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Different cases, different faces: Chinese investment in Central and Eastern Europe

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Abstract

Chinese investment in Central and Eastern Europe (CEE) is booming. As China’s investment pattern has emerged so far, it appears to have little to do with Chinese firms’ preferences for liberal policy regimes, tolerance for corruption, or reliance on communist-era networks. This article documents the current size and shape of Chinese firms’ efforts to internationalize in this economic space, demonstrating an important difference between Chinese investment behavior in CEE and in the EU-15, namely the region’s much more active use of greenfield activity (and lighter use of M&A and strategic alliances). Case studies of each mode (greenfield, M&A, and strategic alliances) reveal little evidence of a “China, Inc.” approach and much evidence that Chinese firms are more motivated by market access than by technology or management assistance.

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Notes

  1. Chinese investment in the former Soviet Union and Turkey is a fundamentally different game in which about 70 % of investment is in the energy sector (Apoteker 2012).

  2. At PPP in 2011.

  3. For many firms, the least risky form of internationalism is to sell goods and services in another country. However, while trade is desirable, it is not always possible. Barriers of one kind or another often stimulate FDI, and an enormous international political economy literature pictures FDI as a common alternative to open trade (Choudhri and Marasco 2012).

  4. Hungary’s 2011 GDP was $130 billion, of which $2.1 billion is 1.6 %.

  5. One category, access to electricity, is not a regulatory issue.

  6. While Hungary’s Fidesz government has drawn fierce criticism for its 2012 reforms, the confidence interval around its score (which is based on 10 surveys) is no larger than for many other states. Moreover, even if its corruption score should fall in coming years, Chinese investors cannot have known that trajectory in advance of their investment decisions that have long since made Hungary a favored location.

  7. As it reports announced deals before they are closed, it may overreport to an extent. Of course, because many Chinese investors are exceedingly cautious and prefer to acquire small stakes or use other techniques to remain invisible, all data sets likely underreport some FDI positions as well (not to mention portfolio positions). Also, there does not seem to be much overreporting when we look at CBIM’s data on the four countries where Rhodium showed no Chinese greenfield investment between 2000-2011. Both Estonia and Slovenia also show no projects in the CBIM data, while small projects are reported for Lithuania (1) and Slovakia (2).

  8. For comparison, adding Russia, Turkey, and Southeast Europe to the data still suggests caution about the size of Chinese ambitions in CEE. Over the same period, these figures show 222 projects (107 of which were, as shown in Table 2, in the ten EU member states in the region) with about euro 15.7 billion (Euro 4.5 billion of which was CEE) and 88,245 jobs (25,201 of which were in CEE).

  9. Wall Street Journal, 10 September 2012. http://online.wsj.com/article/BT-CO-20120910-713850.html

  10. In the event, the A2 between Warsaw and Berlin opened one day before the Cup began, after Czech and French crews worked around the clock to complete the section left after Covec walked away. Euronews, 7 June 2012.

  11. Based on data from MergerMarket (Deloitte 2012). The North American share is projected to remain stable at about 25 % while Asia is projected to lose most of the FDI flowing to Europe over this period.

  12. These answers referred to all FDI and not just that in Europe. Respondents could name multiple motives.

  13. The firm also has plants in Poland and the Czech Republic.

  14. In the dominant OLI paradigm, Greenfield investments are typically seen to have lower transaction costs than do M&A. See e.g., Andersson 2004, p. 442

  15. Within the limits of fairly strict EU limits on “state aids.”

  16. “Private” firms sometimes get substantial state assistance for FDI projects, and it is widely suspected this happened in the Great Wall case.

  17. Great Wall has at least seven other such plants for assembling “knock-down kits” outside China.

  18. Great Wall has been developing a dealer network in the UK for at least a decade, but these cars were not built in Europe.

  19. The Chinese auto market matters greatly for the West. For example, 25 % of Skoda sales are now in China.

  20. Much early M&A with mature firms in the EU-15 had ended badly in this sector. For example, the Chinese electronics firm TCL had, by 2006, admitted defeat in its acquisition of both Schneider Electronics (Germany) and Thomson Electronics (France), both of which it closed after heavy losses (Nicolas and Thomsen 2008, p. 29).

  21. Investment data from FDIMarkets.com; See also TPV 2009 Annual Report, p. 10. http://www.tpvholdings.com/attachment/2010042319320100980010_en.pdf

  22. An additional $500 million has been designated as an “investment cooperation fund” for CEE.

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Acknowledgements

Thanks to Weston Baxter, Brian Burgoon, Johnny Harris, Sophie Meunier, Pál Nyíri, Werner Pascha, Herman Schwarz, Rachel Wellhausen, and an anonymous reviewer for comments on an earlier version.

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  1. Brigham Young University, Provo, USA

    Wade Jacoby

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Jacoby, W. Different cases, different faces: Chinese investment in Central and Eastern Europe. Asia Eur J 12, 199–214 (2014). https://doi.org/10.1007/s10308-014-0380-z

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