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Chinese investment welcome in France... up to a point
June 8, 2016 / 2:00 PM / in a year

Chinese investment welcome in France... up to a point

* French alarmed by blue chip champions leaving Paris

* France seeks Chinese capital, but not always control

* Investment spree comes before EU decision on China status

By Paul Taylor

PARIS, June 8 (Reuters) - When reports hit the headlines in France that a state-owned Chinese firm might be taking creeping control of AccorHotels, a national champion and Europe’s biggest hotel chain, President Francois Hollande felt obliged to respond.

“Accor has Chinese shareholders because it is growing in Asia,” Hollande told La Voix du Nord newspaper. “But I am watching closely to make sure that the capital of this big company remains in diverse hands.”

The comment signalled a desire for Chinese authorities to restrain tourism group Jin Jiang, majority owned by the city of Shanghai, from going beyond its current 15 percent holding to acquire a controlling stake in AccorHotels.

AccorHotels, which controls 3,900 hotels from the luxury Sofitel brand to the budget Ibis, is not a strategic national asset by any French legal definition but it is a household name.

Jin Jiang may have stumbled into the firing line of French establishment alarm over a spate of departures of other blue-chip companies to foreign capitalist shores.

“Today, foreign investor groups are interested in France because of our companies’ strong performance. But we have to be careful not to lose the decision-making centres,” Hollande said.

Media and politicians have raised the alarm after several stalwarts of the CAC40 index came under foreign flags, in some cases for what look like tax reasons.

They include engineering corporation Alstom, swallowed by U.S. giant General Electric last year; telecoms equipment maker Alcatel, taken over by Nokia of Finland; cement manufacturer Lafarge, which merged with Swiss group Holcim and moved headquarters to Zurich; and oil services company Technip, which is merging with FMC Technologies of the United States and moving to London.

“There is an understandable sense of panic,” said economist Elie Cohen, director of research at the National Centre for Scientific Research (CNRS). “We have seen an accelerating haemorrhage of big French corporations in the last two years.”

INVESTMENT VS CONTROL

Like Germany, France has generally welcomed Chinese investment as a boost to its economy and an opportunity to expand into fast growing Asian markets, but it remains more reluctant to cede control, especially over advanced technology.

German Vice-Chancellor and Economy Minister Sigmar Gabriel voiced concern last week at a bid by China’s Midea Group Co Ltd to take over German industrial robot maker Kuka though the Berlin government has denied reports that it is trying to organise a rival offer.

Jean-Francois Dufour, an analyst at Montsalvy Consulting in Paris specialised in Chinese industrial investment, said Beijing had often complied quietly in the past when foreign governments signalled its companies were not welcome in certain sectors.

“The Chinese government is at least indirectly involved because even private groups need finance from state-owned banks to fund foreign acquisitions,” he told Reuters.

Chancellor Angela Merkel has taken a hands-off approach to foreign takeovers of German firms and this year alone, ChemChina agreed to buy machinery maker KraussMaffei for $1 billion; Beijing Enterprise Holdings announced a 1.44 billion euro takeover of German waste management company Energy from Waste; and Fujian Grand Chip Investment Fund LP said it was buying German semiconductor equipment maker Aixtron for 670 million euros.

French officials complain that Beijing does not permit reciprocity in investment. Foreign firms wishing to enter the Chinese market have to partner with Chinese companies and cannot hold more than a 50-percent stake.

The European Union Chamber of Commerce in China said in a survey this week foreign companies face “a business environment that is increasingly hostile combined with a playing field that is perpetually tilted in favour of domestic enterprises”.

Debate in Europe on the issue is gaining momentum before a politically sensitive decision by the EU this year on whether to grant China market-economy status, which would give it better protection from anti-dumping lawsuits.

HOUR OF NEED

The French have been eager to seek Chinese capital in their hour of need, or when the state needs cash.

“France accepts Chinese investments when its companies are in trouble, but when it comes to talking about control, that raises opposition,” Dufour said.

In late 2013, when PSA Peugeot Citroen was close to bankruptcy, the head of the state shareholdings agency was sent to cajole Chinese state-owned carmaker Dongfeng into paying 800 million euros ($909 million) for a 14 percent stake in the auto manufacturer, balanced by a matching French government stake. Then chairman Thierry Peugeot was not told in advance about the trip and was annoyed.

With Peugeot’s finances now back in good health and the government looking to sell off some less strategic holdings, new Chief Executive Carlos Tavares has sounded the clearest note of caution about a possible state withdrawal from Peugeot -- which could shift the power balance in Dongfeng’s favour.

In other sectors, Paris has rolled out the red carpet for the Chinese, notably in the travel and tourism sector, keen to strengthen France’s place as the third biggest recipient of Chinese investment after Germany and Britain.

A Chinese-led consortium bought a 49.99 percent stake in Toulouse airport last year when the government privatised the regional hub, home of European planemaker Airbus.

France raised no objections when diversified Chinese group Fosun took control of Club Mediterannee, the standard bearer of French middle-class holiday culture, last year after a bidding war with an Italian suitor.

“We on the board went out looking for a Chinese partner ... because we anticipated that China would become the world’s biggest tourism market and it wouldn’t have made sense to go it alone,” Club Med CEO Henri Giscard d‘Estaing told Reuters.

The Chinese have also been buying up agricultural assets from milk-producing farms in Brittany to big-name vineyards in Bordeaux and Burgundy without official opposition.

“In the past two years, France has actually been quite open and non-interventionist for Chinese investment,” said Francois Godement, senior policy fellow at the European Council on Foreign Relations think-tank. “Up to now, there hasn’t been any red light for taking stakes in big French companies in either real estate or tourism.”

Godement said Beijing appeared to be pursuing an official strategy of building up holdings in entire value chains such as tourism, to ensure that part of the income from Chinese tourists abroad accrues back to China.

But there was also a trend, not encouraged by the Communist authorities, of state-owned enterprises that have some private shareholders buying stakes in foreign companies and real estate in an apparent effort to move assets abroad. ($1 = 0.8800 euros) (Additional reporting by Laurence Foster, Tim Hepher, Yann Le Guernigou and Dominique Vidalon in Paris, Barbara Lewis and Foo Yun Chee in Brussels and Noah Barkin in Berlin, Writing by Paul Taylor, Editing by Timothy Heritage)

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