Europe offers Beijing an open door

Bloomberg

Maybe it’s bargain shopping. Maybe it’s the fallout from the strict U.S. security climate. Maybe it’s a sign of China becoming more comfortable with its international role. But as Chinese companies and entrepreneurs move to invest more overseas, they have been drawn increasingly to Europe, where a two-year surge in foreign direct investment from China eclipsed the amount flowing to the United States.

Over the past two years, Chinese companies invested more than $20 billion in the European Union compared to $11 billion in the U.S., according to a new report from the Rhodium Group.

The trend highlights the tension in the U.S. between the advantages of foreign investment and the suspicions surrounding China as an economic and military competitor. Some proposed deals in the U.S. have foundered on security concerns, and the White House recently launched an effort to try to curb hacking, intellectual property theft and other practices that U.S. authorities have traced to China.

At the same time, there’s a strong incentive not to lose out on the jobs foreign money can create. While the White House has focused on boosting exports as a way to battle high unemployment, direct investment from overseas can also generate jobs — as workers at Japanese auto plants, Spanish transport firms or Swiss banks can attest.

Whether to secure raw materials, technology or new markets, Chinese overseas investment is expected to grow rapidly in coming years, as the country puts its massive annual budget surpluses to work and tries to rely less on internal investment and exports.

As of 2007, China annually was investing only around $1 billion each in the U.S. and the 27-nation EU — a paltry amount given the size of those two economies.

Rhodium Group analysts said a few things are at work. European asset prices are depressed by recession and a lingering financial crisis, and Chinese investors are being welcomed to “cash-strapped” European companies.

In addition, say researchers Thilo Hanemann and Adam Lysenko, U.S. security reviews have killed some deals and likely dissuaded other investors.

By contrast, Chinese investors have taken stakes in sensitive, high-profile assets such as London’s Heathrow Airport. Compared to the scrutiny telecommunications giant Huawei has received in the U.S., the company has invested heavily in Europe with little trouble.

“Chinese interest in advanced economy assets will continue to be strong in coming years,” the Rhodium report states. “The political response will be critical for future deal-making.”