Paris may be best European base for Chinese firms

By Chris Dalby Source:Global Times Published: 2017/7/10 22:43:39

Illustration: Peter C. Espina/GT

The financial capital of Europe is undoubtedly London. It has attracted financial companies from around the world, including Industrial and Commercial Bank of China, Agricultural Bank of China, and other Chinese banks. However, Brexit has removed much of this advantage. While London offers attractive conditions for foreign firms, it is also a perfect jumping off point to do business in Europe.

Now, numerous American and European firms are considering relocating to other financial centers. A tug of war will soon begin for Chinese financial institutions. The choice is not easy. Dublin, with its growing financial industry and English-speaking culture? Frankfurt, the hub of European banking institutions and a burgeoning fintech industry? Paris, the city of old banking and trustworthy money? Luxembourg, the outside contender with its favorable tax regimes?

There should be two key issues for Chinese financial firms. The first is a common challenge to all companies affected by Brexit: Which city is more suited to their particular needs? The second is one that is particular to Chinese concerns: Which financial center is more open to the internationalization of the yuan.

Each city presents some attractive options. Luxembourg, through its size, positioning and banking background, has been able to carve itself a niche in recent years. A very favorable corporate tax system, which has caused it a raft of legal troubles, has attracted the likes of Amazon, Paypal and iTunes. Its financial services industry makes up 33 percent of its GDP and provides 11 percent of jobs. However, one downside for Chinese firms is that much of its financial industry is built around private banking and insurance. With few Chinese players in these sectors catering to European private interests, this specialty may not suit them.

Dublin may be the weakest candidate of the four. While the opportunity from Brexit certainly lifted spirits in Ireland, it appears to be losing steam to the other candidates. It was announced in late June that at least 12 banks were moving some operations from London to Dublin. These do include heavyweights like JP Morgan, and likely Bank of America Merrill Lynch and Goldman Sachs. However, studying quotes from these companies seems to show that Dublin was chosen for its cultural and linguistic similarity to London, not for any new competitive advantages it could offer.

Bank of China announced the opening of its Dublin branch in late June to target bilateral trade and banking services between the two countries. But the country offers few incentives for Chinese firms to base their European HQ there, outside of its very competitive tech sector.

Frankfurt is a very compelling choice. As the host to EU institutions, such as the European Central Bank, it can offer proximity to decision-making in Brussels and Strasbourg.

The city has also been a pioneer in fintech and digital updates, something of keen interest to Chinese firms who increasingly rely on e-commerce in a number of sectors. Frankfurt is Europe's largest fintech development center after London and this is a major calling card.

It is also the leader among the four candidates in terms of its overtures to China. However, after courting Chinese companies to list on its stock exchange, Deutsche Borse, a series of scandals took the shine off these listings.

Paris is the better-known quantity among the four. China Concepts Stocks already trade shares in most of China's largest companies on Euronext, the pan-European stock market, of which Paris is a member. The city accounts for 45 percent of outstanding corporate bonds in Europe.

Paris' ambitions extend far outside Europe. The French Routes and Opportunities Garden (FROG), besides its stereotypical name, seeks to promote France as a financial investment destination and sets out clear incentives for said investors. Until now, the main target has been companies currently settled in London but its ambitions are broader. 

France is also an established investment partner for China already. Foreign investment has been growing by double digits annually, according to China's National Bureau of Statistics. Titans such as Alibaba and Huawei see Paris as their bases to conquer the globe. Furthermore, newly elected President Emmanuel Macron seems to have a very steady approach when it comes to business and will likely embrace any new Chinese arrivals.

While all four may offer compelling reasons, it seems that Paris is the clear winner in terms of its offering, with Frankfurt a close runner-up.

The author is a Mexico-based analyst of Chinese politics and economics.

Posted in: INSIDER'S EYE

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