EU China Investment Policy

Transcription

1 EU China Investment Policy Hearing European Parliament 6 th Nov. 2012, Brussels Prof. Dr. Haiyan Zhang Academic director of Euro China Centre Antwerp Management School

2 Outline Key features of Chinese investors in Europe Case illustration Challenges and opportunities Policy implications

3 Are Chinese investors different from their predecessors? (1) Not a new phenomenon American antecedent in Europe Japanese antecedents in US and Europe But, this time it s different Emerging economy upstream investment asset stripping reverse Marco Polo effect

4 Are Chinese investors different from their predecessors? (2) Communist regime opacity of firms State led capitalism Security rival technology exports ultimate motive of investment? Source: Meunier, 2012

5 Are Chinese investors different from their predecessors? From Euro China investment Report Chinese investors are not homogeneous Individual/family business (intl. entrepreneurs) Global niche market players Motivation Market expansion/trade supporting Associated sometimes with motivation for emigration Activities Low technology manufacturing/less knowledge intensive services Source: Zhang, Yang and Van Den Bulcke, 2011

6 Is Chinese OFDI in Europe fundamentally different from Chinese OFDI in other countries? As compared to Africa and Latin America Less in resource seeking Less in asset exploitation As compared to the US More in asset seeking Technology (CFIUS) Brands Public utilities Less involved in political conflict (politisation)

7 Outline Key features of Chinese investors in Europe Case illustration Challenges and opportunities Policy implications

8 Case illustration No. 1 EU Merger Regulations facing Chinese SOEs Understanding Chinese SOEs and their boundaries

9 EU Merger Regulation EU Merger Regulation (EUMR), i.e. the Council Regulation (EC) No 139/2004 to assess if the proposed deal can be qualified as Concentration EU dimension No discrimination between the public and private sector

10 Five FDI projects involving Chinese SOEs subject to EU merger control Involved Chinese companies (Ranking in the 2011 Fortune Global 500) China National Bluestar of ChemChina (475) Huaneng (275) Sinochem (168) China National Agrochemical Corporation of Sinochem (168) PetroChina (6) Characteristics of the acquisition All shares and sole control in Elkem from Orkla ASA 50% of shares held by GMR Netherlands in InterGen To establish a joint venture, owned 50% by DSM and 50% by Sinochem To acquire 60% of Israeli agrochemical company Makhteshim Agan Industries Ltd. (MAI) by CNAC from Koor (part of the IDB group) To create three joint ventures jointly controlled by Ineos and PetroChina as part of a single transaction..

11 Key challenges for the EC in assessment SOEs SASAC China Inc Central SASAC local SASACs Political control Procedure Combination of turnover Presence in three member States Substance: Independence in decision making Competition assessment

12 Results All of 5 cases were cleared in Phase I four cleared under the normal procedure one under the simplified procedure two thirds rule was not met: the transaction does not have a EU dimension Yet All questions about Chinese SOEs are still open The European Commission took a wait and see position time bomb!?

13 Case illustration No. 2 COVEC in Poland Understanding Chinese SOEs and their low cost leadership strategy

14 Mis adventure of REC s COVEC in Poland Turnover: US$ 52 billion Employees: 235,387 No133 on Fortune s 2010 Global 500 list 100% Turnover: US$ 600 million No 34 of China s construction and engineering companies overseas revenue Assumed to be high reliable large SOE by Polish authorities: Prestige, reputation, government support, strong financial position, etc.

15 COVEC s bid: Too good to be true December 2009: COVEC wins bid for the construction project of two sections of the A2 highway (49 km) to link Warsaw with Berlin For the amount of 330 million, i.e. less than half of the planned budget Germany s Committee on Eastern European Economic Relations, an industrial employers organization, alleged that COVEC engages in: price dumping, aggressive financing and generous risk guarantees Reaction of the Polish construction sector: They are cutting prices, stealing our work and destroying the market, and we have to help them? Not on your life! states the director of one of the Polish companies

16 Problems and non compliance by COVEC May 2011: Subcontractors stop to supply and block COVEC s Warsaw office Reasons: Late payment at least 30 million was not paid June 13, 2011: COVEC requests to renegotiate the contract and claimed that: the raw materials were unexpectedly expensive it was unfairly treated it could complete the project on time, but at a much higher price June 15, 2011 GDDKiA rejects the proposal from COVEC and demands 185 million in damages One has to finish the contract which was agreed, for the price that was agreed, with the conditions that have been described.

17 COVEC s low cost strategy and challenges for the Polish government COVEC s low cost strategy Equipment from China materials Chinese labor force (500 workers from China) Materials (local sourcing) Practice of co finance by subcontractors Compromise on environmental regulation Misplaced confidence in their ability to renegotiate the contracts Challenge for the Polish government Misplaced trust on Chinese SOEs Pressure for renegotiate the contracts and compromise on labour regulations

18 Case illustration No. 3 Geely s Volvo acquisition: Will it be successful? Post acquisition integration

19 Geely vs. Volvo Geely Volvo A private and independent car maker in China Established in 1986 and entered into the car industry in 1997 Listed in Hong Kong Stock Exchange in 2005 In 2006, Geely acquired a 23% stake in UK taxi maker Manganese Bronze Holdings In March 2009, Geely took over Australian DSI, the second largest producer of automatic transmissions in the world Sold 325 thousand cars in 2009 Established in 1927 and sold 345 thousand cars in 2009

20 Post acquisition integration Past experience TCL Thomson Limitation in HR international managers Postponed in post acquisition integration Challenges to come Technology gap Management style Cultural chocks Overall operation performance restructuring

21 Case illustration No. 4 China in Prato Ethnic entrepreneurs

22 Industrial clusters in Prato Third Italy industrial districts Specialization and division of work among small business firms driven by strong entrepreneurial spirit. Deeply embedded in a culturally and socially constituted local market. Textile workshop emerged in 12 th century Industrial cluster In the 1970s, the textile industrial cluster in Prato became Europe s most important textile and fashion centre During the 1980s, arrival of non EU immigration due to the decline of local labor force

23 Chinese in Prato Chinese workers arrived in Prato in the 1990s Number of Chinese residents increased from 169 in 1990 to 10,077 in ,177 firms registered by Chinese residents 65% are less than 4 years old Early 2011: manufacturing firms Contractors for native manufacturers to strength Prato fashion cluster Offering low and competitive price Guaranteeing productive and organizational flexibility Faster processing and shorter lead time for delivery But, low social integration Failure of local institutions for assimilation Living Outside the Walls

24 Outline Key features of Chinese investors in Europe Case illustration Challenges and opportunities Policy implications

25 Scope of FDI policy/regulations Member states European commission Post establishment protection Further European integration? From restrictive to liberal approach Pre establishment Market access Lisbon treaty

26 Regulatory challenges Pre establishment market access > Post establishment protection Changing FDI position of China State investor dispute settlement (international standard) BITs: 26 BITs > EU China BIT Diversity/difficulty New elements to be included, e.g. human rights and sustainable development Common EU FDI policy Policy coherence (competence at the Commission level and member state level) Hardware without the software

27 Policy implications Industrial restructuring Protection or cooperation in sunset industry E.g. Construction machinery sector/consumer electronics Corporate restructuring Competition policy (EUMR) SMEs Policy: Positioning and integration into global value chain Ethnic community Assimilation or discrimination

28 Education programs organized by the Euro China Centre Master degree program China Europe Business Studies Executive programs Understanding China (cofinanced by the EU) Mastering global business: China Be Successful in Europe Contact Prof. Dr. Haiyan Zhang Academic director / Euro China Centre Antwerp Management School Sint Jacobsmarkt 9 13 B 2000 Antwerp Tel: haiyan.zhang@ams.ac.be