Chinese Investment in Germany Soars

Chinese direct investment isincreasing remarkably inGermany with more frequentM A activities， accordingto a recent report by Deutsche Bank.

The report， released by HannahLevinger， Deutsche Bank economist，shows that with the upgrading of Chi-nese government's support for enter-prises' going global and the progressof investment agreement negotiationsbetween China and Europe， Chineseinvestment in Germany is expected toenter a new phase.

China-Europe relations areincreasingly being shaped by the ex-panding bilateral exchange betweenChina and Germany， its largest tradingpartner in the EU. Data shows thatGermany accounted for 45% of EU ex-ports to China and 28% of EU importsfrom China in 2013. In the first ninemonths of 2014， EUR 114 bn worth ofgoods were shipped between the twocountries， up 8% from the same periodin 2013.

Building on these well-establishedtrade ties， China and Germany arenow embarking on a concerted push tostrengthen investment relations in syncwith a surge in Chinese MA activityinto Germany. China's foreign directinvestment (FDI) stockin Germany hasrisen sharply over the past decade or so，according to the report.

The findings note that despiteits small contribution to overall FDI，Chinese investment in Germany hasbecome a trend too important to ignore.That is not only due to the fact that 17%of China's cross-border greenfield proj-ects in 2008-13 have targeted Germany(according to Germany Trade and In-vest (GTAI)， the federal economic de-velopment agency)， making it the No. 1destination for this type ofinvestment.But also MA has gained relevance asa mode of entry for Chinese enterprisesin Germany. So far this year， 22 Chi-nese MA deals have been registeredin Germany， with targets ranging fromauto parts to retail and vineyards.

Over the years， the apparent ob-jective of Chinese MA activity inGermany has evolved from gainingaccess to the EU market to acquiringtechnology by buying into the machin-ery， renewable energy and automotivesectors. Purchases included severaldeals with \"hidden champions\"， whichare global market leaders in their re-spective fields.

Besides an interest in high-endtechnology， component supply and en-ergy efficiency， investments are likelyto be increasingly fuelled by demandfor quality products， as Chinese firmsseek to develop global brands and gaincompetitiveness beyond the homemarket. Private firms are the main en-gine of China's renewed cross-borderMA push， accounting for the bulk ofoutbound MA transactions into Ger-manyin 2008-14.

The report finds that in recentmonths， Chinese authorities have beenswift to relax the limits for outboundinvestment projects that require officialapproval， paving the way for China'soutbound direct investment (ODI) tolikely surpass foreign direct invest-ment into China as early as this year.Chinese outbound investment willcontinue to increase， boosted by large-scale projects such as the creation of afund to invest along a new \"maritimesilk road\" linking coastal countriesacross the Pacific， the Indian Oceanand the Mediterranean.

In addition， negotiations on anEU-wide internatio nal investmentagreement (IIA) with China launchedin late 2013 are now about to enter the4th round. Replacing the 2005 bilateralGermany-China investment agreement(as well as the other 25 agreements be-tween EU members and China current-ly in place) with a comprehensive EUinvestment treaty would help balanceinvestors' needs on both sides， improve-ments in the legal framework， investorprotection and market access.

With the internationalizationof the RMB gaining traction glob-ally， the currency will become morerelevant for financing investment. Sofar， a handful of China's MA dealsin Germany have been settled in theChinese currency.