The Mystery of Why the Second Largest Economy in the World Invests so Little into the EU

Published on 2012-11-20

Chinese outward investment is a relatively new and somewhat complex flow of capital. Despite what some may think, there is not one (government) entity making all the outward investment decisions but rather several different financial institutions, SOEs, provinces, all with their own motivations.

Chinese outward investment is a relatively new and somewhat complex flow of capital. Despite what some may think, there is not one (government) entity making all the outward investment decisions but rather several different financial institutions, SOEs, provinces, all with their own motivations.

When China does invest abroad, the media response may lead us to believe this is rapidly proliferating trend, quickly creating headlines such as ‘the Chinese are coming’. In reality however, China is a relatively insignificant investor into the EU, especially given the size of its economy. For example, in 2009, total Chinese investment into the EU was USD 4.5bn, a figure dwarfed by the USA and Japan who invested USD 100bn into the UK alone.

On Tuesday the 6th of November, the British Chamber of Commerce invited Prof. Kerry Brown to give his insights as to why this might be the case.

First of all, the figures reflect ongoing caution from both China and the Western world highlighting an underlying lack of trust in each other. Huawei presents a good example. Regardless of the fact it is 80% owned by its employees and 2/3s of its operations are outside China, it still finds investment bids blocked even in countries like Australia which is one of the more common destinations for Chinese money. Critical industries such as communications still cause security concerns meaning a reluctance to welcome a Chinese firm. More significantly, politically directed investment tends to be to be met with political opposition.

Secondly, even when security is not an issue, investors need more help going abroad. The majority are young, inexperienced actors with a lot to learn and mistakes to be made. As of yet, Europe is still lacking a comprehensive support network to ensure this experience is as smooth as it can be.

Prof. Kerry brown also pointed out how we fail to understand the rationale behind Chinese overseas investment which also prevents us from capitalising on the ever growing supply. Chinese investors are not primarily looking to take advantage of business opportunities locally but rather to acquire the technology, expertise and branding that will give them a competitive advantage back in their domestic market. If we want to attract this lucrative source of capital, then we need to market ourselves according to Chinese interests.

So far, the dominant sectors of Chinese investment have been in mining networks and business services. Of the USD 4.5bn invested in the EU (2009), 78% was directed into leasing and business services i.e. merely supporting existing export and sales networks. Prof. Brown highlighted 6 drivers explaining existing trends and motivations.

Six Dominant Drivers of Outward Investment


  1. Mining network – seeking raw material security
  2. Support overseas sales networks already in place – 78% of the USD4.5bn into the EU goes into leasing offices and business services (only 7% in manufacturing)
  3. Following Chinese diasporas – helps overcomes issues of trust and access
  4. Technology seeking – technology and brand acquisition is far greater priority than capital
  5. Geographical proximity – 60% to HK plus that to SEA and Australia
  6. High political risk e.g. Africa, Russia, Central Asia. Other more established investment partners already done deals with governments in EU + USA


If we look at the example of Australia, they score better than the UK on a range of these drivers but there is also an additional factor to consider - for Australia, Chinese state companies are critical. Responsible for 50% of their GDP growth, there is the sense the Australian economy requires that investment to survive and has grown to accept it over time. Conversely, the sentiment in the EU is that we do not need China as what our economy is experiencing is just a temporary blip. The EU is yet to accept the changing world order yet if we do not acknowledge and deal with it, there could be a danger of losing interest from the new Communist leadership. Until then, the dominant drivers will prevail and the EU will continue to lag behind more established destinations of Chinese outward investment.