Asia Eur J (2014) 12:127–142

DOI 10.1007/s10308-014-0379-5
O R I G I N A L PA P E R

Chinese direct investment in the EU and the US:

a comparative view

Thilo Hanemann

Published online: 8 April 2014

# Springer-Verlag Berlin Heidelberg 2014

Abstract Chinese outward foreign direct investment (OFDI) in developed economies

has increased substantially in recent years, driven by policy liberalization and structural
adjustments in China’s economy. Efforts to accurately describe the dimensions of this
increase are complicated by problems with official statistics and the complexity of deal
structures. This article introduces the major problems of capturing data on global cross-
border investment flows and elaborates on the particular difficulties of measuring
Chinese outward FDI. It identifies alternative datasets that can help to better capture
the scope and patterns of the Chinese overseas investment and uses one of them to
describe the growth of Chinese investment in the EU and the US since 2000, highlight-
ing similarities and differences in investment patterns in the world’s two biggest
economies.

Introduction: a new era of Chinese outward FDI

Foreign investment was the cornerstone of China’s post-1978 economic miracle,

importing much-needed capital, technology and managerial know-how, and knitting
the Chinese economy into efficient regional production chains (Rosen 1999; Naughton
1995). After joining the World Trade Organization (WTO) in 2001, China became the
world’s second-largest recipient of foreign direct investment, amassing an inward
foreign direct investment (FDI) stock of more than USD 1.8 trillion by 2011. 1 The
Chinese investment-led growth model was hugely successful, producing three decades
of double-digit growth. However, a new growth model is needed to advance to the next
stage of economic development, and China is beginning a structural adjustment process
that will alter the country’s global investment position.2

1
The FDI figures in this paragraph refer to balance of payments data collected by the People’s Bank of China,
which were corrected in 2010 to account for reinvested earnings from existing FDI assets.
2
For a thorough treatment of China’s present structural adjustment needs, see Lardy (2012).
T. Hanemann (*)
Rhodium Group, New York, USA
e-mail: thanemann@rhgroup.net
128 T. Hanemann

One element of China’s shifting global investment position is a turnaround in FDI

patterns. The inflection point came in the mid-2000s, when Chinese demand sent global
commodity import prices soaring and state-owned enterprises, seeking to increase
supply security and profits, began venturing abroad in greater numbers to buy stakes
in extractive projects. The push for natural resource investments boosted the Chinese
outward FDI from an annual average of less than USD 3 billion before 2005 to USD 20
billion in 2006 and to more than USD 50 billion in 2008. In the years of 2010 to 2012,
in face of a global decline in FDI levels, China’s annual OFDI averaged more than
USD 56 billion, making China one of the world’s top 10 exporters of direct investment
in the post-financial crisis years (Fig. 1). By year-end 2012, China’s global OFDI stock
had reached USD 503 billion.
The world should expect to receive significant amounts of Chinese investment in the
coming decade—even by conservative estimates. By 2020, China’s gross domestic
product (GDP) will likely have surpassed USD 13 trillion (a GDP per capita of around
USD 10,000). 3 The current low OFDI to GDP ratio of 6 % would yield USD 817
billion in Chinese OFDI stock in 2020. If China’s ratio rises to the middle-income
economy average of 10 %, its OFDI stock would grow to USD 1.4 trillion in 2020.4
Under a scenario of aggressive capital account liberalization, some projections see
China’s global direct investment stock growing to more than USD 5 trillion by 2020
(He et al 2012).
Moreover, Chinese OFDI patterns are maturing and evolving. Initially, the major
recipients of China’s growing OFDI were developing countries and a handful of
resource-rich advanced economies, including Australia and Canada. For the most
part, forays to invest in developed economies were few and far between. Now, as
structural adjustment at home intensifies, Chinese firms increasingly feel commer-
cial pressure to branch out from midstream manufacturing activities and move up
and down the value chain to capture more of the value added in these segments.
This necessitates overseas investment in local operations, distribution channels,
brands, know-how, and technologies. An increasingly large portion of China’s
future OFDI will therefore be destined for developed economies, where such
higher value-added economic functions and expertise are principally concentrated.
The changing patterns are already visible in the uptick of Chinese OFDI flows in
the US and the Europe since 2008.
One important variable for China’s future OFDI flows to developed economies and
other parts of the world is the political environment in recipient countries. The recent
surge in Chinese investment has already raised concerns in many countries with respect
to national security, political, and economic impacts.5 One problem that policymakers
face when they grapple with the question of how to respond to those new investment
flows is that there is insufficient information about the actual scope and patterns of
Chinese overseas investment, due to problems with data collection and the short track
record of Chinese investors.

3
Calculated assuming baseline growth rate of 5 % per year, 4 % inflation 2011–2015, and 3 % inflation 2016–
2020.
4
Ratios are based on FDI data from UNCTAD.
5
For a more detailed analysis of the political environment for Chinese investment in the US and the EU, see
Rosen and Hanemann (2011) and Rosen and Hanemann (2012).
Chinese direct investment in the EU and the US 129

2,000 60
Global Outward FDI Flows
1,800
(left axis)
Chinese Outward FDI Flows 50
1,600 (right axis )

1,400
40
1,200

1,000 30

800
20
600

400
10
200

0 0
1982
1983
1984
1985

1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
1986
1987
1988
1989
1990

Fig. 1 China’s outward FDI vs. global FDI flows. USD billion, 3-year average, source: State Administration
of Foreign Exchange (PRC), UN Conference on Trade and Development

This article describes the difficulties in accurately capturing the dimensions

and patterns of Chinese overseas investment and discusses potential alternative
solutions for analyzing Chinese FDI in Europe and the US for public policy
purposes. The first part describes the problems of capturing data on global
cross-border investment flows. The second part elaborates on the particular
difficulties of measuring outward FDI from emerging economies, China in
particular. The third part describes available alternative datasets that offer more
detailed and timely perspectives on Chinese OFDI flows and utilizes one of
them to provide an overview of current patterns of Chinese direct investment in
Europe and the US. The conclusion comments on how alternative datasets can
complement existing official statistics to help shape effective policy responses
to future Chinese investment in both economies.

Definition and measurement of FDI

In national accounting statistics, cross-border investment flows are commonly separat-

ed into five categories: direct investment, portfolio investment, derivatives, other
investment, and reserves.6 By definition, direct investment entails cross-border capital
flows that achieve significant influence over the management of an invested entity and
a long-term investment relationship. The common threshold for a direct investment is
10 % of voting shares. Portfolio investment entails a typically shorter-term investment
in liquid securities which constitutes no control or ownership, for example, holdings of

6
See the IMF’s Balance of Payments and International Investment Position Manual; the IMF definitions also
are used by other international organizations such as the OECD and UNCTAD.
130 T. Hanemann

equity shares with less than 10 % of voting rights, or corporate debt instruments.
Derivatives refer to financial instruments such as swaps, futures, and options, which are
only contractually related to the underlying value of real assets such as firms or
commodities. 7 Other investment entails all flows that do not fall under the previous
categories, such as foreign bank deposits, currency holdings, cross-border loans, or
trade credits. Lastly, reserves denote reserves held by governments in the form of gold,
foreign exchange, or special drawing rights at the IMF (IMF 1993; OECD 1996).
Foreign direct investment flows can include three components: equity investment,
reinvested earnings, and other capital flows. A direct investment relationship usually
starts with an equity injection into an overseas subsidiary, either for the establishment of
a new overseas subsidiary (greenfield investments) or to acquire a significant (greater
than 10 %) stake in an existing company (mergers and acquisitions). All subsequent
capital flows between the parent company and foreign subsidiary are counted as direct
investment, including profits that are reinvested in the subsidiary (reinvested earnings)
and other capital flows between the two firms (such as intercompany debt).8
A range of different measures and sources are available for tracking global FDI
flows. Most countries compile balance of payments (BOP) statistics that include
information on annual inflows and outflows for each type of cross-border investment
and related income flows. The corresponding numbers for the inward and outward
stock of each category, which is the accumulated flows adjusted for exchange rate and
valuation changes, are recorded in countries’ international investment position (IIP)
statistics. The IMF uses these figures as reported by its member states to compile global
financial statistics. In addition to such national accounting statistics that capture
aggregate flows with the rest of the world based on IMF standard definitions, many
countries publish additional datasets that provide a more disaggregated view of their
investment relationship with other economies. Several international organizations, such
as the United Nations Conference on Trade and Development (UNCTAD) or the
Organization for Economic Cooperation and Development (OECD), also collect data
on FDI and other cross-border investment flows.9
Problems with the validity and accuracy of available measures for FDI have been the
subject of broad academic debate. With regard to the validity of FDI statistics, researchers
have pointed out that FDI may not be a good indicator for describing the activities of
transnational enterprises (TNEs) (Stephan and Pfaffmann 2001; Beugelsdijk 2010). With
regard to the accuracy of FDI data, the most important problem is that the collection and
calculation of FDI statistics relies on the efforts of national statistical agencies, which have
very different capabilities and resources. Several specific problems have increased the
challenges in collecting FDI data in recent years (UNCTAD 2005b): First, the use of
holding companies and offshore vehicles has increased tremendously in recent years, and
the extent of “round-tripping” (where companies route funds to themselves through
countries or regions with generous tax policies and other incentives) and “trans-shipping”
(where companies channel funds into a country to take advantage of favorable tax policies
only to re-invest it to a third country) flows is hard to identify. Official statistics often only
7
The new category of derivatives was introduced in the sixth edition of the IMF’s balance of payments and
international investment position manual, released in 2009.
8
Detailed information on the nature of direct investment and its measurement can be found in the OECD’s
“Benchmark Definition of Foreign Direct Investment” (OECD 2008a).
9
For more detailed information, see Rosen and Hanemann (2011) and IMF (2004).
Chinese direct investment in the EU and the US 131

record direct flows, which can lead to gross under- or over-measurement of a country’s
foreign investment volume—particularly those of smaller economies with favorable tax
environments such as Hong Kong or the Cayman Islands. Second, FDI data by definition
should be recorded in market value, but because of the difficulty of obtaining such data on
all assets, official data is often recorded in book or historical value, leading to measure-
ment errors. Third, FDI by definition covers all investments with a 10 % or higher share in
voting rights, but it is often difficult to determine this threshold due to “indirect” holdings.
As a result, international FDI statistics are usually published with a delay of 1.5 years
or more, data from home and host countries are inconsistent, and tax havens cause
systemic distortions. This makes a holistic real-time assessment of global FDI flows
virtually impossible, and requires analysts to find ways of working around existing
gaps and distortions.

Challenges in measuring Chinese capital outflows

With regard to FDI flows to and from emerging economies, the task of getting
reliable data is further complicated by the lack of resources and experience in
collecting such statistics. Many emerging economy statistical offices do not
have the manpower or adequate training for collecting detailed and accurate
data on FDI flows and the operations of transnational enterprises (UNCTAD
2005a). Moreover, in emerging economies, firms have an even greater incentive
to use offshore holding companies due to inadequate financial and legal envi-
ronments at home and existing capital controls. The case of Chinese FDI
statistics illustrates some of these issues.

China’s system of OFDI data collection

In China, FDI statistics are compiled by two different government agencies. The State
Administration of Foreign Exchange (SAFE), China’s foreign exchange regulator
under the People’s Bank of China (PBOC), is responsible for collecting and publishing
FDI data used for China’s balance of payments and international investment position
statistics. In compiling such data, SAFE follows the principles outlined in the fifth
edition of IMF’s balance of payments manual (BPM5).10 SAFE publishes its data on a
quarterly and annual basis. The second government agency involved in FDI data
compilation is the China’s Ministry of Commerce (MOFCOM), which publishes
monthly data on outbound FDI by nonfinancial companies. MOFCOM is also in the
lead for publishing a statistical annual bulletin on Chinese outbound FDI in cooperation
with SAFE and the National Bureau of Statistics, which provides detailed breakdowns
of Chinese OFDI by country or industry.11

10
For detailed information on BPM5, see IMF (1993). IMF General Data Dissemination System (GDDS) on
China is available at http://dsbb.imf.org/pages/gdds/ComprehensiveFwReport.aspx?ctycode=CHN&catcode=
BPS00
11
The 2012 China Outward Foreign Direct Investment Statistical Bulletin was released in September 2013.
An official summary is available at http://www.mofcom.gov.cn/article/ae/ai/201309/20130900292811.shtml
132 T. Hanemann

90
STOCK: SAFE
(right axis) 500
80
STOCK: MOFCOM
(right axis)
70 FLOWS: SAFE
(left axis) 400
60 FLOWS: MOFCOM
(left axis)
50 300

40

200
30

20
100
10

0 0
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Fig. 2 Chinese data: aggregate OFDI flows and stock. USD billion. Source: SAFE/PBOC, MOFCOM

The first difficulty with this system lies in understanding the roles of the two
agencies and reconciling differences in their data. In recent years, China has stream-
lined its OFDI statistical system with both agencies responsible for different parts of
data collection but using the same definition for FDI, summarized in a statistical manual
on outbound FDI that is updated every 2 years. 12 In theory, China’s OFDI figures
should be based on MOFCOM’s outward FDI reporting system for nonfinancial
companies and SAFE data on OFDI by financial companies and reverse investment
flows. In practice however, the dual-agency system continues to complicate com-
pilation and dissemination of China’s OFDI data. The two agencies separately
publish monthly, quarterly, and annual data on their perspective parts as well as on
estimated overall FDI data, showing significant discrepancies—for example, as of
August 2013, MOFCOM records $87.7 billion of OFDI flows in 2011, while
SAFE only records $65.8 billion in gross outflows and $48.4 billion in net
outflows for the same year. Both agencies reconcile their stock figures during
annual data revisions, but the discrepancies between annual flows persist (Fig. 2).
A second problem with official Chinese FDI statistics is that they are not suitable for
an in-depth analysis of distribution by industry or country because they do not
accurately capture the final destination of outflows. The increasing use of offshore
financial centers is a global trend, but Chinese firms have even greater incentives to use
special offshore purpose vehicles to structure their investments because of the lack of
sufficient legal and financial systems at home, capital controls, and burdensome
regulatory requirements for outbound investment. While Chinese statistical agencies
have made improvements to increase transparency, the current official data on the
distribution of China’s outbound FDI stock must be seen as an unreliable snapshot:
According to MOFCOM data, more than 70 % of China’s 2011 outbound FDI stock
was registered in either Hong Kong or tax havens such as the Cayman Islands or the

12
The 2012 China Outward Foreign Direct Investment Statistical Procedure is available at http://www.
mofcom.gov.cn/article/b/bf/201212/20121208507450.shtml
Chinese direct investment in the EU and the US 133

EU-27 (2010)
USA (2011) China China
0.4% 0.2%

Canada Latin
9.6% America
17.7%
Other Asia Africa
Other Asia 11.3% 1.1%
and Pacific
16.9% Oceania
1.1%
EU-27
56.6% North
America
Other Europe 45.4% Non-EU
6.5% Europe
23.2%

Other Latin
5.4% America/
Other
Western
Hemisphere
4.7%
Fig. 3 China’s role as direct investor in the European Union* and the US. Percent share of total inward FDI
stock, latest available year. Percent share of total inward FDI stock, latest available year, sources: Bureau of
Economic Analysis; Eurostat. *EU-27 FDI stocks exclude intra-EU FDI

Bermudas; the most prominent industry category in MOFCOM’s statistics is “business

services”, accounting for 34 % of total OFDI stock in 2011.

Mirror data from host countries

Data from host countries offer an alternative perspective on Chinese outbound invest-
ment, but an analysis of official data from the US Bureau of Economic Analysis (BEA)
and Eurostat show that the problems of government capacity and use of offshore
locations also complicate this mirror data.
Both Eurostat and BEA data confirm that China is a currently a small investor in
both the US and the EU (Fig. 3).13 However, the figures from both agencies on inward
FDI from China differ substantially from the Chinese data. In 2010, Eurostat recorded
USD 0.98 billion of FDI inflows from China, whereas the China’s Ministry of
Commerce (MOFCOM)’s figure is USD 5.96 billion, six times greater. In
2010, the Bureau of Economic Analysis (BEA) reported USD 3.2 billion
inward FDI stock from China, whereas MOFCOM reported USD 4.9 billion
outward FDI stock to the US. The extent of distortions caused by pass-through
investments can also be illustrated by the large discrepancy between two types
of US BEA data: Direct IIP data records an inward FDI stock of USD 3.8
billion from China in 2011, but a separate dataset by BEA tracking those flows
back to the country of ultimate beneficiary owner (UBO) shows an inward FDI
stock from China more than twice this size—USD 9.3 billion.14

13
BEA ultimate beneficiary ownership FDI statistics put the accumulated stock of Chinese FDI in the US at
USD 9.5 billion at the end of 2011, less than 0.4 % of total US FDI intake. According to official Eurostat
statistics, by 2010, China had invested USD 8.9 billion in OFDI stock in Europe—under 0.1 % of the EU’s
total, and under 0.3 % of the total from outside Europe.
14
BEA’s definition of ultimate beneficiary owner available at http://www.bea.gov/international/di1fdibal.htm;
http://www.bea.gov/faq/index.cfm?faq_id=1008
134 T. Hanemann

The Eurostat data further reveals significant variance in the scope and quality of
statistical data compilation across the European countries (Table 1). Smaller countries
in southern and eastern Europe still do not provide FDI-related data through Eurostat.
Many EU accession countries also employ FDI data measurement methodologies that
vary significantly from international standard (Borrmann 2003). Additionally, official
statistics repress information for confidentiality reasons, and often lack important
metrics such as distribution by industry and country, ownership of the ultimate bene-
ficiary owner, or operational characteristics such as assets, revenue or jobs created.

Chinese FDI in Europe and the US: a different approach

Given that scope, timelines, and quality of official data vary substantially, and some-
times drastically, they are insufficient for an in-depth, real-time analysis of Chinese
investment patterns. This is particularly true for policy research, as decision makers
require timely information. Scholars and analysts have therefore come up with alter-
native approaches to assess the scope and direction of Chinese overseas investment.
One channel researchers have chosen is to rely on widely available data on mergers and
acquisitions (M and A) to assess trends in Chinese overseas investment (for example,
Schüler-Zhou and Schüller 2009). In recent years, several think tanks, academic institu-
tions, and private sector firms have compiled databases with more comprehensive cover-
age based on a bottom-up approach of collecting data on individual transactions: The
Heritage Foundation’s China Investment Tracker tracks China’s global nonbond invest-
ments higher than $100 million15; Rhodium Group (RHG) has compiled two datasets on
Chinese FDI in the US and the Europe based on media reports, professional deal databases,
and regulatory filings16 (Rosen and Hanemann 2012); the Antwerp Management School’s
Euro-China Investment Report analyzes the operations of Chinese firms across Europe
based on company data from the Amadeus pan European database 17; Thierry Apoteker
Consulting (TAC) has compiled the ChinaObs fdiMonitor (COFM), a nonpublic dataset
on Chinese FDI for the EU Commission18; and several professional service providers offer
insights on Chinese outbound M and A patterns specifically.19
While such alternative datasets are not comparable to those compiled using the
traditional balance of payments method, they do avoid some of the existing problems—
namely issues with time lags and pass-through locations—and permit a real-time
assessment of investment trends. The example of data on Chinese FDI in Europe and
the US provided by the Rhodium Group’s China Investment Monitor illustrates how
such approaches allow for a more accurate and timely analysis of Chinese investment
patterns, which can effectively complement the official statistics.

15
Heritage Foundation China Investment Tracker, available at: http://www.heritage.org/research/projects/
china-global-investment-tracker-interactive-map
16
Rhodium Group China Investment Monitor, available at: http://rhg.com/interactive/china-investment-
monitor
17
Antwerp Management School Euro-China Investment Report, available at:
http://www.antwerpmanagementschool.be/en/faculty-research/publications/euro-china-investment-
report-20112012.aspx
18
TAC ChinaObs fdiMonitor, available at: http://www.chinaobs.eu/
19
For example KPMG or Ernst&Young.
Chinese direct investment in the EU and the US 135

Table 1 Chinese OFDI stock and flows in Europe and the US, official data, 2010. USD million, percent
difference

FDI Stock (2010) FDI Flows (2010)

Eurostat/BEA MOFCOM Δ Eurostat/BEA MOFCOM Δ

US 3,300 4,874 −1,574 1,037 1,308 −271

Euro area (16) 5,833 8,802 −2,968 −261 3,850 −4,112
EU-27 8,927 12,502 −3,575 977 5,963 −4,986
Austria 184 2 182 4 0 4
Belgium −742 101 −843 147 45 102
Bulgaria 23 19 4 7 16 −10
Cyprus N/A N/A N/A N/A N/A N/A
Czech Republic 72 52 19 3 2 1
Denmark 506 42 463 19 2 17
Estonia 7 8 −1 −3 N/A N/A
Finland 68 27 40 86 18 68
France 472 244 229 33 26 7
Germany 1,060 1,502 −442 445 412 32
Greece 5 4 1 N/A N/A N/A
Hungary 139 466 −326 131 370 −239
Ireland −1,182 140 −1,322 −1,060 33 −1,093
Italy 423 224 199 −27 13 −40
Latvia 1 1 1 0 N/A N/A
Lithuania 3 4 −1 0 N/A N/A
Luxembourg N/A 5,787 N/A 73 3,207 N/A
Malta 7 3 4 3 −2 5
Netherlands 345 487 −142 252 65 188
Poland 325 140 185 11 17 −6
Portugal N/A 21 N/A 3 N/A
Romania 69 125 −56 −9 11 −20
Slovakia 49 10 39 23 0 22
Slovenia 0 5 −5 0 N/A N/A
Spain N/A 248 N/A N/A 29 N/A
Sweden 1,468 1,479 −12 N/A 1,367 N/A
United Kingdom 618 1,358 −740 13 330 −317

Sources: PRC Ministry of Commerce, Eurostat. Accessed in May 2012. Currency conversions from Euro into
USD are based on the IMF’s 2010 EUR/USD exchange rate of 1.3269; Bureau of Economic Analysis (BEA).
Accessed July 23, 2013
N/A not available

Aggregate flows

Rhodium Group’s data set was compiled using a bottom-up approach; it covers
greenfield projects and acquisition stakes that exceed 10 % of voting rights. It excludes
136 T. Hanemann

120 U.S. Total Value 12,000

(right axis)
E.U. Total Value
100 (right axis) 10,000
U.S. Total Deals
(left axis)
80 E.U. Total Deals 8,000
(left axis)

60 6,000

40 4,000

20 2,000

0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Fig. 4 Chinese direct investment in the US and the European Union, 2000–2011. Number of deals and USD
million, source: Rhodium Group. For more information see Rosen and Hanemann (2011); Rosen and
Hanemann (2012)

small-scale operations and transactions with an estimated value of less than USD 1
million. Its data confirm that Chinese investment has been growing rapidly since 2008
in both economies but from a low base. Between 2000 and 2011, the dataset records 547
Chinese deals in the US worth a total of USD 16.4 billion and 573 transactions worth USD
21 billion in the European Union (EU) (Fig. 4). Before 2008, annual Chinese direct
investment flows to both the US and the European Union typically stood below USD 1
billion, with few exceptions.
Since 2008, Chinese investment has gained momentum in both economies. In the
US, investment flows grew to just under USD 2 billion in 2009 and to USD 5.8 billion
in 2010 before decreasing slightly to USD 4.5 billion in 2011. But the drop was only
temporary, as the first three quarters of 2012 alone have already seen a record USD 6
billion in new investment flows.20 In the European Union, annual inflows hit USD 3
billion in 2009 and 2010 before jumping to a total investment volume of almost USD
10 billion in 2011—a threefold increase over the previous 2 years.
While these numbers are significantly higher than official statistics, the assertion that
China is “buying up” Europe and the US is not accurate.21 Using the RHG figures as
numerator and official figures for aggregate inflows as denominator, China still ac-
counts for less than 5 % of total FDI flows into the US and the EU in 2011. Chinese
direct investment also remains tiny when compared to China’s other investments in the
US and the Europe. For example, the average annual increase in official Chinese
holdings of US treasury securities was more than USD 90 billion between 2000 and
2011.22

20
For a detailed analysis of Chinese investment activities during the first half of 2012, see Hanemann (2012).
21
See for example Godement and Parello-Plesner (2011), Time, “Will Asia “buy up” America?” August 30,
2011, available at: http://business.time.com/2011/08/30/will-asia-buy-up-america/.
22
Source: US Treasury International Capital System, available at: http://www.treasury.gov/resource-center/
data-chart-center/tic/Pages/index.aspx
Chinese direct investment in the EU and the US 137

Table 2 China’s FDI in the US and the EU by industry, 2000–2011. USD million and number of deals; service
sectors marked in gray
Value Value
United States Deals (USD mn) European Union Deals (USD mn)
Utility and Sanitary Services 5 2,831.1 Coal, Oil & Gas 12 4,879.5
Coal, Oil & Gas 12 2,304.6 Chemicals, Plastics and Rubber 22 3,630.9
Electronic Equipment and Components 36 2,186.6 Automotive OEM and Components 35 2,615.2
Industrial Machinery, Equipment & Tools 55 1,916.9 Communications Equipment and Services 100 1,356.8
Metals Mining and Processing 20 1,311.2 Transportation Services 16 1,329.5
Automotive OEM and Components 44 965.5 Metals Mining and Processing 27 1,224.7
Real Estate 7 908.5 Consumer Electronics 42 1,170.4
Alternative/Renewable Energy 38 644.6 Industrial Machinery, Equipment & Tools 57 993.4
Software & IT Services 42 628.6 Food, Tobacco and Beverages 19 679.5
Communications Equipment and Services 55 443.7 Financial Services and Insurance 28 526.0
Aerospace, Space and Defense 7 409.6 Real Estate 5 486.1
Healthcare and Medical Devices 9 380.2 Pharmaceuticals 7 300.2
Leisure & Entertainment 9 324.6 Electronic Equipment and Components 27 286.4
Textiles and Apparel 15 152.5 Software & IT Services 26 268.9
Chemicals, Plastics and Rubber 24 148.8 Aerospace, Space and Defense 11 253.0
Pharmaceuticals 16 146.3 Textiles and Apparel 12 232.6
Financial Services and Insurance 25 141.1 Alternative/Renewable Energy 52 228.8
Semiconductors 3 80.5 Healthcare and Medical Devices 11 92.7
Furniture and Wood Products 15 75.2 Paper, Printing & Packaging 3 73.7
Food, Tobacco and Beverages 12 69.5 Leisure & Entertainment 3 47.8
Business Services 25 63.0 Other Transport Equipment 5 45.9
Consumer Electronics 15 57.1 Business Services 15 44.2
Biotechnology 10 42.3 Minerals Mining and Processing 3 43.3
Paper, Printing & Packaging 2 33.7 Semiconductors 7 35.0
Consumer Products and Services 19 31.0 Biotechnology 8 34.2
Transportation Services 18 22.5 Consumer Products and Services 10 28.3
Engines & Turbines 2 13.3 Furniture and Wood Products 3 26.5
Construction Services 2 11.0 Engines & Turbines 3 18.2
Other Transport Equipment 4 6.0 Construction Services 4 5.8
Minerals Mining and Processing 1 1.0 Utility and Sanitary Services 0 0
Total 547 16,350 Total 573 20,958
Source: Rhodium Group. For sources and methodology, see Rosen and Hanemann (2011), Rosen and
Hanemann (2012)

Industry distribution

The RHG dataset also tracks the distribution of Chinese FDI in Europe and the US by
industry. The data show that Chinese FDI is gaining breadth and momentum across a
broad range of sectors in the US and the European Union, and underscores both the
changing drivers of Chinese outward FDI and the strengths of what the European and the
US economies can offer Chinese investors. Chinese investments stray from the typical
path of emerging economy OFDI where natural-resource-seeking and trade facilitation are
primary focuses, and span the full range of industries. Thirteen industries in the US and 18
industries in the EU show more than USD 200 million in deals from 2000 to 2011, many
of which are in service and advanced manufacturing (see Table 2).
These trends reflect a gradually intensifying structural adjustment process underway in
China. The foundations of China’s old growth model, excessive fixed investment, and
exports of overcapacity to overseas markets, are eroding in favor of a focus on domestic
consumption, higher value-added manufacturing, and service sector activity (Lardy 2012;
He and Kujis 2007). This shift is forcing Chinese companies in all sectors to fundamentally
adjust their business models to include greater internationalization and reorientation of global
business strategies. Chinese producers of higher-quality goods are looking for closer prox-
imity to overseas consumers and a competitive edge in the domestic market. Access to the
European and American technology and innovation provides Chinese firms with an oppor-
tunity to gain core technology assets and know-how for operating in global market while
simultaneously strengthening competitiveness in the fast-growing Chinese home market.
138 T. Hanemann

The services industry is poised to play a greater role in China’s rebalanced economy,
and Chinese firms can prepare for the boom by investing in mature markets, and direct
investment stakes in the European and American hard assets have become a popular
strategy for Chinese individuals, firms, and institutional investors to diversify their
global portfolios and hedge against a domestic downturn. Residential and commercial
real estate and industries that traditionally offer stable long-term returns (for example,
utilities) have attracted significant Chinese interest.
At the same time, there are notable differences in Chinese investment patterns in the
two geographies, rooted in different factor endowments, local industry clusters, and
policy environments.
The US has attracted more deals and capital in traditionally strong sectors of the US
economy such as software and information technology, electronic equipment, leisure, and
entertainment. The US also has an edge over the EU in the real estate and business
services sectors. Through 2011, Chinese firms were also much more active in the US
utility sector, although large-scale utility acquisitions in the EU during 2012 are
likely to balance this lead. The US also attracts more investment dollars in
aerospace, industrial machinery and equipment, medical devices, and renewable
energy, although the European Union has had more deals in these sectors.
One particular trend is the strong growth of Chinese investment in the US energy
sector. Despite the political sensitivity surrounding natural resource deals, the oil and
gas sector has become one of the most favored industries for Chinese investors in the
US. The 2005 CNOOC-Unocal debacle chilled Chinese enthusiasm about natural
resource investments in the US, but the boom in unconventional oil and gas extraction
has revived interest in North American acquisitions. The US has witnessed several
larger-scale oil and gas plays since 2010, including nearly USD 3 billion in deals
consummated in 2012.23
As of the end of 2011, European oil, gas, and mining firms have attracted more
Chinese investment than their US counterparts, but the assets of these firms were held
mostly outside of Europe.24 Other sectors in which the EU is relatively strong include
communications equipment, consumer electronics, food and beverages, and financial
services. The EU has also received more investment dollars than the US in chemicals,
automotive, transportation services, and pharmaceuticals, although the US has seen
more deals in these sectors.
In several of these industries, the higher inflows can partly be explained by political
dynamics. For example, firms like Huawei and ZTE have encountered a lower level of
political resistance in supplying telecommunications equipment to European network
operators, which incentivized them to significantly expand their investment in local
operations. Chinese firms spent USD 1.36 billion in this industry in Europe, almost

23
Some of the largest oil and gas plays since 2010 include CNOOC’s acquisition of stakes in Chesapeake
Energy projects in 2010 and 2011 worth USD 1.7 billion and Sinopec’s acquisition of a stake in a Devon
Energy project in early 2012 valued at USD 2.5 billion.
24
The biggest transactions were the USD 3.3 billion purchase of a stake in GDF Suez’s overseas gas
exploration and production division by China Investment Corporation in late 2011, the USD 877 million
takeover of Emerald Energy by Sinochem Resources in 2009, the USD 406 million acquisition of Caledon
Resources by Guangdong Rising in 2011, and the USD 256 million investment by China Railway Materials in
African Minerals in 2010.
Chinese direct investment in the EU and the US 139

three times as much in the US, where federal government and legislators have
repeatedly interfered with acquisitions and supply contracts of Chinese firms. Other
industries that are politically less controversial in Europe than in the US are infrastruc-
ture and agriculture.

Investors and ownership structures

The RHG dataset allows for an in-depth analysis of the ownership structures of
Chinese investors in the US and the European Union. Ownership in China is
diverse. The range of investors in the US and the EU includes China’s sovereign
wealth fund (China Investment Corporation), state-owned enterprises (e.g.,
Sinopec), firms with hybrid ownership structures (e.g., Lenovo), and wholly private
firms (e.g., Wanxiang). Government ownership trends in both economies are fairly
similar.
State-owned enterprises historically accounted for 70–80 % of China’s global OFDI,
reflecting their head start in getting approval, financing, and policy support. Because
state-owned firms dominate natural resources in China, their percentage of overseas
deals has tended to be far larger than for private firms.25 In the US and the EU, state-
owned enterprises similarly account for the majority of total deal value, but privately
held Chinese businesses represent a greater share of the deals made in both economies.
Table 2 shows that 406 of 547 recorded investments in the US between 2000 and 2011
(74 %) originated from private firms—which we define as having 80 % or greater
nongovernment ownership. In the EU, this ratio is 62 % (357 of 573 total investments),
smaller than the US figure but still a majority. In terms of total deal value, the picture is
reversed for both economies: state-owned firms account for 61 % of the US investment
total and 67 % of the EU total, reflecting the greater average deal size of investments by
Chinese state-owned firms (Table 3).
Notably, in both the US and the EU, Chinese sovereign wealth entities have begun to
invest in FDI stakes. These organizations have typically stuck to portfolio investment
strategies in the past, but their interest in direct investment is clearly picking up. For
example, since 2009, China’s primary sovereign wealth fund, the China Investment
Corporation (CIC), has made one investment in the US and two investments in the EU
that meet the direct investment definition of at least 10 % voting shares, with a
combined value of more than USD 5 billion. 26 Several other high-profile
government-controlled entities such as the State Administration of Foreign Exchange
(SAFE) and the National Social Security Fund (NSSF) have portfolio investment
positions in the US and the European Union, but have not yet ventured into FDI stakes,
mostly due to capacity constraints.

25
According to the Chinese version of the Ministry of Commerce’s 2009 report on Outward Foreign Direct
Investment, state-owned enterprises accounted for around 70 % of total Chinese OFDI stock in 2009. The
authors’ interviews with economists and researchers at the China’s State-Owned Assets Supervision and
Administration Commission suggest that the share of state-owned enterprises in total OFDI stock could be
higher.
26
This refers to CIC’s 2010 USD 1.58 billion investment of Virginia’s AES Corporation. Details of the deal
can be found at: http://investor.aes.com/phoenix.zhtml?c=76149&p=irol-newsArticle&ID=1402516.
140 T. Hanemann

Table 3 China’s FDI in the US and the EU by ownership of investing company, 2000–2011. USD million and
number of deals

Number of deals
US Greenfield % share M and A % share All deals % share
Government controlled 106 30 35 19 141 26
Private and publica 253 70 153 81 406 74
Total 359 188 547
European Union Greenfield % share M and A % share All deals % share
Government controlled 148 35 68 47 216 38
Private and publica 280 65 77 53 357 62
Total 428 145 573
Total investment (USD mn)
US Greenfield % share M and A % share All deals % share
Government controlled 1,922 62 8,017 61 9,939 61
State-Owned enterprises 1,922 62 6,436 49 8,358 51
Sovereign wealth fund 0 0 1,581 12 1,581 10
Private and publica 1,195 38 5,217 39 6,412 39
Total 3,117 13,234 16,350
European Union Greenfield % share M and A % share All deals % share
Government controlled 2,738 52 11,397 73 14,135 67
State-owned enterprises 2,738 52 7,799 50 10,537 50
Sovereign wealth fund 0 0 3,599 23 3,599 17
Private and publica 2,569 48 4,253 27 6,822 33
Total 5,307 15,650 20,958

Source: Rhodium Group

a
May include minority stakes by government-owned investors below 20 % of voting shares

Conclusion: better policy through better data

China has historically not been a significant direct investor in the US and the Europe,
but Chinese investment has grown fast in both economies since 2008. This beginning
investment boom is commercially driven, motivated by competition and structural
changes inside China. Through 2020, Chinese firms will export as much as USD 1–2
trillion in outward FDI stock around the world, with some projections putting the
number at more than USD 5 trillion under a scenario of aggressive capital account
liberalization. A significant share of this investment can be expected to flow to
developed economies such as the US and the Europe.
China’s rising investment in EU and US presents both opportunities and risks. On
the one hand, investment from China has the potential to make up for diminished
inflows from traditional sources, re-ignite growth by providing fresh capital to troubled
firms, increase competition and consumer welfare, and expand access to one of the
biggest and fastest-growing markets in the world. On the other hand, China’s emer-
gence as a major investor also rekindles old debates about the political and economic
risks from foreign ownership, which are aggravated by the unique nature of China’s
Chinese direct investment in the EU and the US 141

state and economy. Chinese investments elicit special concerns within the national
security and intelligence communities in Europe and North America due to China’s
authoritarian political system, rapidly modernizing military and troubled record on
export control rules and economic and political espionage. China’s investment growth
also causes economic concerns due to China’s exceptional size, residual nonmarket
elements, existing asymmetries in market access, extensive state aid, and the revival of
interest in state capitalism and nationalism as alternatives to the Western consumer-
centric models prompt concerns.
Good data will be key for policymakers and the public to assess those risks and
formulate the right responses to fast-growing Chinese investment. However, official
statistics on Chinese outbound FDI from both Chinese authorities as well as host
countries have proven inadequate for assessing policy-relevant questions as they are
incomplete, of questionable quality and published with a significant delay. Alternative
datasets that can provide timely and detailed information regarding Chinese FDI by
industry distribution, modes of entry, geographical spread, and ownership are therefore
powerful and important complements to official statistics.
The geographic and industry breakdown of Chinese OFDI, for example, can help
national and local governments assess their appeal to Chinese investors and formulate
investment promotion strategies to attract Chinese capital more efficiently; a detailed
perspective on the industry distribution of Chinese FDI overseas can help negotiators to
strengthen their case for reciprocal market access for foreign businesses in China; and
detailed information on the type and characteristics of the investing Chinese enterprises
can help regulators tasked with reviewing Chinese investments for national security or
antitrust risks to make informed decisions. Perhaps most importantly, more detailed and
real-time data will help inform the public about the motives and drivers of Chinese
investment and help distinguish between real concerns and prejudices. The cases of
Japan and other newly emerging global investors in the past have shown that a better
understanding of the motives and impacts of their investments was a prerequisite for
overcoming existing misperceptions and the politicization of foreign investment.

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