Main­land China sends Europe cov­eted new ex­ports: jobs, in­vest­ment

The China Post - - WORLD BUSINESS - BY BARRY HAT­TON AND JOE MCDON­ALD

When two main­land Chi­nese com­pa­nies ap­peared among the bid­ders to buy a trou­bled Por­tuguese bank this year, its staff took heart.

The rea­son? They be­lieved the po­ten­tial buy­ers would do what Chi­nese in­vestors are in­creas­ingly do­ing in Europe: save badly needed jobs and in­vest in ex­pand­ing the busi­ness.

Flush with cash, Chi­nese buy­ers are shop­ping for for­eign brands and tech­nol­ogy to im­prove their com­pet­i­tive edge and pro­pel their global ex­pan­sion. Un­like Western buy­ers that might cut staff or close oper­a­tions that du­pli­cate their own, Chi­nese com­pa­nies have an in­cen­tive to hang onto ex­pe­ri­enced for­eign em­ploy­ees and ex­pand.

It’s an un­usual po­si­tion for China af­ter be­ing cast for years as the coun­try that drained man­u­fac­tur­ing jobs from the West. For Europe’s bat­tered economies like Greece or Por­tu­gal, it’s welcome re­lief as they try to tame ram­pant un­em­ploy­ment.

Rui Riso, head of the 41,000-mem­ber Por­tuguese bank work­ers’ union, says Chi­nese ac­qui­si­tions in Por­tu­gal have not dis­rupted busi­ness.

“The com­pa­nies have es­sen­tially stayed on the path they were on. And that is what we want for Novo Banco, too — a strat­egy based on con­ti­nu­ity,” he said.

For Chi­nese firms, the pres­sure is mount­ing to di­ver­sify in­vest­ments as growth at home, in the world’s sec­ond-largest econ­omy, slows and wages and other costs rise.

“Over­seas in­vest­ment is re­ally core for a lot of firms,” said An­dre Loe­sekrug-Pi­etri, founder and chief ex­ec­u­tive of A Cap­i­tal, a firm in Bei­jing that in­vests with Chi­nese part­ners in Euro­pean as­sets.

Em­ploy­ees of Volvo Cars fret­ted about pos­si­ble job losses or changes in work prac­tices when the Swedish au­tomaker was ac­quired by China’s Geely for US$1.8 bil­lion in 2010. In­stead, Geely launched an US$11 bil­lion ef­fort to trans­form Volvo into a global brand that has pre­served Swedish jobs and added man­u­fac­tur­ing ca­pac­ity.

In Oslo, la­bor groups say the Chi­nese have been model em­ploy­ers since a sub­sidiary of state-owned ChemChina ac­quired Nor­way’s Elkem in 2011.

As the con­struc­tion busi­ness slumped af­ter the 2008 fi­nan­cial cri­sis, Ger­man con­crete pump maker Putzmeis­ter shed more than a fourth of its 3,800-strong work­force. Fol­low­ing its 2012 ac­qui­si­tion by China’s Sany, the Ger­man com­pany’s work­force re­bounded to above 3,000 last year, when the com­pany re­ported its strong­est rev­enue in seven years.

This year, ChemChina bought a 26.2 per­cent stake in Ital­ian tire man­u­fac­turer Pirelli and said it would of­fer to buy the rest. Pirelli’s chair­man, Marco Tronchetti Provera, promised “no im­pact on em­ploy- ment” — and kept his own job, too.

The deal will “al­low im­me­di­ate growth in vol­umes and mar­ket share that Pirelli alone would have taken years to achieve,” said Tronchetti Provera.

The lead­ing Euro­pean des­ti­na­tions for Chi­nese in­vest­ment are Bri­tain, Ger­many and France, ac­cord­ing to a June rank­ing by the Mer­ca­tor In­sti­tute for China Stud­ies, a Ber­lin think tank, and New York­based Rhodium Group, a re­search and ad­vi­sory com­pany. In­vest­ment in the Euro­pean Union from China was more than 46 bil­lion eu­ros (US$52 bil­lion) from 2000 to 2014, close to the US$54 bil­lion China in­vested in the U.S. over that pe­riod.

The sur­vey found no ev­i­dence Chi­nese com­pa­nies were shift­ing Euro­pean jobs to China. In­stead, it con­cluded the Chi­nese were adding staff and ex­pand­ing Euro­pean re­search and de­vel­op­ment oper­a­tions.

The Chi­nese bid­ders for the Por­tuguese bank, Novo Banco, were Fo­sun In­ter­na­tional, a Shang­haibased con­glom­er­ate, and Bei­jing­based An­bang In­sur­ance Group Co. Oth­ers in the race were Spain’s San­tander and U.S. pri­vate eq­uity group Apollo Global Man­age­ment.

Fo­sun al­ready owns 80 per­cent of Caixa Se­guros, one of Por­tu­gal’s big­gest in­sur­ers, and France’s Club Med. An­bang last year bought New York City’s Wal­dorf As­to­ria.

The ac­qui­si­tion of Novo Banco, if com­pleted, would be the largest Chi­nese pur­chase in Euro­pean fi­nan­cial ser­vices. The sale was post­poned last month amid lit­i­ga­tion in­volv­ing the bank and un­cer­tainty over Euro­pean cap­i­tal re­quire­ments.

In Europe’s smaller coun­tries, China’s in­vest­ments can have a big im­pact.

Por­tu­gal came fourth in the rank­ing of Chi­nese in­vest­ment in Europe, with Bri­tain first. But the 5.1 bil­lion eu­ros Por­tu­gal has re­ceived is equal to al­most 3 per­cent of gross do­mes­tic prod­uct, whereas for Brit- ain the ra­tio was just 0.45 per­cent.

Chi­nese in­vest­ment in Por­tu­gal started in 2011 with the ac­qui­si­tion by China Three Gorges Corp., the world’s big­gest dam op­er­a­tor, of a con­trol­ling stake in na­tional power com­pany EDP-En­er­gias de Por­tu­gal.

EDP gave the Chi­nese wind power tech­nol­ogy and an im­me­di­ate in­ter­na­tional pres­ence through EDP’s in­ter­ests in 14 coun­tries, in­clud­ing 12 Amer­i­can states.

As Por­tu­gal’s un­em­ploy­ment rate soared to 17.7 per­cent in 2013, EDP shed no staff and has had no fric­tion with la­bor groups. It kept the same man­age­ment and busi­ness strat­egy.

Three Gorges beat ri­val Ger­man and Brazil­ian bid­ders by pay­ing a 53 per­cent pre­mium on EDP’s share price. It also com­mit­ted to pro­vid­ing EDP, which has 17 bil­lion eu­ros in debt, with a loan of 2 bil­lion eu­ros and an ad­di­tional 2 bil­lion eu­ros for in­vest­ments.

The fol­low­ing year, the Chi­nese be­came Por­tu­gal’s util­ity in­dus­try lead­ers when gov­ern­ment-owned State Grid Corp., which op­er­ates most of China’s elec­tric­ity dis­tri­bu­tion net­work, bought 25 per­cent of energy dis­trib­u­tor REN.

Miguel San­tos Neves, a pro­fes­sor at Lis­bon’s Au­ton­o­mous Univer­sity who has stud­ied Chi­nese in­vest­ment in Europe, warns much larger China could ex­ert po­lit­i­cal pres­sure in re­turn for in­vest­ments.

The pri­va­ti­za­tions “were a good deal” for Por­tu­gal, he said, but added: “The is­sue is the long-term im­pli­ca­tions of putting all your eggs in the same bas­ket.”

In job-hun­gry Por­tu­gal, though, not many peo­ple are lis­ten­ing to warn­ings.

“The good thing (about EDP) for the Chi­nese was that our know-how helps them to ex­pand in­ter­na­tion­ally, us­ing us as a base,” said Or­lando Ribeiro, a 35-year vet­eran of the com­pany. “For us, the good thing is that we got to keep our jobs.”

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