Oxstones Investment Club™Chinese Business Gains Foothold in Europe by Investing in the East
BUDAPEST — The classroom walls at the Hungarian-Chinese bilingual primary school here are decorated with Chinese calendars and banners. Chinese lanterns hang from the ceilings of the main entrance hall. There are stacks of new Chinese language books in the staff room, provided by the Chinese authorities, who also send two teachers a year, depending on the school’s needs.
The school cafeteria, however, serves only local fare. “No Chinese food, at least not yet,” said Viktoria Schaff, one of the teachers.
Which is probably just as well, because the makeup of the state-financed school, the only of its kind anywhere in Eastern Europe, has changed a lot since it opened in 2004 in response to the growing numbers of Chinese working in Hungary.
The first year, there were 86 pupils, all from China or other Asian countries. Of the 229 students who started this month, 90 are Hungarian.
“More and more Hungarian parents are sending their children here,” Ms. Schaff said. “Their parents see the huge opportunities opening up for them as China becomes more and more important.”
Education is not the only area in which China is making inroads in Central and Eastern Europe. From the Baltic states to the Balkans, Chinese companies, flush with money, are buying real estate and competing for public infrastructure contracts, especially as Poland and Ukraine work at breakneck speed as they prepare to jointly host the 2012 European soccer championship.
They also are investing in manufacturing of products like electronics and chemicals to gain a foothold inside Europe’s expansive single market.
In Poland last year, a Chinese consortium won the contract to construct two sections of a highway from Lodz to Warsaw. It was not a huge deal, but it was the first time that a non-Polish or non-European company was awarded a contract that will be partly financed by the European Union.
“Some Polish companies were not happy,” said Henryka Bochniarz, president of the Polish Confederation of Private Employers. “They said the Chinese were subsidized by the Chinese government. But frankly, as long as they meet the procurement rules, you can’t exclude them.”
Ms. Bochniarz added that the Chinese companies also hired Polish workers and engineers. Indeed, Chinese companies are becoming increasingly active in Poland, where the work force is well educated and still relatively inexpensive compared with Western Europe.
Trade flows have also changed. “China used to mainly export textiles, shoes and tea to Poland,” said Tomasz Ostaszewicz, director of the bilateral economic cooperation department at the Polish Economy Ministry. “Now China is our main supplier of electronic goods.”
As recently as 2007, Chinese investment in Poland, and across Eastern Europe as well, was insignificant.
“Chinese investments in Poland amounted to €70 million in 2007,” or about $92 million at current exchange rates, Mr. Ostaszewicz said. “The envisaged amount of Chinese investment for 2010 could amount to €500 million.” That, he added, would create 3,230 new jobs.
The investments, which usually take the form of joint ventures, are spread across manufacturing sectors, from electronics and machinery to packaging, plastics and paper production.
In Hungary, the Wanhua Industrial Group recently acquired a strategic stake in BorsodChem, a leading polyurethane producer in Central and Eastern Europe.
Wanhua, which is based in the northeastern city of Yantai, between Beijing and Shanghai, is the largest producer in the Asia-Pacific region of isocyanates, a polyurethane raw material used by the construction and automobile industry as well as for making household appliances and footwear.
The company sells to the United States and Middle East markets, and was looking for a presence in Europe, said Howard Ding, deputy general manager of Wanhua.
“BorsodChem gives us a manufacturing base in Europe,” he said. “It means better access to the European market and better means to serve our customers.”
BorsodChem’s headquarters is in Kazincbarcika, a town in northeastern Hungary that was built in 1949 as a local center for the newly created fertilizer and chemical production sector. It was privatized in 1991, sold shares to the public five years later and was bought out in 2006 by two private equity funds, Permira and Vienna Capital Partners, which began to restructure the company.
They then started looking for investors to help pay for the construction of a new plant and to provide much needed capital for a company that is highly leveraged. It has loans totaling close to €1 billion.
In June, Wanhua provided €140 million to complete the construction of a new isocyanate plant. In exchange, Wanhua got a 38 percent stake in First Chemical, the holding company for BorsodChem, and an option to purchase the remaining shares within the next 24 months.
Wolfgang Büchele, the chief executive of BorsodChem, said that without Wanhua, the company would have found it very difficult to grow.
“We become a member of a group with a global view compared to BorsodChem, which is a regional player,” Mr. Büchele said.
Chinese companies and the Chinese authorities are shopping around in other countries in the region. Last year, China signed a memorandum of understanding to lend $1 billion to Moldova, one of the poorest countries in Europe. China’s central bank last year agreed to a three-year currency swap of $2.3 billion to Belarus.
Ma Changlin, economic and trade counselor at the Chinese embassy in Warsaw, said China “is interested in using the region as a springboard to the rest of the E.U.”
Countries like Hungary, eager for the business even before the global financial crisis sent the economy into a tailspin, have gone to great lengths to make them feel welcome.
The bilingual school is close to the Asia Center, a huge new shopping mall and business park catering to the needs of the growing Chinese community, which local officials estimate at several thousand people.
Strabag, the giant European construction company, invested €200 million in the complex, which covers 125,000 square meter, or 1.35 million square feet. It opened in 2003 and now has more than 500 showrooms representing a dozen Asian countries, as well as a large exhibition center.
A walk though the sparkling clean building reveals a variety of products on display, including textiles, electronics, jewelry, furniture, crafts and accessories. Nearby is a Trade Promotion Center to advance contacts between Western and Asian companies.
In Poland, by contrast, government and business are less engaged in reaching out to Chinese investors, Mr. Ma said.
“There is no strategic vision for investment,” he said in a recent speech to the Polish Information and Foreign Investment Agency. He cited a lack of knowledge on both sides, as well as cultural differences and, on top of everything, the language barrier.
That is something the Hungarians are trying to overcome. At the Hungarian-Chinese school, Eszter Felfoldi, 9, said she had already decided what she wanted to do when she finished her studies.
“I want to be an interpreter,” she said. “When I am taken to a Chinese restaurant, I already can ask for some of the dishes in Chinese.”
Tags: China, Chinese expansion, East meets West, Eastern Europe, Hungary