Chinese foreign direct investment to Germany

Abstract

China successfully attracted massive inflows of foreign direct investment since the beginning of its open door policy in the late 1970s. Recently however, this trend has been reversed and China itself became a major supplier of FDI for other parts of the world. This development is part of a larger strategy termed The Go Global Policy- officially adopted in the tenth five-year plan and creating a host of OFDI-friendly policies for Chinese enterprises. While China primarily invests into other developing and emerging economies, it also slowly emerges as an investor in developed markets- a development furthered by its massive holdings of foreign reserves. In particular Germany has developed into one of the primary locations attracting Chinese OFDI. While extensive attention has been devoted to Chinese OFDI flows to developing countries, little is known about its activities in developed markets like Germany.\nThis case study based research paper concludes that Chinese FDI to Germany is largely limited to urban- and industrial clusters. While M&A in industrial clusters is the fastest growing entrance strategy for the Chinese, the takeover process is increasingly welcomed by German companies seeking to be taken over for own strategic reasons. The Chinese capacity to preprocess at low prices, access to the Chinese market and supply with funds are all key factors in shaping such a consensus- based M&A. However, as European governance provides for a variety of social and governmental stakeholders, the investment process is also highly regulated. Given a loophole on European level, the federal Republic has been able to extend its capabilities to direct and impinge upon Chinese FDI across all sectors. As this potential for regulation is largely not employed in practice, conflict between social and governmental stakeholders becomes increasingly likely, as unions already point to malpractice and violations by Chinese investors. Furthermore, hollow Chinese investments on municipal level may cause a general bias towards OFDI from China, which will make approval of future projects unlikely.