFE does not yet provide revised and detailed data points for previous years that would allow us to calculate outward FDI flows comparable to MOFCOM data. We thus exclude SAFE data from this issue and will include it again as soon as the data becomes available. 2

3 EU Investment into China: Transactions Data EU-28 FDI Transactions in China by Entry Mode, 3Q 213-2Q 215 Quarterly number of transactions, investment value in USD million Investment in Acquisitions (Right Axis) Investment in Multiyear Greenfield Projects (Right Axis) Investment in New Greenfield Projects (Right Axis) Number of New Greenfield Projects (Left Axis) Number of Acquisition (Left Axis) 8, 6, 4, 2, Given the lack of detailed and timely data points from MOFCOM and Eurostat, we have to rely on our transactions database for a more granular assessment of FDI activity by European companies in China. The overview chart summarizes the trends and patterns in recent quarters, including completed M&A transactions (blue), new greenfield projects (light green), and expenses for large multi-year greenfield projects (dark green), which we log incrementally over time instead of at the announcement date. 3Q 213 4Q 213 1Q 214 2Q 214 3Q 214 4Q 214 1Q 215 2Q 215 The number of greenfield projects has dropped slightly in recent quarters but their value was fairly stable, which reflects spending on large projects such as auto factories (Volkswagen) and chemical plants (BASF), as well as new projects (Alstom, Shell). In 2Q, we count $1.4 billion of spending on multi-year greenfield projects and $761 million worth of new greenfield projects, broadly in line with previous quarters. The patterns in M&A spending are more volatile, as we log those transactions at full value on the closing date of the deal. We observe significant swings if big deals are completed and corresponding drops in quarters without big deals. 2Q 215 was one of the latter cases with only three small transactions worth $45 million completed which dragged the total value of FDI transactions down to $2.2 billion. 3

4 EU Investment into China: Transactions Data EU-28 FDI Transactions in China by Industry, 3Q 213-2Q 215 Quarterly investment value in USD million 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 3Q 213 4Q 213 1Q 214 2Q 214 3Q 214 4Q 214 1Q 215 2Q 215 EU-28 FDI Transactions in China by Country of Origin, 3Q 213-2Q 215 Quarterly investment value in USD million 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 3Q 213 4Q 213 1Q 214 2Q 214 3Q 214 4Q 214 1Q 215 2Q 215 Coal, Oil and Gas Renewable Energy Electronics Food Chemicals Auto UK Netherlands France Germany Autos and chemicals continue to dominate European investment in China, with several significant new facilities and expansions under way. Other sectors that saw significant new investments are food and electronics. The ranking of investor countries continues to be dominated by Germany, with France in second position. The Netherlands, the UK, and Austria round out the top five. Looking ahead, the dip in acquisitions seems only temporary, with several high-profile M&A transactions worth billions of dollars currently pending. The biggest are Volkswagen s investment to raise its stake in the joint venture with local auto maker FAW from 4 to 5% (estimated at more than $5 billion), a new joint venture between Volkswagen and SAIC to produce electric vehicle models in Anting/Shanghai, ThyssenKrupp s new hot-dip coating line joint venture with Ansteel, and a potential expansion of the Airbus assembly plant in Tianjin to accommodate the recently increased order volumes from Chinese customers. The biggest downside risk remains the potential adjustment of announced projects in sectors with significant overcapacity or sluggish demand, including automotive and chemicals. 4

5 Chinese Outward Investment: Global Trends Chinese Outbound FDI Flows, 2Q 212-2Q 215 Monthly OFDI flows in USD million*, percent year-on-year growth 16, 14, 12, 1, 8, 6, 4, MOFCOM, Non-financial OFDI (Left Axis) Non-financial OFDI YTD % YoY Growth, 3mma (Right Axis) 8% 6% 4% 2% % -2% 2, -4% -6% Jun, 212 Aug, 212 Oct, 212 Dec, 212 Feb, 213 Apr, 213 Jun, 213 Aug, 213 Oct, 213 Dec, 213 Feb, 214 Apr, 214 Jun, 214 Aug, 214 Oct, 214 Dec, 214 Feb, 215 Apr, 215 Jun, 215 Source: MOFCOM. While inward FDI remains stable, we are seeing a significant jump in outbound FDI by Chinese companies that continued through the second quarter of the year. Available data points suggest that the far-reaching reforms of China s outbound FDI policy framework in October 214 (which abolished regulatory approvals for most outbound transactions) have contributed to a significant rebound in outbound deal flow. According to official MOFCOM statistics, Chinese outbound FDI added up to $56 billion in 1H 215, up 29% compared to last year. The growth rate has come down a bit from the 47% year-on-year growth for the January-May period, as the low base effect of 1H 214 begins to wear off. At the same time, $56 billion is a new record for 1H OFDI outflows and brings the outflows very close to the figure for inward FDI ($68 billion utilized FDI). Total OFDI for 215 is likely to exceed $1 billion again. 5

6 Chinese Outward Investment: Global Trends Chinese Global Outbound FDI Activity Has Picked Up in the Past 12 Months Monthly figures, number of overseas subsidiaries, USD million, 6-months average Number of newly approved/registered overseas subsidaries (MOFCOM) (Left Axis) Non-financial outbound FDI flows (MOFCOM) (Right Axis) Value of announced Chinese outbound M&A deals* (Right Axis) MOFCOM Abolishes OFDI Approvals Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Source: MOFCOM, Bloomberg, Thomson. *Includes disclosed values of all announced M&A transactions by ultimately Chineseowned firms irrespective of the size of the resulting stake. 12, 1, 8, 6, 4, 2, Unfortunately, the BPM5-6 transition problem also applies to OFDI statistics from SAFE, which does not allow us to compare MOFCOM figures with BOP data. However, a range of other indicators are available and they all support the view that the OFDI growth story is real. For example, the number of newly approved and registered overseas subsidiaries from MOFCOM has grown markedly as well: more than 8 foreign subsidiaries and acquisitions are now approved/registered by MOFCOM every month, compared to just 3 less than two years ago. Data on announced cross-border acquisitions by Chinese companies also show a surge since the fourth quarter last year, swinging from an average of $4-5 billion per month for the last two years to $6-8 billion in the past six months. That said, the gap between officially reported outbound FDI flows and completed M&A transactions remains, suggesting that at least a portion of the growing OFDI outflows are portfolio investment flows disguised as direct investment. 6

7 Chinese Investment in the EU: Transactions Data Chinese FDI Transactions in the EU-28 by Entry Mode, 3Q 213-2Q 215 Quarterly number of transactions, investment value in USD million Investment in Acquisitions (Right Axis) Investment in Multiyear Greenfield Projects (Right Axis) Investment in New Greenfield Projects (Right Axis) Number of New Greenfield Projects (Left Axis) Number of Acquisitions (Left Axis) 9, 8, 7, 6, 5, 4, 3, 2, 1, 3Q 213 4Q 213 1Q 214 2Q 214 3Q 214 4Q 214 1Q 215 2Q 215 The rebound in Chinese outbound FDI activity showed up strongly in the 28 EU economies, with the value of completed Chinese M&A transactions in the EU averaging more than $5 billion from 2Q 214 to 1Q 215. In 2Q, however, M&A deals took a break from their bullish patterns, with only eight completed deals (half the number of previous quarters). Moreover, these transactions were relatively small in size, so total M&A deal value was below $5 million, a sharp drop from past quarters. The value of new and multi-year greenfield projects remained only slightly below previous quarters, but the greenfield share of total investment is much smaller than on the inbound side. 7

8 Chinese Investment in the EU: Transactions Data Chinese FDI Transactions in the EU-28 by Industry, 3Q 213-2Q 215 Quarterly investment value in USD million 9, 8, 7, 6, 5, 4, 3, 2, 1, Chinese FDI Transactions in the EU-28 by Recipient Country, 3Q 213-2Q 215 Quarterly investment value in USD million 9, 8, 7, 6, 5, 4, 3, 2, 1, Finance and Business Transport 3Q 213 4Q 213 1Q 214 2Q 214 3Q 214 4Q 214 1Q 215 2Q 215 Energy Ag and Food Italy ICT Health Real Estate Portugal Entertainment Netherlands Industrial Machinery Auto U.K. Germany France 3Q 213 4Q 213 1Q 214 2Q 214 3Q 214 4Q 214 1Q 215 2Q 215 Industrial machinery (Specialist Machine Developments), automotive (WEGU Holding), and other transportation equipment (Lamberet Sas) were the major industries targeted by Chinese investors in 2Q. The UK, Germany, and France remained the most important recipient countries. Despite this temporary slump in 2Q, the pipeline for Chinese investment particularly M&A in Europe remains strong. Currently pending M&A deals are worth more than $1 billion. In addition to already pending transactions (ChemChina s takeover of Italian tire maker Pirelli, China Ocean Shipping Corporation s bid for a majority ownership stake in the Port of Piraeus, Haitong Securities acquisition of Banco Espirito Santo), 2Q saw a flurry of new deals announced, including Fosun s acquisition of German private bank Hauck & Aufhäuser for more than $25 million, Anbang s $16 million acquisition of the insurance arm of Dutch gvernment-owned SNS Reaal NV, a potential sale of Spanish gas distributor Madrileña Red de Gas SAU to an investment arm of China s central bank, and a major investment by China s sovereign wealth fund CIC in shopping centers in France. One significant acquisition in Europe is HNA Group s $3 billion takeover of Swissport, which will not be counted as EU transactions but will still HNA a major presence in many EU economies. 8

9 Disclaimer This material was produced by Rhodium Group LLC for the European Commission under the China Observatory project (215/S ). The information and views set out in this note are those of the author and do not necessarily reflect the official opinion of the Commission. The Commission does not guarantee the accuracy of the data included in this study. Neither the Commission nor any person acting on the Commission s behalf may be held responsible for the use which may be made of the information contained therein. Rhodium Group is a specialized research firm that analyzes disruptive global trends. Our publications are intended to provide clients with general background research on important global developments and a framework for making informed decisions. Our research is based on current public information that we consider reliable, but we do not represent it as accurate or complete. 215 Rhodium Group LLC, 5 Columbus Circle, New York, NY 119. All rights reserved. 9