EU-China Joint Venture Radar

EU-China Joint Venture Radar

 The EU-China Joint Venture Radar is an on-going research initiative aimed at providing greater transparency on  European investments into China. It currently covers all European joint ventures in China and added all European Wholly Foreign Owned Entities (WFOE) in China to the map. The data is made available to the public in an interactive map, providing detailed information on European investments into China.


Click here for the full version of our: EU-China Joint Venture Radar

Mapping out European Joint Ventures in China

Last year, in October 2020, the European Union implemented the EU framework for screening of foreign direct investment (FDI). This framework empowers member states to actively screen investments from abroad in order to safeguard key European assets and protect national and European security. 

Another mechanism that is in place for the EU to protect its interests and values while doing business with other countries is the Export Control Regulation. The Export Control regulation has been in place since 2009 and controls the exports, transit and brokering of dual-use items (goods, technologies and software that can be used for both civilian and military application) to contribute to international peace and security. 

But at the moment there is no European regulation or mechanism in place that controls or monitors European investments in China. When doing business in China, several risks should be taken into account: risks of technology transfer, unwanted influence by the Chinese government, undetected links to military entities and an unbalanced level playing field. 

With the help of our in-house software platform, we have managed to create a comprehensive map of all European joint ventures in China. Moreover, we added all European Wholly Foreign Owned Entities (WFOE) in China to the map. In total, we found an investment value of over €82 billion.

Chinese State-influence

Through our research, we have more specifically looked at the 500 largest European Joint Ventures in China and found that over 32% is under significant influence of the Chinese government. A significant level of influence is either high (99 joint ventures) or medium (65 joint ventures). A joint venture with a high level of government influence indicates that the ultimate controlling shareholder of the Chinese company is part of the Chinese government, and has a controlling share in the joint venture. A joint venture with a medium level of state influence, the Chinese company of the joint venture might be part of the Chinese government but might not have a controlling stake in the joint venture. Finally, the majority of joint ventures (68%) have a low level of state influence. This indicates the Chinese government has no or a low substantial influence in the joint venture.

Minority Share versus Majority Share

Looking at the ownership of the European party in the joint ventures in China, we see that in 71% of all European joint ventures in China, the European party does not hold a majority stake of the share (50% or less).

Our research moreover shows that for over 35% of all European- Chinese joint ventures, the European partner has only one-third or less of the shares in the joint venture. Under the new Chinese company law, controlling 2/3 of the shares equals having almost complete control over the company. This means that 35% of European-Chinese joint ventures are effectively under the control of the Chinese partner.

Sectors

With an investment value of almost €25 billion, the Financial & Business & Services is the largest sector in which European companies invest in China. Other large sectors include Consumer Product & Services, Machinery, Electronics & Electrical Equipment, and Information & Communication. Especially these last two sectors can be considered as high-tech and key-emerging sectors.

Countries

Looking at the ownership of the European party in the joint ventures in China, we see that in 71% of all European joint ventures in China, the European party does not hold a majority stake of the share (50% or less).

With €25.8 billion out of the total €82 billion invested in companies in China, Germany is by far the largest investor in China. Other large investors include the Netherlands, the United Kingdom, France, and Italy. It is worth noting that Switzerland and Luxembourg too, despite the relatively small size of their economies, are still among the largest investing countries in Europe

Risks of setting up joint ventures in China

We collected the most remarkable joint venture case studies whereby we identified a high risk on technology transfer, unwanted influence by the Chinese government, undetected links to military entities, or an unbalanced level playing field. An example is the case of Stjernberg Automation, a company specialised in laser equipment and was acquired by a Chinese company in 2017. After the acquisition, the company established a joint venture and several WFOE’s in China, whereby Swedish staff was replaced by local Chinese staff. Stjernberg Automation filed for bankruptcy in 2019. This could imply that after the Chinese acquisition, a bigger focus has been put on the activities in China and acquiring Stjernberg’s critical technologies and know-how.

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