CEPII, Recherche et Expertise sur l'economie mondiale
Determinants of Foreign Direct Investment by Chinese Enterprises in the European Union

Lionel Fontagné
Loriane Py

This research report presents the results of the 2010 survey of Chinese companies’ Outward Foreign Direct Investment, conducted by the China Council for the Promotion of International Trade (CCPIT) in close co-operation with CEPII and the European Commission. The survey is aimed at getting a better understanding of the motivations and determinants of actual and potential Chinese international investments, and especially by Chinese companies in the EU. The initial survey sample coverage was 3,000 companies and achieved a response rate of 45.9%. The analysis presented here includes 1,377 companies. In terms of the characteristics of responding firms, there are huge size variations; average annual gross revenue ranges from 3 million to 3,770 million yuan; and number of employees varies between less than 100 to over 5,000. The majority of firms are private, and active in the manufacturing sector. While most Chinese companies receive revenue from overseas business activities, only 23% declared having foreign affiliate sales. Overseas investments are influenced by several factors. The main /push factors/ leading to expansion abroad are China’s “go global” and policy related incentives, stagnation of the domestic market, and the possibility to save on transport costs. /Pull factors/ which are important determinants of investment in the EU 27 and in other developed countries/ /include market potential, access to skilled labour and technological resources, acquisition of international management practices and acquisition of established brands. Market potential, and especially access to natural resources and to low cost labour, are decisive for investment in developing economies. Finally, institutional factors seem important for investments in all regions. The main barriers to international investment by Chinese companies include lack of international and management experience, difficulty in raising sufficient capital and lack of adapted products and processes. The reasons why Chinese firms do not invest in the EU in particular include lack of understanding of the legal and market risks, difficulties in finding business partners in the EU, unfamiliarity of EU customers with Chinese brands, and concerns among EU customers (and institutions) about the quality of Chinese products. The recent financial crisis is affecting the overseas investments of Chinese companies. While it has had some positive effects in weakening the power of rivals and creating opportunities to purchase foreign assets, its impact has been negative overall. Nearly half of the respondent companies indicated that the financial crisis has reduced demand from overseas markets and a high proportion of companies consider that the crisis has reactivated trade protection in many countries, and led to more supervision and control of foreign investment.

 Keywords : CHINE | IDE
CEPII Research Report
N°2010-01, July 2010

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 Fields of expertise

Competitiveness & Growth