January 27 marks the 50th anniversary of France’s decision to become the first Western power to recognize the People’s Republic of China. Paris is organizing many commemorative events during 2014, aiming to catch up with its European rivals in wooing China.
Last year France attracted more Chinese tourists than any other European country – a record 1.4 million. But it is lagging behind Britain and Germany in attracting investment and capital from the Middle Kingdom.
According to a report by the economic section of the French embassy in Beijing, cumulative investment from China and Hong Kong in France at the end of 2012 stood at 3.5 billion euro and 700 million euro respectively, accounting for 0.9 percent of foreign investment in the country. Of this, only 9.4 percent was in manufacturing, mainly textile and steel-making. Most investments came through representative offices and mergers and acquisitions. Haier, ZTE and Lenovo, for instance, set up their European headquarters in Paris.
That is a fraction of the US$77.2 billion which Chinese companies invested overseas in 2012. According to the Rhodium Group, Chinese firms invested 7.8 billion euro in the 27 countries of the EU in 2012, up from 7.6 billion in 2011.
As of March last year, 200 subsidiaries of Chinese firms had set up shop in France, mainly in Paris and the Rhone-Alpes region, employing 12,000 to 15,000 people.
“This investment should increase in future due to the wish of the [Chinese] government to internationalize Chinese firms and acquire foreign technologies and brands,” the embassy report said. “In the short term, Chinese firms seem to be in a phase of observing the French market.”
During a visit to Beijing late last November, Pierre Moscovici, the French Minister of Economics, said that there were no taboos for Chinese investment in his country. “The main criterion is creation of jobs,” he said.
Chinese firms are positive toward investment in the European Union, which they regard as safe and politically stable. It is the largest single market in the world, with a GDP of 12.894 trillion euro in 2012 and a population of 505.7 million people in its 28 member countries as of January 1, 2013.
But Chinese companies operating there complain of difficulties in obtaining visas and work permits for Chinese employees, and problems related to European labor laws, bureaucracy, human resources costs and cultural difference in management.
France has its own downside for Chinese investors. Since July 2002, the legal length of the working week is 35 hours and the working day may not exceed 10 hours. Since July 1, 2008, the minimum wage is 1,321 euro.
It has powerful trade unions and taxes, including a rate of social security and tax on the average wage that are among the highest in Europe and among OECD countries.
Its economic prospects are poor. The government has forecast growth of 0.1 percent in 2013 and 0.9 percent in 2014. It has forecast a public deficit in 2013 of 4.1 percent, above the EU ceiling of three percent.
Last December, over 10,000 Chinese merchants signed an open letter to President Francois Hollande, asking him to amend a 1906 law that severely limits the opening of businesses on Sunday. While some areas of Paris are allowed to open shops for tourists, they do not include the 13th arrondissement that is the home to the city’s Chinatown.
Recent opinion polls show nearly 70 percent of French people and 82 percent of Parisians favor Sunday opening. The letter said that such a revision would provide new job opportunities and stimulate consumer spending, both badly needed during a time of crisis.
But two French products in high demand at home are being bought by Chinese investors – wine and milk. Chinese own about 50 Bordeaux vineyards, up from two in 2009, and are expected to overtake the Belgians as the largest nationality of owners after they acquire a further 10. The annual market for red wine in China is worth more than 100 billion yuan. Most of the buyers are people in the food or restaurant business.
For dairy companies, the attraction is a foreign product that is above suspicion of contamination and subject to strict sanitary rules.
Synutra and Sodiaal, the biggest French dairy co-operative, are investing 100 million euro in a factory in Brittany that will turn 208 million liters of milk a year into milk powder. Synutra, a Chinese infant formula firm listed on Nasdaq, will hold 90 percent of the venture while its local partner will have 10 per cent. The venture’s take-up will be equivalent to six percent of Britanny’s annual milk production and it will employ 160 people.