05|11|2009

Spain’s attractions catch the eye of Chinese companies

The world economy has undergone a series of readjustments over recent years, which have resulted in a movement of economic power towards Asia. The process has consolidated countries such as China as major exporters of capital, a fact that has aroused increasing interest in a world economy thirsty for investments. Outward Foreign Direct Investment (FDI) from China has therefore gone up from 2,518 million dollars in 2002 to 22,500 million dollars in 2007 (1).

During 2008, when FDI flows around the world fell by 20% because of the worldwide economic downturn, China’s outward FDI doubled in terms of volume (2) ; counter-cyclical behavior that has meant the continuance of the upward trend in outward investment flows in force for the last seven years.

And since Spain is one of the world’s largest receivers of FDI volume, sixth in 2008 (3) , it is unsurprising that Chinese investors are increasingly interested in expanding their Spanish companies. These investments are being made on two different levels: Firstly, through alliances made between large companies leading their fields of activity in their respective countries, and secondly, through the setting up of smaller companies to undertake new projects in Spain.

Major operations of a strategic nature between leading companies in China and Spain provide undeniable business opportunities since they result in mutual benefits derived from access gained to a large volume of clients in both domestic markets. The potential of these alliances is increased further because they allow Chinese companies to take advantage of the privileged position of Spanish companies in Latin American markets, and similarly serve as a platform for Spanish multinationals to enter the Asian market. Alliances such as those between Telefónica and Huawei, and between BBVA and Citic Group are clear examples of this phenomenon.

Aside from these operations limited to the domain of large companies, Chinese FDI in Spain is also characterized by the establishment of smaller companies operating in sectors belonging to the upper end of the value chain. In 2008 China was the emerging country developing the most Greenfield projects in Spain, a total of 17, most of which were in the renewable energy and electronic component sectors (4) .

In addition to the benefits inherent in all FDI, Chinese investment also has the added benefit of promoting access to the Asian market for large Spanish companies and contributing to increasing the relevance of strategic sectors with a high technological content in Spain thereby aiding the consolidation of the sectorial transition process.

(1) Source: UNCTAD
(2) While Global FDI falls, China’s outward FDI doubles. Ken Davies, Vale Columbia Center on Sustainable International Investment
(3) Source: UNCTAD
(4) Source: FDI Markets