economic and trade relations between italy and china

ECONOMIC AND TRADE RELATIONS

BETWEEN ITALY AND CHINA: TRENDS AND PROSPECTS

Background paper

by Alessia Amighini*

意中

Distributed on the occasion of the BFCI - Business Forum China-Italy (May 5th 2016)

2

* The opinions expressed herein are strictly personal and do not reflect the position of ISPI, and/or

the Business Forum.

Alessia Amighini is Senior Associate Research Fellow at ISPI. She is Assistant

Professor of Economics and International Economics at the Department of

Economic and Business Studies (DiSEI) at Piemonte Orientale University (Novara,

Italy), and Adjunct Professor of International Economics at Sacred Heart University

(Milan, Italy)

The Italian Institute for International Political Studies (ISPI) is an independent think tank

serving as a resource for government officials, business executives and everyone

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dynamics in specific countries. These activities also include the annual China

Watcher conference.

© 2016 ISPI

First edition: 2016

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3

Contents

Executive Summary p. 4

1. Rising economic complementarities between Italy and China p. 6

2. Increasing interdependence through trade p. 11

3. Growing interest of Chinese direct investment in Italy within the EU p. 22

4

Executive Summary

The recent global crisis has confirmed that in an increasingly interconnected

global economy, all countries’ fortunes are interdependent and good economic

and trade relations are vital for the growth of global welfare. Chinese

growth as the second largest world economy and her rising integration in the

global economy over the last three decades are major sources of such

interdependence, as Chinese firms are now active actors in a vast number of

agricultural, industrial and services sectors. The inclusion of China into an

increasing number of global and regional value chains makes it key for both

China and all her major trading partners to further improve their cooperation,

both in bilateral and multilateral contexts.

The dynamism of the Chinese economy has spurred growth in the rest of the

world over the last three to four decades, and at the same time China’s growth

heavily benefited from intense bilateral trade and economic relations with the

most advanced and industrialised economies. In the context of the global

trade slowdown that followed the recent world recession, China has

remained a major partner for many emerging and industrialised

economies, including Italy. The current economic rebalancing in China

signals a transition towards a more sustainable and efficient economy, and

represents a major source for a higher interdependence between China and the

rest of the world. The potential for bilateral cooperation is larger today

than ever.

Italy has always been a major trading partner for China, as the two economies

share a number of similarities and complementarities in production structures.

The economic and trade relations between China and Italy have shown

increasing signs of growing interdependence over the last decade, through

both trade and investment. China and Italy are increasingly intertwined through

trade, as a rising share of each country’s exports include imports from the other

country. This is a sign that a number of manufacturing sectors that are the

backbone of economic activity in both countries are increasingly

interdependent.

5

Besides, both the Italian and Chinese economies are heavily export-oriented,

and they both rely on an increasing share of foreign inputs in their exports. In

addition, Italy increasingly relies on foreign inputs embedded in production

exports, with China having a growing share. The latter increased more than any

other foreign inputs since 1995, and amounts now to around 1.5%, similar to

that of the United States. At the same time, the share of Italian inputs in

Chinese production and exports increased in many sectors. Therefore, China’s

further export capacity partially depends on collaboration with high-tech

enterprises in highly industrialized countries, such as Italy.

Moreover, new sectors are emerging as increasingly important for the

future bilateral relations between China and Italy. In particular, growth

projections and the increasing food spending in China, together with the rapid

aging of its population, and their combined effect on health care spending, will

open up new possibilities for cooperation in agroindustry and pharmaceutical

sectors, where Italian skills, expertise and products can perfectly match the

growing sophistication of Chinese consumers. Likewise, Chinese producers have

a huge potential to upgrade into high-value added supply chains where Italy has

developed some of the world’s most advanced skills and technologies.

Italy and China are also increasingly linked through direct investments.

In 2015, Europe surpassed North America as the first destination for Chinese

outbound direct investments, and this is largely due to the large investment

share in Italy, which has become the top destination in Europe, hosting the

biggest Chinese deal in Europe so far. The potential complementarities between

the two countries are on the rise in many food, manufacturing and services value

chains. Italian and Chinese businesses can certainly collaborate more and

more in a vast number of economic activities in both goods and services

sectors, which go far beyond the traditional mature industries that have grown

mainly through production volume and market expansion, to include more

innovative and advanced sectors such as healthcare, environmental protection,

green farming, industrial upgrading, urban planning, and sustainable

development.

Building new interdependencies and leveraging new and old

complementarities will allow China and Italy to remain at the forefront of

the global economy.

6

1. Rising economic complementarities between Italy and China

Since the global crisis started in 2008, the world has come to realize how dependent

global growth is on the fate of the Chinese economy. China is not only a big exporter

of low-price products, thus being a formidable competitor, but also a major

importing country. Economic complementarities are high and rising between China

and her major trade partners, including most notably Europe and Italy.

China’s export capacity and upgrading may further benefit from the collaboration

with high-tech enterprises in highly industrialized countries, such as Italy. China can

export because it imports energy resources and raw materials that are lacking in the

country, especially from other emerging economies, such as Brazil, Indonesia and

Russia. Moreover, it acquires technology and industrial machinery from the highly

industrialized countries, whose companies choose China not only to exploit the cost

benefits, an aspect that is becoming less important given the rapid rise in Chinese

wages compared to that of its neighbouring countries, but more importantly to

oversee the most dynamic market in the world.

.

If China rebalances, as has been happening since the second half of 2014, its import

demand decreases, bringing down half of the world’s exports, which has driven

growth over the past few years. The recent data from Germany show that even the

so-called “locomotive of Europe” was indeed affected by the drop in Chinese

imports of machinery and equipment, the pride of the Mittelstand. For Italy, this is a

threefold shock: Chinese demand for the Made in Italy is decreasing, the German

sectors of mechanical engineering, with which Italy is intertwined, are suffering, and

China’s further export capacity and

upgrading may further benefit from the

collaboration with high-tech enterprises in

highly industrialized countries, such as Italy

7

the energy-exporting countries (including Russia), which had supported Italy’s

exports in many sectors during the recent past, are entering into a crisis phase.

There is another source of complexity, which is likely to gain more and more

importance in the future. The rapid growth in China over the past three decades has

in fact contributed to foster growth in many of the most technologically advanced

European industrial sectors. China's increasing production and export capacity in a

vast and increasing number of consumer goods has benefited from imported

machinery and tools from industrial economies, including Italy. As a matter of fact,

specialised industrial machinery, which is one of the most important flagship sectors

for Italian exports, shows deep and rising complementarities with Chinese export

capacities.

Despite other markets are more important than China for Italy, it is necessary to go

beyond the aggregate figures to really gauge what the possible consequences of

today’s Chinese economic rebalancing may be for our economy.

Despite the fact that Italian exports are mainly directed towards the European Union

(55%) and the U.S. (7.5%), the Chinese market was recently the most dynamic for Italian

exports (+ 18%), being second only to the U.S. market, which in 2015 grew more than

any other (+ 36% compared to 2014). On the contrary, European demand for Italian

goods is in a stasis (exports to Germany increased by only 1%, while exports to France

by 5%). Moreover, for some Italian export sectors (paper, leather, metals and fertilizers)

China is a very important market (well over 10% of the total), and a sharp slowdown in

its demand could severely affect them, without necessarily manifesting itself at the

aggregate level, given their relatively low share in total national exports.

The integration of China into many

production chains, from information

technology equipment and clothing to cars,

is the cornerstone of globalization, but also

the source of new interdependencies

8

TABLE 1.1 - SHARE OF CHINA IN ITALIAN EXPORTS

China’s share

of exports by sector

Sector’s share of

Italian exports

Paper pulp and waste paper 49,2 0,1

Leather, skins and furs, unbleached 21,5 0,1

Metal ores and metal scrap 14,9 0,2

Fertilizers and crude minerals (excluding

coal, petroleum and gemstones)

14,3 0,2

Machinery and equipment for metal

processing

7,7 1,4

Leather and skins and processed leather

goods and processed fur

6,8 1,1

Coffee, tea, cocoa, spices and

related products

6,2 0,6

Machinery and equipment specialized for

specific industries

5,1 5,5

Industrial machinery and equipment for

general use and parts

4,3 10,1

Travel goods, handbags and similar 4,1 1,3

Source: A. Amighini, “Effetto Cina sull’export”, lavoce.info, March 22, 2016, elaboration from Eurostat

If it is true that the sectors most dependent on Chinese demand weigh little on the

total of Italian exports, the machinery sector, though, is less exposed to the fate of

Chinese demand (the main sectors of specific- and general-purpose instrumental

machinery exports to China are respectively 4.3% and 5.1%), but they represent

The sectors most dependent on Chinese

demand weigh little on the total of Italian

exports. Instead, the specific- and general-

purpose machinery sectors are less exposed

to Chinese demand, but they represent

respectively 10.1% and 5.5%

of total Italian exports

9

respectively 10.1% and 5.5% of total Italian exports. As a consequence, the direct

impact of the Chinese economic rebalancing may be limited, but it will be heavily

concentrated on a few important sectors.

For the two most important sectors (general-purpose and specific instrumental

machines), the main market is no longer the European Union because it represents

less than half of the exports and this differentiates it from the average in many other

sectors. Moreover, even though direct exports to China weigh relatively little, BRICS

have become important markets, and if China’s slowdown drags down the other

economies (as is already happening), these shares will readjust. As for the United

States, on which it is said we should rely to raise exports, it in reality has a limited

presence in these sectors.

TABLE 1.2 - DESTINATION OF ITALIAN MACHINERY EXPORTS

Machinery for

general purposes

Machinery for

specific purposes

UE28 47,5 38,3

of which Germany 11,9 7,1

ExtraUE28 52,5 61,7

of which the United

States

7,3 8,5

BRICS 11,7 15,3

of which China 3,9 5,5

Source: A. Amighini, “Effetto Cina sull’export”, lavoce.info, March 22, 2016,

elaboration from Eurostat

The most important impact will, however, be indirect. For what concerns Italy, our

country participates in European production chains led in part by Germany - the

main market for Italian exports in many sectors of mechanical engineering – which is

in turn highly exposed to the Chinese market, whose slowdown thus indirectly

affects our exports. A quick way to evaluate this indirect impact is through the

calculation of the elasticity of exports: between 2002 and 2014, that of Italy to

Germany increased by 15% in the area of specialized machinery, compared to the

variation of German exports to China of 124% (i.e. an elasticity equal to 0.12).

During the same period, Italian exports to Germany increased by 239% in the field

of general-purpose machinery, compared to a change in German exports to China of

374% (i.e. an elasticity of 0.64). This means that, on average, for every percentage

point increase in German exports to China in each of these two sectors, Italian

exports increased by 0.12% and 0.64%.

10

As a result, when Chinese imports started to slow down considerably, Italian exports

were affected as well, probably much more than was expected just from looking only

at the data on the weight of China on Italian exports. The reason has to do with the

fact that part of Chinese demand from Italian companies stems from the orders of

Chinese companies to the German. According to OECD data, from 1995 to 2011

(latest available data), the Italian input content in German exports of machinery rose

from 1 to 3.5 billion dollars. These figures, while on one hand confirming that in the

context of a German-led Europe the importance of the Chinese market for Italian

companies goes far beyond the bilateral export value, on the other hand suggest that

the challenge of competitiveness for our products in China is played in Beijing as

much as in Berlin.

FIGURE 1.1 - VALUE OF ITALIAN INPUT IN GERMANY’S MACHINERY EXPORT

(MILLION $)

Source: A. Amighini, “Effetto Cina sull’export”, lavoce.info, March 22, 2016, elaboration on data from OECD-TiVA database

11

2. Increasing interdependence through trade

Bilateral trade flows show high interdependence between the Italian and Chinese

economies. Both Italian imports from and exports to China have been increasing

over the last few years. Italian exports to China show a strongly increasing trend,

with a 21.1% rise since 2010. Unlike exports, Italian imports from China are still

2.2% down compared to the 2010 level. However, imports have recovered since

2013, after a decline in Italian demand in the aftermaths of the global crisis.

FIGURE 2.1 - AGGREGATE TRADE FLOWS BETWEEN ITALY AND CHINA, 2010-2015

Source: Elaboration from Eurostat

Bilateral trade flows show high interdependence

between the Italian and Chinese economies. Both

Italian imports from and exports to China have

been increasing over the

last few years

0

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Import from China Export to China

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SECTOR TRADE TRENDS

Complementarities are strong in major industrial sectors that are the

backbone of economic activity in both countries.

Italian exports to China increased by 21.1% between 2010 and 2015.

They are very concentrated on a few number of sectors, led by

Machinery and mechanical appliances, which, however, have declined

by 17.2% throughout those years. Other main exports have increased

over the same years, most notably Vehicles (+164.2%), Pharmaceutical

products (+362%), Apparel and clothing (+210%), Furniture (+171.6%)

and Leather articles (+322.9%).

Italian imports from China are also very concentrated on a few sectors,

mainly machinery (18.8% of total Italian imports from China in 2015)

and mechanical appliances (16.1% of total Italia imports from China in

2015). The top 10 import sectors account for 68.3% of total imports from

China.

Italian imports from China have increased since 2013 mainly due to

strong demand in major industrial sectors such as Machinery and

mechanical appliances (+18.9%), Iron and steel (+81%) and Optical,

photo and measuring apparatus (+53.1%).

TABLE 2.1 - ITALIAN TOP 10 IMPORTS FROM CHINA

Sector 2010 2011 2012 2013 2014 2015 %

2015

Electrical machinery 7,282,351,419 7,141,774,661 4,673,287,546 4,024,410,758 4,373,689,902 5,295,166,395 18.8

Machinery and mechanical appliances 3,802,723,438 4,455,679,010 4,563,368,096 4,241,926,331 4,456,754,480 4,522,054,212 16.1

Apparel and clothing (not knitted) 1,874,535,987 1,888,769,192 1,581,652,771 1,403,621,103 1,503,078,915 1,630,308,807 5.8

Iron and steel 789,165,279 958,703,971 563,723,483 613,136,382 1,003,071,369 1,430,175,978 5.1

Apparel and clothing 1,620,474,994 1,601,881,544 1,373,005,197 1,225,130,236 1,251,265,973 1,280,666,729 4.5

Optical, photo and measuring apparatus 752,280,472 789,283,950 839,044,879 844,988,820 944,714,065 1,151,443,901 4.1

Organic chemicals 663,161,577 774,296,011 812,231,843 775,980,005 808,397,642 1,012,254,127 3.6

Leather articles 980,338,336 988,494,713 956,531,673 847,631,532 913,526,762 1,006,944,926 3.6

64 819,289,205 849,725,139 823,263,459 799,743,075 848,688,609 966,426,087 3.4

Furniture 798,643,406 764,670,634 709,376,353 711,266,575 813,480,135 930,618,546 3.3


TABLE 2.2 - ITALIAN TOP 10 EXPORTS TO CHINA Sector 2010 2011 2012 2013 2014 2015 % 2015

Machinery and

mechanical appliances

4,105,037,686 4,513,398,155 3,508,713,879 3,609,158,196 3,695,218,147 3,400,576,917 32.6

Vehicles 241,809,330 379,906,545 401,357,051 654,447,868 952,705,319 638,925,466 6.1

Electrical machinery 586,290,472 513,971,729 378,469,566 467,111,716 498,424,941 503,702,986 4.8

Pharmaceutical products 106,475,674 185,748,011 186,723,807 298,408,379 357,459,297 491,885,672 4.7

Optical, photo and

measuring apparatus

256,952,637 262,547,479 315,564,901 329,859,937 430,301,108 478,789,728 4.6

Apparel and clothing,

not knitted

121,948,401 180,077,852 253,619,874 301,617,741 361,291,128 378,174,251 3.6

Plastics 280,234,051 266,647,231 252,948,675 254,489,331 302,428,392 363,286,434 3.5

Furniture 117,551,677 160,719,495 164,470,149 206,427,001 251,003,243 319,321,652 3.1

Raw hides and skins and

leather

301,985,547 334,576,209 294,853,636 325,654,625 310,581,964 302,923,661 2.9

Leather articles 68,816,177 126,179,012 170,131,866 215,369,821 250,974,872 291,005,581 2.8


MACHINERY AND MECHANICAL APPLIANCES


ELECTRICAL MACHINERY


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VEHICLES


OPTICAL, PHOTO AND MEASURING APPARATUS


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FURNITURE


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LEATHER ARTICLES


PLASTICS


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PHARMACEUTICAL PRODUCTS


RAW HIDES AND SKINS AND LEATHER


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IRON AND STEEL


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ORGANIC CHEMICALS


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3. Growing interest of Chinese direct

investment in Italy within the EU

After having been a big recipient of foreign direct investments (FDIs) for more than

two decades, China has become an important outbound investor, especially since the

so-called Go Global Strategy was launched in 1999, as an effort by the Chinese

government to promote investments abroad.

The government, together with the China Council for the Promotion of

International Trade (CCPIT), introduced several schemes to assist domestic

companies in developing a global strategy to exploit opportunities for expanding in

international markets. Since then, Chinese companies, especially State Owned

Enterprises (SOEs) and mostly large companies, but increasingly also medium-sized

ones, have invested overseas to diversify their assets and location portfolios. In

recent years, especially since 2006, China has accelerated its outward expansion

through FDIs, and in 2013 became the third-largest foreign investor in the world,

while remaining a top destination for global investments (the largest outside of the

OECD) (UNCTAD 2015). In particular, in 2014 China’s outstanding investment

stock amounted to around 730 billion US$, which is around 3% of all outward FDI

in the world (UNCTAD 2015). In terms of destinations, the largest share of Chinese

FDI stock is located in Hong Kong (58%) and, overall, 84% of the entire stock is

directed to other developing countries (in particular, Southeast Asia, 5% and sub-

Saharan Africa, 3%). The EU (6%) and the US (3%) are major destinations among

advanced economies; besides, it is worth adding that FDI stocks directed to Europe

increased by around 77 times from 2003 to 2012, an increase which is much higher if

compared with the US, where Chinese FDIs have risen by 47 times (UNCTAD

2014).

https://en.wikipedia.org/wiki/CCPIT

https://en.wikipedia.org/wiki/State_Owned_Enterprises

https://en.wikipedia.org/wiki/State_Owned_Enterprises

23

Figure 3.11 shows the geographical distribution of Chinese FDIs in the EU-27.

Between 2003 and 2014, the countries receiving the largest number of investments

were Germany, the United Kingdom, France, the Netherlands, Italy and Spain.

These countries account for almost 76% of the total of Chinese investments in

Europe. Other important destinations are Hungary, Ireland, Poland, Romania and

Sweden. Interesting differences emerge when comparing the geography of

investments according to their entry mode. Greenfield deals are more widespread

across the EU, and in addition to the top six countries are also located in Central and

Eastern Europe (mainly in Bulgaria, Hungary, Poland and Romania). Instead, M&As

are much more concentrated in the EU “core” as well as in the Northern EU

countries (i.e. Finland and Sweden).

FIGURE 3.1 - THE GEOGRAPHY OF CHINESE INVESTMENTS IN THE EU (2003-2014)

Data source: A. Amighini et al. “Chinese Multinationals in Europe” elaborated from fDi Markets and BvD Zephir

1 This section heavily draws on A. Amighini, (forthcoming), Chinese Multinationals in Europe (with V.

Amendolagine and R. Rabellotti).

24

Figure 3.2 shows the greenfield entry mode is by far the most preferred, reaching

83% of the total investments (1029 out of 1234). Greenfield investments were on the

rise up to 2011 and then started declining, while Chinese M&As have been increasing

all through the considered period, although at a slower pace.

FIGURE 3.2 - CHINESE FDI TO THE EU (2003-2014)


The greenfield entry mode constitutes 83%

of the total investments

Chinese outbound foreign direct investment

(OFDI) in Europe hit a record high in 2015,

highlighting the potential for increasing

complementarities between Chinese and

European industrial sectors

25

Table 3.1 provides a snapshot of the top destination countries in terms of number of

investments by Chinese companies. Within the time period 2003-2014, Germany was

by far the top destination for Chinese investments, receiving 37% of total

investments (458 deals): 39% of total greenfield projects (404 deals) and 26% of

M&As (54 deals). The United Kingdom follows at a certain distance with less than

half of the investments directed to Germany (202) but, at the same time, a number of

M&As that is only slightly lower than Chinese M&As in Germany (41). Other

European countries receiving a large number of investments from China are France

(104), Netherlands (66), Italy (57) and Spain (49).

TABLE 3.1 - TOP DESTINATIONS IN THE EU (# OF DEALS AND %)

M&A

(%)

GREENFIELD

(%)

TOTAL

(%)

Germany 54 (26.3) 404 (39.3) 458 (37.1)

United Kingdom 41 (20) 161 (15.6) 202 (16.3)

France 27 (13.2) 77 (7.5) 104 (8.4)

Netherlands 24 (11.7) 42 (4.1) 66 (5.3)

Italy 16 (7.8) 41 (4) 57 (4.6)

Spain 6 (2.9) 43 (4.2) 49 (4)

Total above 168 (82) 768 (74.6) 936 (75.8)

Total EU-27 205 (100) 1029 (100) 1234 (100)

Data source: A. Amighini et al. “Chinese Multinationals in Europe” elaborated from fDi Markets

and BvD Zephir

Since China began to shift its focus from

developing to high-income economies

Europe became a leading destination

for its investment

26

Table 3.2 shows that Chinese FDIs in Europe are very concentrated not only in

terms of destination countries (as seen in Table 3.1), but also of target sectors. In

particular, almost half of Chinese investments (47.7%) is directed to only four

industrial sectors: electronics (128 deals), machinery & engines (114),

communications (97) and automotive (62). Moreover, the machinery & engines

sector hosts the largest number of M&As (35, i.e. 20.8%), while the electronics and

communications sectors receive the largest amounts of greenfield-type FDIs (114

and 97, respectively).

TABLE 3.2 - TOP DESTINATION SECTORS IN THE EU-27 (# DEALS AND %)

(2003-2011)

SECTOR M&A (%) GREEN (%) TOT. (%)

Electronics 14 (8.3) 114 (16.9) 128 (15.2)

Machinery & engines 35 (20.8) 79 (11.7) 114 (13.6)

Communications 0 (0.0) 97 (14.4) 97 (11.5)

Automotive 13 (7.7) 49 (7.2) 62 (7.4)

All sectors 168 (100) 673 (100) 841 (100)


27

Table 3.3 shows the distribution of Chinese FDIs across the top destination sectors

and the main EU destination countries, showing a very concentrated pattern. The

machinery & engines sector receives the largest share of Chinese investments in

Germany and the UK (45.6% and 33.1% of total investments, respectively); in Italy

and Spain the most targeted sector is electronics (33.3% and 64.3%, respectively);

finally, communications is the top destination sector in France (48%) and in the

Netherlands (along with electronics with 28.6%).

TABLE 3.3 - INVESTMENTS IN TOP DESTINATION SECTORS WITHIN TOP DESTINATION

COUNTRIES

(#DEALS AND %) (2003-2011)

France Germany Italy Netherlands Spain UK Total

Automotive 0 (0.0)

19 (12.7)

8 (29.6)

3 (21.4)

0 (0.0) 16 (34.8)

46 (16.7)

Communications 12 (48.0)

17 (11.4)

8 (29.6)

4 (28.6)

5 (35.7)

16 (34.8)

62 (22.6)

Electronics 4 (16.0)

45 (30.3)

9 (33.3)

4 (28.6)

9 (64.3)

5 (10.9)

76 (27.6)

Machinery & Engines

9 (36.0)

68 (45.6)

2 (7.5) 3 (21.4)

0 (0.0) 9 (19.5)

91 (33.1)

Total 25 (100)

149 (100)

27 (100)

14 (100)

14 (100)

46 (100)

275 (100)


Chinese investment looks for quality

industries: half of OFDI to Europe

is directed to electronics, machinery &

engines, communications and automotive

28

Table 3.4 lists the six investing companies with more than 10 deals, which account

for around 16% of all Chinese FDIs in the EU-27. Investors relying on complex

entry mode strategies (i.e. both greenfield and M&As) belong to the capital- and

knowledge-intensive manufacturing sectors, such as automotive (SAIC), chemicals

(China National Chemical), and energy (Suntech Power Holdings). In addition,

investors in the services sector (ICBC) and the electronics industry (Huawei and

ZTE) only rely on the greenfield entry mode.

TABLE 3.4 - TOP INVESTORS (# DEALS AND %) (2003-2011)

Data source: A. Amighini et al. “Chinese Multinationals in Europe” elaborated from fDi Markets and

BvD Zephir

Company M&A (%) GREEN (%)

TOTAL (%)

Huawei Technologies 0 (0.0) 52 (7.7) 52 (6.2)

ZTE 0 (0.0) 24 (3.5) 24 (2.8)

China National Chemical 9 (5.3) 13 (1.9) 22 (2.6)

Industrial and Commercial Bank of China (ICBC)

0 (0.0) 15 (2.2) 15 (1.8)

Shanghai Automotive Industry Corporation (SAIC)

3 (1.8) 8 (1.2) 11 (1.3)

Suntech Power Holdings 1 (0.6) 9 (1.3) 10 (1.2)

All investors 168 (100) 673 (100) 841 (100)

29

Figure 3.3 shows that the majority of Chinese greenfield investments in the EU-27

between 2003 and 2014 served commercial purposes (47.7 %) in so far as they were

connected to Sales, Marketing and Retail activities. Headquarters and Manufacturing

activities are also important, as they represent respectively 21% and 17.8% of all

activities. Finally, innovative activities (i.e. R&D, Design, Development and Testing,

Training), along with Logistic and Distribution activities, currently represent a smaller

share of Chinese investments (respectively, 9.5 % and 4 %).

FIGURE 3.3 - DISTRIBUTION OF INVESTMENTS ALONG THE VALUE CHAIN (2003-2014)

Data source: fDi Markets and BvD Zephir

The geography of Chinese investments

differs according to the business activities

undertaken: HQ and INNOVATION are

concentrated in the EU core

30

Figure 3.4 presents the trend of different business activities. Interestingly,

commercial activities have been decreasing over the last few years, while investments

associated with higher-value added activities, such as strategic and innovative

activities, have been – albeit slowly – increasing. Furthermore, deals related to

manufacturing activities also follow an upward trend.

FIGURE 3.4 - INVESTMENTS OVER TIME ALONG THE VALUE CHAIN


31

Figure 3.5 shows the geography of Chinese investments in the EU-27 appears to vary

according to the targeted business activities. In particular, while commercial activities

are more homogeneously spread out among European countries, higher value-added

activities (“HQ” and “INNOVATION”) are more concentrated in the EU “core”

destinations, such as France, Germany, Italy, the Netherlands and UK. Finally,

manufacturing activities are mostly associated with investments undertaken not only

in some EU “core” countries, such as France, Germany and UK, but also in some

lower labour cost economies in the eastern part of the EU (i.e. Poland and Romania).

FIGURE 3.5 - MAP OF CHINESE INVESTMENTS IN EU27 BY VALUE CHAIN STAGE

(2003-2014)

Data source: fDi Markets and BvD Zephir Data source: A. Amighini et al. “Chinese Multinationals in Europe” elaborated from fDi Markets and BvD Zephir

32

Figure 3.6 shows that Chinese FDI in Europe increased exponentially over the last

five years, averaging more than 10 billion euros, a ten-fold increase compared to the

previous five years. The greatest increase occurred in 2015 when Chinese FDI in the

EU reached 20 billion euros, up by 44% compared to 2014, and this increase was

largely due to ChemChina’s acquisition of Italian tire producer Pirelli, the biggest

Chinese takeover in the EU so far.

FIGURE 3.6 - CHINESE OFDI IN EUROPE HITS A NEW RECORD HIGH IN 2015

VALUE OF CHINESE OFDI TRANSACTIONS IN EU ECONOMIES

(EUR million)

Source: Rhodium Group

33

Figure 3.7 shows that Chinese FDI in Europe targeted a number of different sectors,

with the automotive sector in top position (due to the major deal with the Italian

company Pirelli). The remaining sectors show a wide range of interests by Chinese

firms seeking for technology, including information and telecommunication

technology (NXP Semiconductors’ RF business) and brands, as well as real estate

and hospitality (Louvre Hotels, Club Med), and financial services (SNS Reaal’s

insurance unit, Banco Espirito Santo’s investment banking unit).

FIGURE 3.7 - CHINESE INVESTORS ARE TARGETING A MORE DIVERSE MIX OF SECTORS

DISTRIBUTION OF CHINESE OFDI IN THE EU BY INDUSTRY 2000 - 2015

(EUR million)


34

Figure 3.8 shows that private investors are increasing their shares of total Chinese

FDI: in 2015, they hit the record level of 6 billion euros. Compared to the last

decade, private firms have become important foreign investors. However, State-

owned investors continue to account for the majority of China’s EU OFDI, and the

share even increased last year compared to 2014.

FIGURE 3.8 - STATE-OWNED INVESTORS STILL ACCOUNT FOR THE MAJORITY OF

CHINESE FDI IN EUROPE

SHARE OF CHINESE OFDI IN THE EU BY INVESTOR TYPE 2000 - 2015

Source: Rhodium Group. State-owned entities refer to companies that are at least 20% owned by the government, sovereign

entities, and central SOE’s; private entities refer to companies with less than 20% ownership by the government, sovereign

entities, and central SOE’s.

The initiative of the New Silk Road is a

rising opportunity to strengthen economic

relation between Europe and China

35

Figure 3.9 shows Italy has became a growing destination for China’s outbound FDI,

being the recipient of the largest investment in Europe in 2014. Other investments

include the purchase of a 35% stake in CDP Reti by State Grid Corp. in November

of the same year, and the acquisition of a 40% stake in Ansaldo Energia by Shanghai

Electric Group Co. earlier in 2014. People’s Bank of China has also invested minority

stakes in some of Italy’s biggest companies, including Fiat Chrysler Automobiles,

Telecom Italia, Assicurazioni Generali, Eni and Enel.

FIGURE 3.9 - TOP FIVE EU RECIPIENTS OF CHINA’S OFDIS (2014)


Source: China Investment Tracker

Year Month Investor Quantity in Millions

Share Size Transaction Party Sector Subsector

2008 June Zoomlion $250 60% Compagnia Italiana Forme Acciaio Real estate Construction

2010 May Jiangsu Zongyi $200 Energy Alternative

2011 November

Huawei $130 Technology Telecom

2012 January Shandong Heavy $460 75% Ferretti Transport Shipping

2012 December Zoomlion $240 40% Compagnia Italiana Forme Acciaio Real estate Construction

2014 March SAFE $2.760 2%, 3% Eni, Enel Energy

2014 May China Power Investment

$560 40% Ansaldo Energia Energy

2014 July SAFE $520 2% Telecom Italia Technology Telecom

2014 July SAFE $110 2% Prysiam Technology Telecom

2014 July SAFE $280 2% Fiat Transport Autos

2014 August SAFE $630 2% Generali Finance

2014 October SAFE $140 2% Mediobanco Finance Banking

2014 November

State Grid $2.500 35% CDP Reti Energy

2014 December SAFE $100 2% Saipem Energy Oil

2015 June ChemChina $7.860 26% Pirelli Transport Autos

2015 June SAFE $1.220 2% Intesa Sanpaolo Finance Banking

2015 July Fosun $380 Real estate Property

economic and trade relations between italy and china

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