BILATERAL TRADE

CHINA´S SILK ROAD, 16+1 STRATEGY,

CHINESE FDI IN EUROPE & AUSTRIA

A Briefing Tour d´Horizon & Update by Commissioner Schierer,

Außenwirtschaft Austria / ADVANTAGE AUSTRIA October 1st, 2015

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TODAY´S #HASHTAGS

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# Austria #Hongkong #China (1 slide)

#OBOR (3 slides) #16+1 (2 slides)

#FDI (2 slides)

#AUSTRIA: HONG KONG & CHINA

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Bilateral Trade Development

Hong Kong

• Trade

Q1-2/2015: Austrian exports +8.8%

2014: Austria: EUR 520 m, Hong Kong: EUR 82 m

Austria´s largest trade surplus in Far East

• Austrian companies

2008: 97

2015: 230+

China

• Trade

Q1-2/2015: Austrian exports: -3.3% (ww -15.6%)

2014: Austria: EUR 3.38 bn, China: EUR 7.3 bn

Trade deficit: EUR 3.94 bn

• Austrian companies

2008: 350

2015: 470 (600)

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#OBOR: ONE BELT, ONE ROAD

Definition

One Belt = Sea

One Road = Land

Huge Vision & Corner Stone of China´s Foreign Policy

Background Facts The „Silk Worm Encounter“: 4,000 years ago in China

France started in 16th century with Silk production

Re-load in 2013 by President Xi Jinping

Historic routes connecting China with Europe

To improve infrastructure connectivity

Participating countries 40-60 countries and regions

Concerns some 3 billion people

Few agreements signed so far

#OBOR: GEO-ECONOMICS

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#OBOR: WHAT ?

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What is it about ?

Network of railways

Oil and gas pipelines

Power grids

Internet networks

Investment and finance figures

Expected infrastructure costs: USD 22 trillion

Required investments p.a. till 2020: USD 730 billion

Set-up of SRF: USD 40 billion (operating)

Set-up of AIIB: USD 100 billion, 58 members (from 2016)

China spends USD 1 trillion in one decade

Expected Chinese annual trade by 2025: USD 2.5 trillion

#16+1: CUTTING OUT EU ?

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Set-up

2011 kick-off in Budapest

16 Central East European countries + 1 China

Romania, Serbia, Hungary & Poland strategic partners (GER & AUT ?)

What is it about ?

Backdoor entrance into, image campaign, hub for #OBOR

Enhancing political trust between China and CEE, partial elimination of

ideological differences, lobbyist for China in EU

Exploring economic/trade potential

Creating a large number of co-operative projects

Strengthening cultural & people-2-people exchange

Projects

Investments and going out strategy

Highspeed railway Belgrad – Budapest

TRECECA - Transport Corridor Europe-Caucasus-Asia

Strengthening of Slovenian port of Kopa

#16+1: OBSTACLES A 2ND CHINAFRIC?

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Obstacles

Immense diversification of the region

Barriers related to EU law

Insufficient expertise of Chinese companies

Asymmetric economic needs within 16 and 16+1

No willingness within the 16 to develop intra-co-operation

CEE is part of Europe and not part of Eurasia

NATO and security topic

A 2nd ChinAfric ?

Half hearted approach by China

Seen only as outskirts of EU

Religious, ethical issues. Cultural differences bigger than expected

Strong individuality within the 16

16 have a missconception of China (Euro crisis vs Big spender)

China nominates preferred and less preferred states

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#FDI: CHINA ON A SHOPPING SPREE VOLVO, CLUB MED, PIRELLI, AC MILAN, ROSENBERGER – WHAT NEXT??

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START OFF: RMB A WORLD CURRENCY ?

Source: SWIFT-Report 2014/15

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EXCURSION: DON´T BE SCARED! CHINA´S CAPITAL ACCOUNT ONLY STARTS TO OPEN UP…

Source: Hong Kong Exchange & Clearing

….in Trillion US-Dollar

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CURRENT FRAMWORK SETTING OF CHINESE FDI POLICY

Favorable FDI policy High net investment amount

Among 10 largest banks worldwide: 5 Chinese

FDI investments grew 15-fold in the last 10 years

Among 8 largest Sovereign Wealth Funds: 4 Chinese

September 2014: MOFCOM eases „Overseas Investment Rules“ Only FDIs in „sensitive“ regionen and industries need approval

Approval period: 3 days, 20 days for SOE through NDRC

Fast track and high flexibility for biddings, high competitivness

Almost no check of balances for offshore investments and re-financing by SAFE, high flexibility

March 2015: „Belt & Road“-Initiative

April 2015: Premier Li Keqiang: „Charge out into the world!“

April 2015: China eases FDI regulations

Public diplomacy abroad by Chinese president Xi Jinping

4Q 2015: Establishment of AIIB

2Q 2016: 1 EU-China FDI agreement vs. 26 FDI agreements

Weak European market EUR , debt crisis, weak economy, low capitalization of companies, succession problems

Special investment programmes in Portugal, Spain, Greece

No Patriot-Act in EU, geo-economic non-strategy within EU

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WHY DOES CHINA INVEST ABROAD?

Securing domestic demand and economic growth in China Raw materials, energy, agriculture, food

Support of „slow“ Chinese economy

Strengthening and expanding international competitivness through technology, Know-how and Management acquisition Nuclear energy

Automotive and Transport (Saab, Volvo, MG, Steyr Motors, Palfinger, ATB, WBL, Pirelli)

Hightech (FACC, IBM)

Consumer goods (OmniVision, House of Fraser, Huber Tricot)

Tourismus, hotels (ClubMed, Thomas Cook, PizzaExpress, Rosenberger)

Sports, Media (AC Milan, Infront)

Diversification and ROI strategy Luxury brands/ -integration (Feretti, Cerruti, Folli Folie, Aquascutum, Salvatore

Ferragamo, Pierre Cardin, French wines)

Poperty and real estate

Utilities (water, energy,…)

Banking and insurances (pension and retirement funds)

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DEVELOPMENT OF CHINESE FDI (WORLDWIDE)

Chinese FDIs will continue to be stable Number of M&A will increase

In a nutshell: No more mega deals. More small and medium sized

specialised deals within the Hidden Champion group.

CHINESE INVESTMENTS IN 2014 BY COUNTRIES AND SECTORS (WORLDWIDE)

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CHINESE INVESTMENTS IN 2014 BY SECTORS (WORLDWIDE AND EU28)

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CHINESE FDI: BY COUNTRIES (TOTAL ASSETS IN BILLION USD, 2005-2014)

0,1

0,12

0,14

0,4

0,9

1,1

1,6

1,8

2,4

2,4

2,4

2,7

2,9

4,5

4,6

5,4

5,5

5,9

6,9

8,2

9,1

10,6

20,9

23,6

39,4

61,3

71,9

0 10 20 30 40 50 60 70 80

Tschechische Rep.

Bulgarien

Österreich

Mazedonien

Bosnien

Montenegro

Polen

Rumänien

Ukraine

Serbien

Spanien

Schweden

Weißrussland

Norwegen

Ungarn

Portugal

Griechenland

Deutschland

Italien

Schweiz

Türkei

Frankreich

Rußland

GB

Kanada

Australien

USA

Source: Heritage Foundation, American Enterprise Institute,

China Global Investment Tracker, AC Hongkong

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Christian H. Schierer

Head ADVANTAGE AUSTRIA Hong Kong

Hong Kong, Macao & South China

ADVANTAGE AUSTRIA.