Europe more open than US, says chamber chief

Europeans still remain nervous about the Chinese taking over their companies, according to a senior European business figure in China.

Davide Cucino, president of the European Union Chamber of Commerce in China, says many European companies would opt to be taken over by another European, or US, company rather than a Chinese one.

"I have to tell you frankly that when there are deals involving rival bids, a company might prefer to sell to another European business rather than one from China," he says.

Cucino, who heads China operations for Finmeccanica Group, the leading Italian engineering conglomerate, says it was wrong to assume that it was only the US that was wary about Chinese investment.

"There still remains a feeling of uncertainty when considering an investment that comes from China. You have the unions, government leaders and the consensus of public opinion that are reluctant to see beyond the negative aspects to see the positive side of these investments."

Cucino, who was speaking in the chamber's offices in Lufthansa Center in Beijing, says the Chinese government was right to target increasing ODI since it was important that China had more global companies.

He points out that many of the current 89 Chinese companies in the latest Fortune 500 list conduct most of their business in China.

"China wants to create more national champions. If you look at some of the companies among the biggest 500, some of have a very minor international element. They are there because of their size but they have the potential to become more international."

The chamber president says that ODI is a way for Chinese companies to build the expertise to become more globally competitive.

"They need to understand about governance, learn new skills and be more prepared for the pace and challenges of international markets."

Cucino, who has been in China for 26 years, says that a lot of Chinese ODI is still "under the radar" with Chinese companies taking stakes in small and medium-sized enterprises and buying up research and development arms of businesses.

"Many of these are not big companies but they often have the sort of high-end technology that Chinese companies don't own yet. There are also a lot of companies in Europe with good products but are not in good financial shape because of the financial issues that are happening in Europe.

"Chinese companies also have the strength and power to offer a high price when they do a deal."

Cucino does, however, believe there is the potential for Chinese companies to do much bigger ODI deals over the next five to 10 years.

"Europe from this point of view is much more open than the United States and that is why there is more potential for huge deals and investments.

Cucino adds, however, that while some countries like the UK are open to Chinese investment in infrastructure projects such as the HS2 high-speed rail link from London to Birmingham, other countries are more wary.

"There have been a number of examples where countries have been worried about investments in infrastructure and utilities but I think there will still be a trend for these to be done."

He says some infrastructure projects have proved too difficult for Chinese companies. China Overseas Engineering Group withdrew its participation in a $447 million (325 million euros) highway construction project in Poland after incurring heavy losses in 2011.

"In the end it had to withdraw because of the fickle nature of the environment they found themselves in order to carry out this deal," he says.

Cucino says it was wrong to focus on China's increasing ODI without taking account the evolving nature of FDI into China.

He says European and other investors are no longer looking to invest in low-cost manufacturing but are looking to establish research and development facilities and set up ventures to access the Chinese market.

"I don't think there is any stopping the flow of investment. In the last few years we might have had a reduction in terms of volume but that was more linked to the financial crisis and not any loss of interest in China.

"A lot of companies are now clearly interested in the China market and the potential of increased consumption."

Cucino says there are still opportunities for European companies supplying machinery for Chinese low-cost manufacturing, although it is often taking place in other parts of Asia.

"Many Chinese companies are basing labor intensive manufacturing in third-party countries like Vietnam, Cambodia and Laos but this still provides European companies with opportunities for European investment with machinery and technology."

He says the Chinese government's strategy is to move the economy toward the service sector, including financial services.

"The UK is very advanced in this context. It has a very well-developed service sector and we have seen over the past two years not only UK companies coming to China but Chinese companies going to the UK to learn about financial services.

Cucino believes the Shanghai Free Trade Zone, launched in September last year, could prove a vital catalyst for foreign investment in services.

He would like to see more sectors taken off the so-called negative list and a clearer framework of rules and regulations.

"It is so far slow but it is going. I think there is a clear direction in developing the zone. There are a lot of sectors still closed, however, to foreign investment.

"A lot of companies want to be involved but they are not clear about the rules and regulations and these need to be set in play."

(China Daily Africa Weekly 02/21/2014 page7)