Briefing Paper

Françoise Nicolas
  • Although ODI from emerging economies is gaining ground, it remains very much a developed-country phenomenon. China's direct outbound investment flows accounted for only 1.1 per cent of the world total in 2007 and in terms of stocks, China still lags behind many industrial and emerging economies.
  • For fiscal reasons, most Chinese ODI is officially reported to flow to Hong Kong and tax havens. Europe and the rest of the world have only a modest share.
    • Although ODI from emerging economies is gaining ground, it remains very much a developed-country phenomenon. China's direct outbound investment flows accounted for only 1.1 per cent of the world total in 2007 and in terms of stocks, China still lags behind many industrial and emerging economies.
    • For fiscal reasons, most Chinese ODI is officially reported to flow to Hong Kong and tax havens. Europe and the rest of the world have only a modest share.
    • Market-seeking considerations rank first and strategic-asset-seeking motivations second in Chinese ODI. State intervention in Chinese ODI is generally exaggerated. The domination of state-owned enterprises in Chinese ODI reflects the fact that government policies generally favour the public sector within the Chinese economy.
    • Chinese investment in Europe is growing but remains relatively insignificant. It is biased towards service activities; in manufacturing it is heavily concentrated in ICT and the automobile sector.
    • Through mergers and acquisitions, Chinese investors seek access to brands and distribution networks or to engineering know-how and customer networks. Greenfield investments aim to access the European market and help to customize products for local needs.
    • Overall, Chinese firms' performances in Europe tend to be disappointing, particularly in terms of profitability. The current economic crisis may provide new investment opportunities but it is also a major challenge for Chinese firms which invested in ailing European firms.