On the right road to acquisition in Europe

Chinese companies have enjoyed rapid economic growth over the past few decades. While the entire growth model is facing a change, they find themselves with plenty of cash but less investment opportunities in China - and with their competitive advantages nullified by rising costs and outdated technology.

Many private Chinese companies are encountering bottlenecks in innovation and with government regulation. Many State-owned enterprises are suffering excess capacity. Both need to find better technology and new markets.

They may find markets in developing countries, but they can only find technology in developed countries. Because the Japanese technology market is relatively closed and the US over-protects its advanced technology, Chinese enterprises find the European market may be their only choice.

For mature and open markets such as West and North Europe, acquisition is the best way to access advanced technology and expertise - and the cheapest way to acquire well-known brands and sales channels.

There are also great benefits for Europe. The accumulated acquisition amount by Chinese companies of about $100 billion may only account for 1 percent of foreign acquisitions in Europe, but these investments have saved many enterprises on the verge of bankruptcy, retained millions of jobs and created nearly 100,000 more.

Europe still has a debt crisis and needs more foreign investment. Cross-border acquisitions within the region have not recovered yet.

Dow Jones data show that for the first half of this year, the European acquisition amount dropped nearly 30 percent. Since the share of Chinese overseas investment is still very low and China, as the second-largest economy, is still developing very fast, there will be more Chinese acquisitions in Europe. There could be more than $1 trillion of Chinese acquisitions in Europe in the next 10 years.

With mutual benefits for Europe and China, there should be more trust between them and a focus on longer-term development. Investment barriers should be reduced.

The author is a lecturer at the Management School of Shanghai University and a research fellow at the China Europe International Business School, Lujiazui International Finance Research Center.