China directed more outbound foreign direct investment in Europe toward greenfield projects last year as witnessed by a broader investment agenda for electric vehicle battery factories, which experts said will better accommodate European carmakers and help Chinese firms go global.
Chinese greenfield investment took the lion's share of total FDI in Europe in 2022, accounting for some 57 percent of the total, exceeding outbound merger and acquisition activity for the first time since 2008, said a report published on Tuesday by the Berlin-based Mercator Institute for China Studies and New York-based Rhodium Group.
Greenfield investment refers to a type of FDI where a parent company creates a new subsidiary in a foreign country by constructing new operational facilities from the ground up.
Though total Chinese FDI in Europe, in line with the global decline in cross-border investment, fell by more than a fifth last year to 7.9 billion euros ($8.7 billion), its greenfield investment bucked the downward trend and increased 53 percent to 4.5 billion euros, the report showed.
The strong expansion in greenfield investment was largely underpinned by such large-scale projects as electric vehicle battery factories, the report said, adding that Chinese battery giants, like Contemporary Amperex Technology Co Ltd, Envision AESC Group Ltd and SVOLT Energy Technology invested heavily in building battery plants in Germany, Hungary, the United Kingdom and France.
CATL, for example, announced in August its gigawatt-scale battery cell factory plan in Hungary with a total value of 7.34 billion euros. Some 1.5 billion euros was ascribed to last year, according to the report.
Xu Hongcai, deputy director of the China Association of Policy Science's Economic Policy Committee, said that as electric vehicles have seen their popularity surge in Europe over the past few years, the need of Chinese battery makers to move industrial and supply chains closer to burgeoning markets has been brought to the fore.
According to data released in April by the Paris-based International Energy Agency, in Europe — the second largest market — electric vehicle sales increased by over 15 percent year-on-year in 2022, meaning that more than one in every five cars sold was electric.
To steer clear of high shipment costs and uncertainties in regional conflicts and tariff issues, Chinese battery makers have a strong incentive to build local plants so as to supply European carmakers in a cheaper and more effective way and boost their production capacity of EVs, he said.
The researchers of the report also found that China's EV expansion efforts have evolved from an earlier focus on mineral deals in countries such as Indonesia and Chile to a growing number of companies now setting up battery manufacturing plants close to key final demand markets.
Besides delivering benefits to European carmakers, Xu said that it is also an opportunity for Chinese firms to extend overseas market presence and channel more investment to fast-growing markets. It will also facilitate the development of local support industries and expand local employment, to help Chinese firms gain credibility and recognition.
Since 2018, Chinese battery firms have announced investment projects to the tune of $17.5 billion in Europe. The anticipated output by their European factories could amount to nearly 20 percent of the continent's total battery production capacity by 2030, according to the report.
Going forward, greenfield investments in EV-related fields are likely to continue representing a substantial part of China's FDI in Europe despite heightened European scrutiny over Chinese investment, the report said.
Ding Chun, director of the Center for European Studies at Fudan University, said that China-Europe bilateral investment still faces challenges ahead as the European Union rolls out a flurry of policy tools, such as the FDI Regulation and International Procurement Instrument Regulation, to enforce more stringent foreign investment review and export controls.
That said, the underlying dynamics as well as the nature of China-EU relations have remained unchanged. Investment cooperation between the two sides is still maintaining strong momentum, which bodes well for more opportunities for future development, Ding said.