Chinese investors - despite qualms about the eurozone - see Europe as a safe place to put money while such people represent a lucrative market opportunity for advisors, according to KPMG.

Europe is viewed by Chinese investors as a safe, stable investment destination, says a report by the European Union Chamber of Commerce in China, KPMG and strategy consultancy firm, Roland Berger.

The report, titled Chinese Outbound Investment In The European Union, involved a survey of Chinese enterprises that have already entered and are operating in Europe. The report aims to provide insights and recommendations to policymakers of the EU, EU member states and China so they can aid successful investments in Europe by Chinese investors.

While it does not name the sector directly, the findings of the report may also be relevant to European wealth management institutions receiving or hoping to take in Chinese capital. 

Chinese overseas direct investment has been increasing since the mid-2000s, reaching nearly $65 billion in investment flow for 2011. According to Chinese government data, 72 per cent of Chinese ODI during the period of 2004-2010 went to Asia. The vast majority of this money (87 per cent) goes to Hong Kong, with speculation that this is often not the final destination.

A mere 5 per cent of such ODI went to Europe, however, the report said. “The trend of Chinese companies investing in Europe has become more prominent in the public sphere,” it said.

Out of 74 of the Chinese enterprises interviewed for the survey, 97 per cent indicated that they will make future additional investments in the EU, with the vast majority of them planning to inject higher amounts money than they previous committed.

Opportunity for advisors

Tax advisory and consultancy firm KPMG told WealthBriefingAsia that 40 per cent of the companies surveyed are privately owned enterprises, so wealth managers to Chinese entrepreneurs should note this growing trend and take advantage of the resulting opportunities.

“After having a solid understanding of the business owners’ targets and motivation, a wealth manager can provide support in the form of detailed and specific information, proper expectation management and decision making support,” Thomas Rodemer, partner at KPMG China, said.

While the number of Chinese investors planning to seek return in Europe is undoubtedly high, operating in the EU is considered a challenge - 78 per cent of respondents faced operational difficulties, and had trouble obtaining visas and work permits for Chinese employees, dealing with European labour laws, human resources costs, and cultural differences in management style.

Again, this presents windows for advisors to step in.

“It is important to understand the regulatory and operating difficulties of doing business in the EU countries.  The EU has 27 countries with 23 different languages, and a not completely harmonised tax and legal environment in which 17 countries have the Euro. Both wealth managers, as well as business owners and company management, need to be well informed and prepared to make good business decisions in this environment,” Rodemer said.

This publication also spoke to legal firm, Herbert Smith Freehills for its views.

"Unfamiliar legal systems abroad are a challenge to PRC investors and they have to rely on professional guidance from experienced counsel. PRC investors expect their counsel not only to identify and explain the legal issues, but also to advise them on their options from a more pragmatic angle," said Tom Chau, partner, corporate, at the firm’s Beijing office.

European attraction

Mainlanders are attracted to Europe because it has a large consumer market for sales of goods and services, as well as advanced technologies, an educated workforce and desirable brands that could be acquired to help their competitiveness both domestically and internationally, the report said.

With regards to preferred sectors for Chinese investors in Europe, the study said unofficial sources rank communications equipment and services, industrial machinery, and alternative/renewable energy as the areas with the heaviest investment inflow, in terms of deal numbers. In terms of investment amount, chemicals, plastics and rubber, utility and sanitary services, and automotive original equipment manufacturers and components are the largest recipient sectors, it added.

China’s support

From China’s perspective, 27 per cent of respondents encountered challenges when seeking investment approval from within the country. Nevertheless, the Chinese government seems eager to overcome any hurdles and set targets in its (12^th) Five-Year Plan, relating to ODI:

- ODI will increase at an annual rate of 17 per cent and will total $150 billion in 2015;

- The amount of China’s overseas contracted projects will reach $180 billion and turnover will be $120 billion by 2015, with an annual growth rate of 6 per cent;

- 550,000 Chinese nationals will go to work overseas during 2012, with the total number being over one million by the end of 2015.

“The future outlook for Chinese investment in the EU is overwhelmingly positive with nearly all respondents indicating that they will make future additional investments in the EU, with the vast majority of these planning to invest at higher amounts. Companies are looking to expand investments, localise to a greater degree and invest in technology and human resource development,” the report concluded.