EU-China FDI Monitor 4Q 215 Update: Public Version January 216 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: +1.212.532.1158 Fax: +1.212.532.1162 Web: www.rhgroup.net Address: 5 Columbus Circle, New York, NY 119 Tel: +1.212.532.1157 Fax: +1.212.532.1162 Web: www.rhg.com 1
Foreign Investment in China: Global Trends Utilized FDI into China, Dec 212-Dec 215 Monthly FDI flows in USD million, percent year-on-year growth 25, Utilized FDI (Left Axis) 2, 15, Utilized FDI YTD % YoY Growth, 3mma (Right Axis) 8% 6% 4% 2% Official statistics from China s Ministry of Commerce (MOFCOM) show nonfinancial utilized foreign direct investment (FDI) into China reaching $126 billion in 215, a modest increase of 6.4% from 214. 1, 5, Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 % -2% -4% This makes 215 the fifth year in a row with single digit FDI growth, and alternative proxies suggest that the slowdown may have been even more pronounced in the past year. Source: MOFCOM. While there remain significant questions about the validity of China s official FDI statistics, several interesting trends emerge from MOFCOM s data: The services sector accounted for almost two thirds of total FDI (61%) and grew at a faster pace than other sectors (17.3%). FDI in manufacturing remained stabled at $4 billion (31% of total) but the mix shifted further from low to high tech as labor costs rose and authorities tightened approvals for sectors with overcapacity. MOFCOM also highlighted that FDI in the four FTZs (Guangdong, Tianjin, Fujian, and Shanghai) was growing particularly fast. 2
EU Investment into China: Transactions Data EU-28 FDI Transactions in China by Entry Mode, 1Q 214-4Q 215 Quarterly number of transactions, investment value in USD million 9 8 7 6 5 4 3 2 1 Value of Acquisitions (Right Axis) Value of New Greenfield Projects (Right Axis) Value of Multiyear Greenfield Projects (Right Axis) Number of New Greenfield Projects (Left Axis) Number of Acquisitions (Left Axis) 1Q214 2Q214 3Q214 4Q214 1Q215 2Q215 3Q215 4Q215 6, 5, 4, 3, 2, 1, The EU-China FDI Monitor data, which records FDI spending of European companies in China, suggests that there was a significant slowdown of European FDI into China in 215. The chart shows completed M&A transactions (blue), new greenfield projects (dark green) and large multi-year greenfield projects (light green), which we log incrementally over time. The combined value of those transactions declined from almost $4 billion in 1Q to only $2 billion in 3Q and 4Q. The annual value of EU FDI transactions in China declined from about $13 billion in 214 to $1 billion in 215, a drop of 23%. However, these figures are partially distorted by USD/EUR exchange rate movements and the decline in EUR terms was less pronounced (from EUR 9.9 billion to 9.3 billion, about 9%). Investments in multi-year greenfield projects remained stable as several big projects made good progress, including Lego s $471 million plant in Jiaxing, which produced its first batch in 4Q, and Airbus Tianjin completion center, which started construction in the past quarter. Spending on new greenfield projects added up to $64 million, which is higher than 3Q but still on the lower end of quarterly averages in recent years. Major new projects include an expansion of Shell s JV with CNOOC in Guangdong, R&D facilities by AstraZeneca, a piano plant by Bluthner, and new investments by chemical giant BASF into a catalyst plant and an R&D center expansion. The biggest reason for the recorded drop in EU investment into China in 4Q is a record low number of acquisitions only two deals worth $22 million, the majority of which is a $2 million acquisition of a leasing company by BMW. 3
EU Investment into China: Transactions Data EU-28 FDI Transactions in China by Industry, 1Q 214-4Q 215 Quarterly investment value in USD million 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 1Q 214 2Q 214 3Q 214 4Q 214 1Q 215 2Q 215 3Q 215 4Q 215 EU-28 FDI Transactions in China by Country of Origin, 1Q 214-4Q 215 Quarterly investment value in USD million 4,5 4, Energy Consumer Products Autos Chemicals Autos and chemicals continue to dominate European investment in China, due to ongoing large multi-year capacity expansions, for example Volkswagen s plants in Tianjin and Foshan, which are set for 218 completion. The ranking of investor countries also remains similar to previous quarters, led by Germany and France, followed by the UK and Netherlands (next chart). Looking ahead, there are only a few M&A transactions pending, such as Rexel s acquisition of Shanghai automation systems company Maxqueen. The biggest pending greenfield project is the second phase expansion of Lego s plant in Jiaxing from 6 to 2, employees by 217. 3,5 3, 2,5 2, 1,5 UK 1, Netherlands France 5 Germany 1Q 214 2Q 214 3Q 214 4Q 214 1Q 215 2Q 215 3Q 215 4Q 215 4
Chinese Outward Investment: Global Trends Chinese Outbound FDI, Dec 212-Dec 215 Monthly FDI flows in USD million, percent year-on-year growth 25, 2, 15, 1, 5, Non-financial OFDI (Left Axis) Non-financial OFDI YTD % YoY Growth, 3mma (Right Axis) 8% 6% 4% 2% % -2% Official data points by MOFCOM show that China s non-financial OFDI hit a new record high of $118 billion in 215, a year-on-year increase of 14.7%. The final figure for Chinese outbound FDI including financial sector investment (which will be announced later in the year) will likely exceed $12 billion, further narrowing the gap between inward and outward FDI as recorded by MOFCOM. -4% Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Source: MOFCOM. As with inward FDI, MOFCOM s granular data points show that official Chinese statistics are highly problematic and not useful for an analysis of granular trends. First, four of the five top destinations for Chinese OFDI are tax havens and financial centers (Hong Kong, Cayman Islands, Singapore, British Virgin Islands). Second, MOFCOM reports that Chinese FDI to the EU dropped 4% in the period of January to November 215 compared to last year, which is not reconcilable with the deal patterns that we observe in Europe. MOFCOM also recently stepped up its reporting on investment in economies considered part of China s new One Belt One Road (OBOR) initiative. According to MOFCOM, investment in those countries totaled $14.8 billion in 215, up 18% yearon-year. However, it remains unclear which countries exactly fall into that category. MOFCOM also reported high growth rates for sectors related to OBOR, with outbound FDI in transportation, utilities, and telecom sectors reaching $11.7 billion, up 8% compared to last year. OFDI in overseas equipment manufacturing jumped 154% to more than $7 billion in 215. 5
Chinese Investment in the EU: Transactions Data Chinese FDI Transactions in the EU-28 by Entry Mode, 1Q 214-4Q 215 Quarterly number of transactions, investment value in USD million 4 35 3 25 2 15 1 5 Value of Acquisitions (Right Axis) Value of New Greenfield Projects (Right Axis) Value of Multiyear Greenfield Projects (Right Axis) Number of New Greenfield Projects (Left Axis) Number of Acquisitions (Left Axis) 1Q 214 2Q 214 3Q 214 4Q 214 1Q 215 2Q 215 3Q 215 4Q 215 14, 12, 1, 8, 6, 4, 2, The transactions data in the EU-China Investment Monitor offer a more accurate picture of Chinese outbound FDI into the EU. Chinese firms invested $4.1 billion in Europe in 4Q 215, this brings the annual total to $22.6 billion, a 16% increase from the previous year and a new all-time high. In Euro terms, the increase is even more substantial (from EUR 14 billion to 2 billion, up 36%). The surge in Chinese FDI in Europe in 215 can almost exclusively be attributed to greater M&A activity, with 9 deals together worth $21 billion. The biggest transactions in 4Q were JianGuang Asset Management s acquisition of NXP Semiconductors RF unit for $1.8 billion, China Investment Corporation s investment in Germany s Tank & Rast (an estimated $385 million), and First Sponsor Group s investment in 16 offices in Netherlands ($22 million). The biggest transactions in 215 were ChemChina s acquisition of Italian tire maker Pirelli (estimated at more than $7 billion), Anbang s acquisition of Dutch insurer Reaal NV (estimated at $713 million), and China Investment Corporation s acquisition of two shopping centers in France and Belgium (estimated at $7 million). Investment by Chinese companies in new greenfield projects also grew substantially in 215, but still only account for a fraction of total investment ($74 million). An important trend is the strong growth of multiyear greenfield projects. Instead of just offices and small subsidiaries, Chinese firms are increasingly investing in factories, real estate developments and other substantial greenfield projects. New projects announced in 4Q included a forage crops processing plant in Bulgaria, a new Huawei R&D center in Ireland, and a joint venture by Chongqing Jinstar to develop real estate projects. 6
Chinese Investment in the EU: Transactions Data Chinese FDI Transactions in the EU-28 by Industry, 1Q 214-4Q 215 Quarterly investment value in USD million 14, 12, 1, 8, 6, 4, 2, Financial Services Autos 1Q 214 2Q 214 3Q 214 4Q 214 1Q 215 2Q 215 3Q 215 4Q 215 Transport. Services ICT Real Estate Entertainment Correlating with the largest M&A deals, information and communication technology (NXP Semiconductors RF business), real estate (China Life in 99 Bishopgate), transportation services (CIC in Tank & Rast), and entertainment (Rastar Group in RCD Espanyol) were the major industries targeted by Chinese investors in 4Q. Netherlands, UK, and Germany were the main recipients. For the full year 215, autos was the largest industry (Pirelli), followed by real estate and hospitality (Louvre Hotels, Club Med), and financial services (Reaal, Banco Espirito Santo). The top three recipients of Chinese outbound FDI in 215 were Italy, France, and the UK. Germany did not make it into the top three last year, as the value of Chinese investments dropped below $1 billion for the first time since 21. Chinese FDI Transactions in the EU-28 by Recipient Country, 1Q 214-4Q 215 Quarterly investment value in USD million 14, 12, 1, 8, 6, 4, 2, 1Q 214 2Q 214 3Q 214 4Q 214 1Q 215 2Q 215 3Q 215 4Q 215 Italy UK Netherlands Germany The pipeline for Chinese investment in Europe remains strong. The biggest pending deals are China National Chemical s acquisition of German machinery maker Krauss Maffei ($1 billion), China Three Gorges s acquisition of some of EDPR s wind projects in Poland and Italy ($43 million), CITIC s investment in Manchester City Football Group ($4 million), and Fosun s acquisition of Hauck & Aufhaeuser bank ($232 million). HNA s $2.5 billion acquisition of aircraft leasing company Avolon was completed on January 1, 216. The most important prospective deals include COSCO s acquisition of a majority stake in the port of Piraeus, additional real estate investment in Madrid by Wanda, and more nuclear power plant investments in Eastern Europe. 7
Disclaimer This material was produced by Rhodium Group LLC for the European Commission under the China Observatory project (215/S 24-38934). 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. 216 Rhodium Group LLC, 5 Columbus Circle, New York, NY 119. All rights reserved. 8