East is the way to West

Central and eastern Europe offer Chinese companies gateway to continent

Peter Hyl, executive chairman of China Investment Forum, says an attraction for Chinese investors is they have the advantage of proximity to western European markets when they set up operations in central and eastern Europe. [Zhu Xingxin / China Daily]

Chinese companies are eyeing investment opportunities in central and eastern Europe to get easier access to European Union markets, according to a leading investment adviser.

Peter Hyl, executive chairman of the Prague-based China Investment Forum, says countries in the former Eastern bloc are now an increasingly significant destination for Chinese ODI from a very low base.

"Chinese companies may bring components and have them assembled in central or eastern Europe so they can put an EU label on them," he says.

"The region therefore then becomes a bridge in the lucrative markets of the major Western European economies. By having an EU badge, it also gets over some of the prejudice there might be about Chinese goods since they will be coming from inside the Single Market."

The investment push into central and eastern Europe (CEE) is supported by the Chinese government.

On his visit to Hungary in June, Chinese Premier Wen Jiabao announced 400 million euros of financial support for a European logistics base, including an airfield with road access, which would be a hub for Chinese goods entering Europe.

"I think this is the clearest example of how China views the importance of the region and its potential as a distribution hub," says Hyl.

The current level of investment in CEE countries dwarfs that of recent years. Chinese ODI in the Czech Republic rose from just $460,000 (330,000 euros) in 2004 to a still paltry $15.6 million in 2009, according to Chinese Ministry of Commerce figures.

The picture is similar in Hungary, rising from $100,000 to $10.37 million over the same period and in Poland, rising from $100,000 to $10.37 million. Some recent investments make a mockery of such figures.

Foreign direct investment as a whole in CEE is expected to increase by 27 percent this year, according to the Vienna Institute for International Economic Studies, a leading think tank.

Major Chinese investments in the region are coming from companies such as Great Wall Motor which is to open a new factory in Bulgaria at the end of this year, from where it will assemble 50,000 cars a year.

Huawei, the Chinese technology company, announced in May it would be expanding its distribution center in the country which already employs 3,000.

There are a number of other high profile Chinese investments across the region, mostly notably from BYD, the Chinese battery and electric car maker, which has a major battery plant in Hungary among other investments.

Hyl says one of the main attractions for Chinese companies making investments in eastern and central Europe is that they can set up operations or invest in existing operations for a fraction of the price it would cost in Germany, the UK or France.

"To buy a company in the Czech Republic, for example, would be much cheaper than in Germany and if their motive was acquiring technology, it would be of at least an equivalent level to that in western Europe. It could even be better because many companies in eastern and central Europe supply countries like Germany," he says.

Hyl, 28, set up the China Investment Forum in 2009. Its main aim is to encourage trade and investment between China and CEE countries.

The forum employs eight staff in Prague but is in the process of opening a permanent office in Beijing. Its major partner is Skoda, the Czech automotive company, and will hold its second annual meeting in Prague in November.

Hyl says there is a synergy between China and many eastern European countries since their economies operate with similar business models.