Chinese companies eye robust investment in Europe in first half of 2019: Rhodium

By Chu Daye and Song Lin Source:Global Times Published: 2019/4/23 21:58:41

Workers on a platform install flowers on a decoration setup for the upcoming Belt and Road Forum for International Cooperation in Beijing on Tuesday. The forum, which will be opened by Chinese President Xi Jinping this weekend in Beijing, has drawn leaders from around the world. Photo: AP

Overseas direct investment (ODI) from China may be shifting toward the Belt and Road Initiative (BRI) as Chinese companies face growing difficulties entering the US. Chinese and foreign experts said the shift could bring significant changes to the global investment landscape, and could benefit BRI countries and regions with investment grade ratings.

The comments come as Chinese ODI to the US fell to a seven-year low in 2018, while steadily growing in BRI markets.

Chinese investment to BRI markets grew at an annual rate of 5.2 percent from 2013 to 2018, or $90 billion, Ministry of Commerce data shows.

The Global Times reached out to a dozen Chinese companies and top industrial leaders in their respective fields for their takes on the trend.

Company representatives typically declined to comment on their firms' investment plans in the US, citing disclosure concerns. However, many have shown enthusiasm to ride on the momentum started by the BRI, even as many of these firms cannot be categorized as typical BRI firms, like infrastructure giants engaged in overseas projects on state credit. 

China is set to hold the second Belt and Road Forum for International Cooperation on Thursday. Six years after its inception, the initiative has been generally welcomed by developing countries and regions and emerging economies. Moreover, the China-proposed global connectivity program has recently gained official endorsements from major developed Western economies, such as Italy.

The response from Chinese companies coincided with a report that Baker McKenzie released on Tuesday, which said more than 80 percent of 200 respondents from the Chinese mainland and Hong Kong now see the BRI as either hugely important or fundamental to their business strategy.

 "In certain sectors such as infrastructure, Chinese firms may be able to shift their international infrastructure-related investments away from the US toward BRI partner countries," Rajiv Biswas, APAC chief economist at IHS Markit, told the Global Times on Tuesday.

Biswas said the risk of investing in many BRI partner countries may be higher than in the US, but there are "investment grade" alternatives. For example, a number of EU partner countries and Indonesia are poised to offer an attractive long-term investment environment for sectors such as infrastructure or manufacturing.

Slumping US investment

Hit hard by the dark clouds hanging over bilateral relations, Chinese ODI into the US declined to $4.8 billion in 2018, the lowest in seven years, according to a report released by New York-based research company Rhodium Group in January.

Chris Dong, an industry analyst and global research director at International Data Corp, which oversees Chinese and US technology sectors, noted the difference in investment purposes of Chinese ODI to the US and the BRI markets.

"The former is technology- and talent-oriented while the latter is a return on investment plus a closer diplomatic relationship," Dong told the Global Times.

Investment from China to the US faces an uphill battle, although easier passive investment may get by with Chinese investors losing visibility on projects and the ability to strategize and monetize, Dong said.

The Global Times found some divergence in investment activities by Chinese firms in the US and BRI markets.

Alibaba has expanded its Alipay payment services in 55 countries and regions, and its Cainiao Logistics has gained access to 250 cross-border warehouses, according to a statement Alibaba sent to the Global Times on Tuesday. Alibaba announced only one small-scale investment in the US as of mid-2018 amid the China-US trade friction, despite a promise from its co-founder Jack Ma Yun in 2017 to offer a million jobs in the US.

State-owned Sinopec Group disclosed no further details on its contract to develop a liquefied natural gas facility in Alaska in 2017. However, media reports said on Friday that the company invested $25.1 billion in countries and regions along BRI as of the end of 2018.

Impact on divergence

However, Europe seems to stand to benefit from such a decline. Chinese investment looks to be robust in Europe in the first half of 2019, Rhodium Group predicted.

The EU, on its own terms, is strengthening its review of Chinese investment, especially those in key industries. 

"Chinese firms trying to build their capabilities in high-tech sectors may increasingly look to other leading high technology nations for strategic investments and joint ventures in research such as artificial intelligence and robotics, notably Russia." Biswas said.

Some EU countries like Italy are also better positioned to attract Chinese foreign direct investment, Biswas said.

Not all Chinese companies are winding back their US portfolios.

Zhejiang-based Geely Automobile, which acquired Swedish passenger car maker Volvo in 2010, said in a statement sent to the Global Times on Tuesday that the "BRI lines up with Geely's overseas strategic investment strategy," noting results in Southeast Asia and Belarus. 

The company is also pushing its investment in the US, saying "all markets are important."

 "If China and the US can properly resolve their disputes, and introduce more market-oriented elements in bilateral exchanges, Chinese ODI to the US will regain traction," Dong said.

Newspaper headline: Chinese ODI shifting to BRI


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