Chinese investment in the European Union nearly tripled in 2014

China’s switch from growing exports to promoting domestic market growth is leading to a wave of outward investment by Chinese firms. The policy change is increasing China’s appetite for technology, brands and resources such as labour and capital. It is integrating the country further into the global economy and will make the Chinese consumer a driver of global economic growth in the future.

China has become a major financial player on the global stage. Its USD9.4 trillion economy accounts for 12 per cent of global GDP, according to HSBC Global Research, and it has USD4.01 trillion of foreign exchange reserves. But China’s direct and portfolio investment assets account for only 6 per cent of the world’s overall USD1.46 trillion of overseas direct investments.

China’s policymakers are now promoting overseas investment and acquisitions to encourage the growth of high-value manufacturing and services in China.

China’s policymakers are now promoting overseas investment and acquisitions to encourage the growth of high-value manufacturing and services in China

According to the Ministry of Commerce, in 2014, China’s outbound direct investment (ODI) rose 14.1 per cent to a high of USD102.9 billion. Foreign direct investment (FDI) into China rose 1.7 per cent to USD119.6 billion. Based on current trends, outbound investment may soon exceed inbound investment.

Europe is a popular destination for Chinese investors. Chinese investment in the European Union nearly tripled in 2014. In 2013, 25 out of 120 Chinese mergers and acquisitions in Europe took place in Germany, the most of any European country. France, the Netherlands and Italy were the next most popular destinations.

Private enterprises, rather than state-owned enterprises, have been the main Chinese buyers of European businesses. Acquiring well-known brand names is a way for Chinese companies to access new markets, obtain new technology and broaden their expertise.

Chinese investment has the potential to contribute to European growth and support local employment. European firms with strong Chinese links may also find it easier to market their products to the rapidly growing middle class in China. Countries that offer a welcoming environment to Chinese investment will be able to make the most of these opportunities.

The ongoing liberalisation of the renminbi (RMB), the Chinese currency, is making it easier for Chinese companies to invest abroad. Use of the renminbi to settle cross-border transactions helps reduce currency conversion costs and reduce exposure to exchange-rate fluctuation.

In 2013, the renminbi was used in around 60 per cent of inward investment but accounted for only 15 per cent of outward investment. Over time, we expect a larger share of China’s outward investment to be in renminbi. China has emerged as a major economic power over the past three decades. Continued outward investment by China and the growing importance of the renminbi as a trade and investment currency will deepen its influence in global financial affairs.