China Seeks Business Deals in Europe

(chinatrucks.com, Nov. 27, 2009)China is beginning to poke around Southeastern Europe for business deals, taking advantage of a capital drought in the region to gain a manufacturing toehold inside the 27-member European Union.

Chinese companies have already carved out niche stakes in Romania and Bulgaria, and China's government is offering a $1 billion credit line to Moldova -- enough to cover two years of current-account deficits in Europe's poorest country.

Investment flows are still a trickle, totaling just €71 million ($106.3 million) last year, according to Eurostat. But they are poised to rise quickly, if a flurry of recent deals is anything to go by.

On Monday, Dongfeng Motor Group Ltd., China's largest truck maker, signed a memorandum of understanding with Serbia's state-owned truck manufacturer Fabrika Automobila Priboj. The two companies didn't announce a deal value, but Dongfeng will control the product and brand, while FAP handles the manufacturing.

Also last month, Great Wall Motor Ltd. signed a deal with Bulgaria's Litex Motors to build an assembly plant to make 50,000 low-cost sports-utility vehicles annually, starting in 2010. The Chinese company will invest €80 million in the plant.

Meanwhile, in September, the first of a planned 100,000 tractors rolled out of a Romanian factory bought by China's Shantuo Agricultural Machinery Equipment. The plant represents an investment of more than $20 million by the company.

Nowhere is fresh capital more needed than in the Balkans, where economies have been pushed into steep recessions as huge current-account deficits have proved impossible to finance as the main sources of funds in the euro area freeze up.

While Serbia, Moldova and even Turkey make some strategic sense for China, Romania and Bulgaria in particular offer cheap "back-door entry" to the whole EU market, said Margot Schuler, an economist at the German Institute of Global and Area Studies.

Executives from China Luoayang Float Glass Group, a state-owned flat-glass producer, met with Bulgarian Finance Minister Simeon Djankov last week and toured the northeastern city of Razgad, where they hope to invest at least €80 million in a former glass factory.

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