Caution advised as China eyes Europe’s periphery

By Yu Xi Source:Global Times Published: 2014-1-16 21:28:01

Illustration: Lu Ting/GT

Bulgarian President Rosen Plevneliev was in China on a four-day state visit earlier this week, marking the first time in 2014 that China has welcomed a foreign head of state.

During top-level meetings, President Plevneliev and his Chinese counterpart Xi Jinping both expressed their willingness to strengthen trade and economic relations between their respective nations, with the Bulgarian side promising more convenience for Chinese traders and product processors operating in the Eastern European country. As Plevneliev also mentioned, there is still potential for further cooperation between Bulgaria and China in fields such as agriculture and telecommunications.

The support for closer links didn't stop there though. During the Sino-Bulgarian business forum held Wednesday in Shanghai, representatives from many Chinese businesses were in attendance to show their interest in grasping new opportunities in the country.

But despite Bulgaria's welcoming attitude, Chinese enterprises, whether State-owned or privately held, should look carefully at potential risks when investing in Europe. Cultural and legal differences, language barriers and even political uncertainties could all compromise Chinese business ambitions.

Since the onset of the global financial crisis as well as the eurozone's subsequent debt panic, Bulgaria is just one of several European countries which have reached out to China for stronger investment ties. Certainly there is still room for improvement, since the lion's share of outbound investment is currently directed toward Asia and North America, leaving little leftover for Europe. China's leadership appears to have recognized this lack of business focus on the Continent's periphery, particularly on Central and Eastern Europe (CEE). In late November, Chinese Premier Li Keqiang attended a Sino-CEE summit in Bucharest, Romania, where he and leaders from 16 countries pledged to map out a blueprint on future cooperations.

The development of CEE markets in the decades since the dissolution of the former Soviet Union has naturally aroused the interest of overseas-facing firms. Yet, many local players continue to struggle even in the larger markets that China's business community is more familiar with. According to data from the Ministry of Commerce, nearly 65 percent of Chinese enterprises with investments in Europe are losing money on their ventures there. Meanwhile, an investigation conducted by the European Union Chamber of Commerce in China found that nearly 78 percent of Chinese enterprises have found it difficult to conduct business in Europe thanks to local bureaucracy and high costs.

Returning specifically to Bulgaria, representatives from several Chinese companies have infused their interest in the country with concerns about localization. For businesses with experience in Western Europe, CEE is still largely uncharted territory. As mentioned above, this region presents distinct challenges that many in China's business community may be unfamiliar with.

Of course, it's not just CEE that's reaching out to China these days. Germany, Sweden, France, Belgium and the UK, among other advanced European nations, are all eager to forge stronger bonds with the world's second-largest economy. Chinese enterprises have proven receptive, with recent investments in Europe's property, food and aviation industries.

But when looking abroad, Chinese enterprises need to be responsible and carry out due diligence before putting their money overseas. This is as true for Europe as it is for any other foreign market. Legal problems, shifting political winds, cultural clashes, trade union disputes and other pitfalls could waylay foreign investment - so Chinese businesses had better do their homework.

The author is a reporter with the Global Times.

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