Chinese investors have made unprecedented forays into Europe in recent years, their targets becoming increasingly high-profile. Attracted by European companies’ technology and name recognition, relative low cost, and openness to Chinese investment–perceived as more benign than Russian investors. Recently, they have shown interest in an 18-building compound in Berlin and Italian tire-maker Pirelli. Their interest in the latter is due to their international recognition and quality. The bidder, China National Tire & Rubber Company, owned by state-controlled giant ChemChina, sells 20 millions tires per year, but with very little brand recognition for their marques, Rubber Six and Aeolus. While the Italian company seems overvalued, trading at 23 times earnings versus Michelin with 16 times and Korea’s Kumho at 11, as the fifth most valuable tire brand in the world Pirelli also comes with an illustrious racing history and sterling reputation. With a market cap of only $7.5 billion, diminutive compared to ChemChina’s revenue of almost $40 billion last year, and China National Tire & Rubber Company’s major production capacity, Pirelli is an ideal acquisition that will propel the Chinese tire company to international prominence. But with such vigorous investment and immense buying power, and most Chinese investment in Europe channeling into established firms, it raises some concern regarding the wealthy and far-reaching arm of the Chinese government.
Chinese companies began making unprecedented investments in Europe starting in 2011 when the debt crisis drown down asset prices, and governments got desperate to privatize as venerable European corporations became less picky about potential investors. While cross-border business is common today, geo-politics becomes a factor when esteemed European brands fall into the hands of Chinese state companies as European countries lend part of their heritage to the Chinese government so they can expand their worldwide influence. Well summarized by Sophie Meaner of Princeton University in a 2014 paper, “For the moment, Chinese investment seems like money falling from the sky, but it could turn…into a Trojan horse introducing Chinese politics and values into the heart of Europe.” The EU is trying to negotiate for more openness in trade, as European investors in China are required to set up joint ventures with Chinese partners, but remains at a disadvantage. European governments are increasingly wary of Russian investment, even private funding, as a potential tactic to strengthen Moscow’s negotiating position with the EU. Why they are not equally wary of Chinese state-owned company investment is unclear. Especially considering that in China, even private companies can be used as instruments of government policy, but they are first and foremost market agents who deserve equal opportunity to compete. In order to deal with any potential future threats, Europe must develop a policy concerning foreign direct investment, outlining guidelines for acceptable behavior and which investors are welcome or not.