China’s foreign direct investment (FDI) in Europe continued to fall last year, to a 10-year low, while greenfield Chinese investment climbed, according to a new report by Rhodium Group and MERICS.
Shrinking M&A activity meant the EU-27 and the United Kingdom saw a 45 percent decline in completed Chinese FDI last year, down to EUR 6.5 billion from EUR 11.7 billion in 2019, taking investment in Europe to a 10-year low.
According to the report, however, greenfield Chinese investment reached its highest level since 2016 at nearly EUR 1.3 billion.
The cumulative investment, from 2000-2020, in Portugal was 6.2 billion. The report adds that Poland emerged as a key recipient, rising to become the second most popular destination, though inflows of EUR 815 million were largely concentrated on one acquisition.
More than half of total Chinese investment in Europe went to the “Big Three” economies – Germany, the UK and France. However, the UK saw Chinese investment plummet by 77 percent, according to Rhodium and MERICS.
China’s state-owned enterprises (SOEs) were responsible for 18 percent of total Chinese FDI to Europe, higher than 11 percent 2019 but still significantly below historical averages. Their investment stayed relatively stable in absolute terms, however, concentrating in energy, infrastructure and basic materials. Private sector investment dropped by almost 50 percent.
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Small- and mid- size transactions dominated in 2020, with no major billion-dollar acquisitions as in 2019. As a result, Chinese investment was spread more evenly across sectors. Infrastructure, ICT and electronics were the top three sectors, attracting 51 percent of the total.
“The Covid-19 crisis prompted the EU to issue guidelines stepping up scrutiny of FDI in Europe’s critical assets. 14 EU member states, including Italy, France, Poland and Hungary, have updated their FDI screening mechanisms last year. Member states have also moved to block several acquisitions by Chinese firms”, the report says.
Chinese FDI activity into Europe continued to fall in the first quarter of 2021 and has remained weak elsewhere, even as global M&A activity has recovered and surged to a 10- year high of EUR 1.08 trillion.
“Europe remains an attractive investment location. However, continued disruption from Covid-19, high barriers to outward capital flows in China and rising regulatory barriers to foreign investment in Europe have all contributed to low levels of Chinese investments”, according to Rhodium and MERICS.
