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S I L E S I A N U N I V E R S I T Y OF T E C H N O L O G Y P U B L I S H I N G H O U SE
SCIENTIFIC PAPERS OF SILESIAN UNIVERSITY OF TECHNOLOGY 2023
ORGANIZATION AND MANAGEMENT SERIES NO. 170
http://dx.doi.org/10.29119/1641-3466.2023.170.17 http://managementpapers.polsl.pl/
CHINESE FDI IN POLAND AND THE CZECH REPUBLIC –
1
INFLOWS, DETERMINANTS AND CHALLENGES
2
Katarzyna ŁUKANISZYN-DOMASZEWSKA1, Katarzyna MAZUR-WŁODARCZYK2*,
3
Elżbieta KARAŚ3
4
1 Opole University of Technology, Faculty of Economics and Management;
5
k.lukaniszyn-domaszewska@po.edu.pl, ORCID: 0000-0002-2165-5095
6
2 Opole University of Technology, Faculty of Economics and Management; k.mazur-wlodarczyk@po.edu.pl,
7
ORCID: 0000-0002-4822-9328
8
3 Opole University of Technology, Faculty of Economics and Management; e.karas@po.edu.pl,
9
ORCID: 0000-0002-2211-6173
10
* Correspondence author
11
Purpose: The objective of this paper is to present Chinese investment flows and the nature of
12
participation, to analyze the differences between host countries, and to identify the determinants
13
of Chinese FDI in Poland and the Czech Republic.
14
Design/methodology/approach: Comparison of the specifics of Chinese direct investments in
15
Poland and the Czech Republic.
16
Findings: The nature of Chinese investment in Europe is changing. After years of being
17
dominated by mergers and acquisitions, Chinese investment in Europe is now more focused on
18
greenfield projects. In 2021, greenfield investments reached €3.3 billion, the highest ever
19
recorded, and accounted for nearly one- third of all Chinese FDI. More recently, the volume of
20
Chinese FDI in Europe has reached the level of European FDI in China (now constrained by
21
restrictions and risks). It matched the level of FDI by Chinese companies in the United States
22
before declining over the past two years, generally due to Covid-19 and the war in Ukraine.
23
Chinese economic presence in Europe can be divided into three areas based on size, destination,
24
and type of acquisition: The core of Europe is formed by the three major target countries
25
(Germany, UK, France), where more capital-intensive investments are made, followed by other
26
Western European countries (EU-15). The new member states (NMS), which joined the EU in
27
2004, 2007 and 2013, as well as the Western Balkan countries in the process of accession, are
28
associated with China in the 16+1 format (with the exception of Kosovo) and form another
29
gateway to Europe. Due to fewer market opportunities, they receive less direct investment, but
30
China is building infrastructure (ports, highways, railroads) - segments of the Silk Road that
31
will bring Chinese products to mature EU markets (Richtet, 2019). It is unlikely that Chinese
32
investment in Europe will recover in 2023. The Chinese government is expected to maintain
33
strict capital controls, financial retrenchment, and Covid-19 restrictions. The war in Ukraine
34
and the expansion of regulations to monitor and control Chinese investments in the EU and the
35
UK will cause additional difficulties.
36
37
284 K. Łukaniszyn-Domaszewska, K. Mazur-Włodarczyk, E. Karaś
Originality/value: The article could be an attempt to answer the question of combining
1
macroeconomic and institutional factors to better understand the internationalization of firms
2
(Dunning, Lundan, 2008). There is no doubt, that the Covid-19 pandemic and the war in
3
Ukraine made it necessary to deepen the study of the phenomenon of FDI, its inflows,
4
determinants, and related challenges in a turbulent world.
5
Keywords: foreign direct investments (FDI), People's Republic of China, Czech Republic,
6
Poland, international relationships.
7
Category of the paper: Research paper.
8
1. Introduction
9
To Emerging-country multinational companies are increasingly integrating into the world
10
economy through foreign direct investment (FDI), with Chinese outward FDI being the most
11
spectacular case in terms of rapid growth, geographical diversity and takeovers of established
12
Western brands. Chinese companies invest mainly in Asia, Latin America and Africa, where
13
they seek markets and natural resources. However, the developed economies of Western Europe
14
and the United States have recently also become important targets, offering markets for Chinese
15
products and assets Chinese firms lack, such as advanced technologies, managerial knowledge
16
and distribution networks. In recent years Chinese companies have increasingly targeted central
17
and eastern European countries, with the Visegrad countries (Czechia, Hungary, Poland and
18
Slovakia), together with Romania and Bulgaria, among the most popular destinations.
19
Global flows of foreign direct investment have been severely affected by the Covid-19
20
pandemic. In 2020, they fell by a third to $1 trillion, well below the low point reached after the
21
global financial crisis a decade ago. Greenfield investments in industry and new infrastructure
22
investment projects in developing countries were hit particularly hard (UNCTAD, 2021).
23
It should be noted, that China sees central and eastern Europe as a block of 16 countries.
24
Among the 16 CEE countries which are involved in the so-called Chinese 16+1 initiative there
25
are 11 EU countries (Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland,
26
Romania, Slovakia, Slovenia) and five EU candidate countries (Albania, Bosnia and
27
Herzegovina, FYROM (Macedonia), Montenegro, and Serbia).
28
Although compared with the Chinese economic presence globally or even in the developed
29
world, China’s economic impact on the central and eastern European countries is fairly small,
30
it has accelerated significantly in the past decade: trade volume is growing constantly, while it
31
can be observed rising inflows of Chinese investments in the region, which are expected to
32
increase due to recent political developments: strengthening Chinese–Hungarian relations,
33
Poland becoming China’s strategic partner (at the end of 2011), the establishment of the China-
34
Central and Eastern Europe Cooperation Secretariat in September 2012, the 16 + 1 initiative
35
and the One Belt One Road.
36
Chinese FDI in Poland and the Czech Republic… 285
The Covid-19 pandemic caused a dramatic fall in global FDI in 2020, bringing FDI flows
1
back to the level seen in 2005. The crisis has had an immense negative impact on the most
2
productive types of investment, namely, greenfield investment in industrial and infrastructure
3
projects, what significant influenced the entire world economy (UNCTAD, 2021).
4
In 2021, there was a strong recovery in foreign direct investment flows worldwide after they
5
reached exceptionally low levels in 2020. According to the United Nations Conference on Trade
6
and Development (UNCTAD), global direct investment flows increased by 77%, exceeding
7
pre-pandemic levels. Global Chinese investment was an exception to this trend, stagnating in
8
2021.
9
According to official Chinese statistics, China's non-financial outbound investment
10
increased by only 3% to $114 billion (€96 billion) in 2021. China's global outbound M&A
11
activity fell to a 14-year low in 2021, with completed mergers and acquisitions totaling only
12
EUR25 billion, down 9% from 2020 and 45% from 2019. The failure of China's outbound
13
global direct investment (OFDI) to recover was due to several factors: China's outbound
14
investment had been declining since 2016, reflecting domestic restrictions on outbound capital
15
flows and tighter controls on Chinese outbound investment. The lack of recovery is also likely
16
linked to China’s adherence to a zero-Covid strategy, which hindered cross-border travel and
17
thus deal-making activities. What’s more, sharp competition for global assets in a booming
18
M&A context likely put Chinese buyers at a disadvantage due to their limited international
19
experience and emerging regulatory concerns
20
The aim of this paper is to map Chinese investment flows and types of involvement, and to
21
analyse differences between countries, as well as to identify the determinants of Chinese FDI
22
in Poland and the Czech Republic.
23
The research method used in this article is based on a comparative analysis of the specifics
24
of Chinese direct investment in Poland and the Czech Republic. The research hypothesis is that
25
in the case of both Poland and the Czech Republic, Chinese direct investment has played
26
an important role in the development of these countries over the years. In recent years, both
27
Poland and the Czech Republic have been the main recipients of Chinese FDI in Europe.
28
Despite the Covid-19 pandemic and the war in Ukraine, Chinese FDI in both Poland and the
29
Czech Republic is expected to continue developing after a temporary stagnation. The article
30
could be an attempt to answer the question of how macroeconomic and institutional factors can
31
be combined to better understand the internationalization of firms (Dunning, Lundan, 2008).
32
There is no doubt that the Covid-19 pandemic and the war in Ukraine call for a deepening of
33
the study of the phenomenon of FDI, its inflows, its determinants, and the related challenges in
34
a rapidly changing world.
35
36
286 K. Łukaniszyn-Domaszewska, K. Mazur-Włodarczyk, E. Karaś
2. Theoretical background
1
Paper According to the definition of OECD, foreign direct investment (FDI) is the category
2
of international investment that reflects the objective of a resident entity in one economy to
3
obtain a lasting interest in an enterprise resident in another economy (OECD). The investor is
4
to gain permanent benefit due to long-lasting influence on the management of the FDI
5
enterprise. The minimum number of shares held in a given enterprise is 10%. However,
6
the influence on management, with such level of shares, may be exerted only if the other shares
7
are highly dispersed (OECD, 2008, p. 234).
8
The nature and motives of foreign direct investment were determined in Dunnig's eclectic
9
theory of foreign direct investment (Dunning, 2001). He combined the theory of monopolistic
10
advantage (which explains why the investments are made outside the territory of the country of
11
origin, but does not specify why these investments are made in certain markets), the location
12
theory (which explains why FDI is made in certain markets without specifying the reason for
13
the investments made) with the theory of internalization (which explains the mechanisms of
14
exploiting the advantages that the company derives from making the foreign investment).
15
On this basis, the OLI paradigm was developed (OLI stands for ownership, localization,
16
internalization) (Dunning, 2001).
17
Analysis of the literature on the subject showed, that there is a growing use of the
18
international business literature in economic geography (Beugelsdijk et al., 2010; Jones, 2018;
19
Jones, 2017; Jones, Wren, 2016), for which the eclectic paradigm is the most influential
20
framework for examining FDI determinants (Stoian, Filippaios, 2008; Buckley et al., 2007;
21
Jones et al., 2016; Jones et al., 2018). Recently, there has also been research on FDI motives in
22
CEE countries (Resmini, 2000; Bevan, 2004; Bevan et al., 2004; Carstensen, Toubal, 2004;
23
Baltagi, 2007; Pusterla, Resmini, 2007).
24
In general, a company transfers capital in the form of foreign direct investment under the
25
following conditions:
26
a company must have specific advantages resulting from resources and capabilities that
27
make the company competitive in the international market,
28
a company should use the competitive advantage it has gained by building its own
29
structures in foreign markets and not transfer it by selling it (e.g. licenses),
30
a company should combine its own advantages with the advantages of the location
31
market, i.e. it should effectively use the advantages of the respective location to
32
maximize its own profits (Jankowiak, 2016).
33
According to the OLI paradigm described above, the decision to make a foreign direct
34
investment at a given time should be conditioned by the configuration of the three forces
35
mentioned above. Firms enjoy various advantages resulting from the specific nature of their
36
activity, the country from which they originate, and the country in which they operate (Dunning,
37
Chinese FDI in Poland and the Czech Republic… 287
2001, p. 176). The first two factors closely depend upon the capabilities and resources of the
1
company, the third factor decides about the direction of transferring the capital in the form of
2
FDI (Jankowiak, 2016).
3
Indeed, different types of investment incentives attract different types of FDI, which
4
Dunning (1992) divides into four categories: 1.) market-seeking (tariff-jumping or export-
5
replacing FDI is a variant of market-seeking FDI); 2.) resource-seeking; 3.) efficiency-seeking;
6
4.) and asset-seeking. Factors that attract market-seeking MNEs typically include market size,
7
as reflected in GDP per capita and market growth (GDP growth). Investments aimed at
8
improved efficiency are determined for example by low labour costs, and tax incentives.
9
Finally, firms interested in acquiring foreign assets may be motivated by a common culture
10
and language, as well as trade costs (Hijzen et al., 2008). It should be emphasised that some
11
FDI decisions may be based on a complex mix of factors (Blonigen, Piger, 2014). Much of the
12
research and theoretical discussion to date relates to FDI outflows from developed countries,
13
for which market-seeking and efficiency-seeking FDI is most prominent (Buckley et al., 2007).
14
Characteristic of Chinese outbound FDI is the search for natural resources, the search for
15
markets (Buckley et al., 2007), and more recently, the search for strategic assets (Zhang et al.,
16
2012).
17
The rapid growth of FDI from emerging and developing economies has been the subject of
18
numerous studies that attempt to explain the unique characteristics of emerging market
19
multinationals' behaviour that are not captured by mainstream theories. Mathews extended the
20
OLI paradigm with the Linking, Leveraging, Learning Framework (LLL), which explains the
21
rapid international expansion of firms from the Asia-Pacific region (Mathews, 2006). Linking
22
refers to partnerships or joint ventures that laggards enter into with foreign firms to minimise
23
the risks of internationalisation and to "acquire resources that are otherwise unavailable"
24
(Mathews, 2006).
25
3. Chinese expansion on the European market
26
Reforms introduced since 1978 and China's policy of opening up to the world, followed by
27
China's accession to the World Trade Organization (2001), led Chinese companies to start
28
investing intensively outside their own country. This was particularly friendly when the Going
29
Global strategy was introduced in parallel [走出去战略] making the expansion of Chinese
30
enterprises an important element of the economic growth model and encouraging companies to
31
"leave" [走出去] outside China through investment. The Going Global 1.0 stage is currently
32
associated m.in with the anti-corruption campaign and protests by local communities and
33
businesses unfavourable to Chinese investments. One example is the unsuccessful investments
34
of COVEC in Poland between 2009 and 2011. The Going Global 2.0 stage was prepared with
35
288 K. Łukaniszyn-Domaszewska, K. Mazur-Włodarczyk, E. Karaś
greater care for local sensitivity and image elements of China and focused upwards of the value
1
chain (China Going Global between ambition and capacity, 2017). As a result, Chinese
2
investments reached practically every continent.
3
After 2008, European Union countries have become the fastest-growing destination for
4
Chinese foreign investment. This was facilitated by (Ma, Overbeek, 2015):
5
an increasingly friendly investment environment within the European Union,
6
the debt crisis in the euro area (especially Greece, Ireland, Spain and Portugal),
7
the willingness of the Chinese side to decouple its GDP from exports,
8
plans to diversify China's foreign exchange reserves (previously most of them were kept
9
in USD),
10
treating foreign investment as an alternative (to exports) allowing access to the
11
European market.
12
This has influenced the emerging new patterns of development of Chinese FDI within the
13
EU. They manifested themselves in (Ma, Overbeek, 2015):
14
rapid growth of investments,
15
location within the main EU Member States,
16
the beginning of interest in semi-peripheral and peripheral countries,
17
choosing more diverse sectors,
18
placement within state-owned enterprises,
19
the beginning of interest in private companies and sovereign wealth funds.
20
Between 2003 and 2010, one of the factors that influenced the settlement of Chinese
21
investments was the foreign community, as it led to greater access to strategic information.
22
According to Bas Karreman's team, there was a stronger relationship between the size of the
23
Chinese community living abroad and the likelihood of Chinese investment in a community
24
where newer generations of Chinese migrants live, as well as individuals with higher education.
25
In European regions, however, a Chinese community alone is not enough to attract more
26
Chinese FDI. Much depends on the right human capital and the fit of the local workforce as
27
well as the specific sector (Karreman et al., 2017).
28
After 2013, the Belt and Road Initiative (一带一路/ Belt and Road Initiative) became
29
an additional element of China's new economic growth model. This initiative is closer to
30
a declaration of cooperation and an invitation to economic cooperation than to ready-made
31
offers of activities to be implemented. As part of it, China cooperates with more than 140
32
countries (International Cooperation, Belt And Road Portal), and trade and investment maintain
33
an upward trend (Gu, Zhou, 2020). The Visegrad Group countries are among China's main
34
trading partners, and strategic partnerships have been signed with the Middle Kingdom:
35
the Czech Republic, Hungary and Poland (Parepa, 2020).
36
37
Chinese FDI in Poland and the Czech Republic… 289
A study by Blomkvist and Drogendijk (2016) found that European countries generally
1
receive less investment from Chinese companies compared to other regions of the world.
2
They found that the main motives for Chinese investment in Europe are the search for markets
3
and strategic assets, and that there are large differences among European countries in attracting
4
Chinese investments (Blomkvist, Drogendijk, 2016).
5
Over the past 20 years, FDI from China to the EU has amounted to more than USD 120
6
billion. During this period, almost all EU Member States concluded investment treaties with
7
China (Xu, 2022). The impact of Chinese FDI has significantly increased bilateral exports
8
within the EU, and China has become not only the most popular but also the most active investor
9
in the world. The evolution of China's FDI in the period 2005-2021 is shown in Figure 1.
10
Another figure shows the formation of Chinese FDI in the period 1998-2021 globally and
11
narrowly to European countries (Figure 2).
12
13
Figure 1. China's FDI in 2005-2021 [USD mill.].
14
Source: own elaboration based on (UNCTADSTAD).
15
16
Figure 2. China's FDI actually utilized in 1998-2021 [USD mill.].
17
Source: Own elaboration based on: (National Bureau of Statistics of China, 2022, 2021, 2020, 2019,
18
2018, 2017, 2016, 2015, 2014, 2013, 2012, 2011, 2010, 2009, 2008, 2007, 2006, 2005, 2004, 2003,
19
2002, 2001, 2000, 1999).
20
21
290 K. Łukaniszyn-Domaszewska, K. Mazur-Włodarczyk, E. Karaś
Both diagrams show an upward trend in Chinese FDI. For example, in 1998, Chinese FDI
1
on the old continent amounted to USD 4.3 billion, in 2008 – USD 5.5 billion, and after another
2
ten years, in 2018 – USD 8.8 billion. The visible regression that took place in 2008 was related
3
to the global economic crisis, which was accompanied by, the collapse of the business cycle.
4
The reality of the following years has led to new challenges affecting economic life, above
5
all another crisis related to the emergence of the Covid-19 pandemic. As a consequence, in 2020
6
Chinese FDI in Europe amounted to EUR 7.9 billion (approximately USD 7.8 billion) and
7
a year later it increased to EUR 10.6 billion (approximately USD 10.5 billion) (Rhodium
8
Group), but was still lower than in 2019.
9
Generally, China’s FDI in Europe (EU-27 and the UK) increased but remained on its multi-
10
year downward trend. In 2021, completed Chinese FDI in Europe increased 33% to EUR 10.6
11
billion, from EUR 7.9 billion in 2020. The increase was driven by two factors: a EUR 3.7 billion
12
acquisition of the Philips home appliance business by Hong Kong-based private equity firm
13
Hillhouse Capital and record high greenfield investment of EUR 3.3 billion. Still, 2021 was the
14
second lowest year (above only 2020) for China’s investment in Europe since 2013 (Merics,
15
2021).
16
However, according to Rhodium Group data (Rhodium Group, 2021), the value of Chinese
17
investments in Europe increased by 25% in 2021, while in North America it fell by 34%.
18
On the Old Continent, the Chinese spent nearly USD 13 billion. Interestingly, more than a third
19
of the amount was allocated to greenfield investments, i.e. creating a business on the spot from
20
scratch or recapitalizing a business built by them (Rhodium Group). It turned out, that the
21
Netherlands was the largest recipient of Chinese capital in 2021 (USD 4.5 billion), and over
22
USD billion also went to asset owners from Finland and the United Kingdom.
23
4. FDI in the Czech Republic
24
The Czech Republic is known as one of the most successful Central and Eastern European
25
countries in attracting foreign direct investment. According to the Government Agency for
26
Foreign Direct Investment, the Czech Republic ranks first among Central and Eastern European
27
countries in terms of foreign direct investment stock and per capita inflows. This is due to the
28
introduction of investment incentives, the availability of skilled and cheap labour, and the
29
Czech Republic's geographical advantages, such as its location in the heart of Central Europe.
30
Since May 2021, the Czech Republic has introduced a new FDI screening process that is in line
31
with EU guidelines. Under the new law, any non-EU investor must obtain approval before
32
acquiring more than 10% of the shares or voting rights of a company operating in a sector that
33
is sensitive to the country's security or internal or public order (e.g., energy, gas, heating and
34
water, food and agriculture, healthcare, transport, communication systems and IT, financial
35
Chinese FDI in Poland and the Czech Republic… 291
market, emergency services and public administration, military material, etc.) (Doing Business,
1
2020).
2
The Czech Republic was ranked 41st out of 190 countries in the World Bank's latest Doing
3
Business report, dropping 6 places from the previous edition. This is mainly due to the fact that
4
the country's progress in terms of ease of doing business is almost stagnant (Doing Business,
5
2020).
6
Table 1.
7
FDI in Poland and the Czech Republic in years 2019-2021
8
FDI
Czech Republic
Poland
2019
2020
2021
2019
2020
2021
FDI Inward Flow (mill. USD)
10,108
9,411
5,806
13,510
13,831
24,816
FDI Stock (mill. USD)
171,334
195,240
200,587
240,586
249,723
269,225
Number of Greenfield Investments
90
57
109
448
467
511
Value of Greenfield Investments (mill. USD)
2,369
2,596
3,094
24,462
22,757
21,871
Source: UNCTAD.
9
Advantages of FDI in the Czech Republic:
10
The Czech Republic is a member of the EU, but not the Eurozone.
11
The country's central bank is strong and independent and regulates a stable currency.
12
As a result, the country has excellent access to the European market and has positive
13
and stable international relations.
14
A stable banking sector that has proven resilient in recent crises.
15
Public spending at a satisfactory and controlled level.
16
One of the lowest unemployment rates in Europe creates an optimal and healthy
17
business environment.
18
The country's long tradition of industrial production (the sector continues to have great
19
potential).
20
The quality of the labour force (with high intermediate costs).
21
Central geographic location.
22
Disadvantages of FDI in the Czech Republic:
23
The Czech Republic's economy is highly dependent on the level of exports and the
24
inflow of foreign investment, which makes it particularly vulnerable in times of crisis.
25
The country's Euroscepticism and the lack of interest in adopting the euro can
26
discourage some European entrepreneurs in the long run and make the country less
27
competitive.
28
The country has experienced political tensions, which may jeopardise its stability in the
29
eyes of potential entrepreneurs.
30
Legislative and judicial reforms are slow to materialise; this can be explained by
31
a political history made of governmental coalitions.
32
292 K. Łukaniszyn-Domaszewska, K. Mazur-Włodarczyk, E. Karaś
The shortage of labour and the ageing of the population also constitute a significant
1
obstacle to the country's development and limit the country's ability to meet production
2
requirements.
3
The automotive sector occupies a large share of the economy.
4
In order to reduce the Czech market's dependence on its European trading partners (mainly
5
Germany), the government has implemented reforms to diversify the country's export
6
opportunities and the structure of its export market as well as its economic structure. To support
7
these changes, an export strategy (2012-2020) targeting fast-growing emerging markets and
8
a competitiveness improvement strategy (introduced in 2011) have been implemented.
9
The Czech Ministry of Industry and Trade and the investment development agency CzechInvest
10
(Investment and Business Development Agency – CzechInvest) have already launched the
11
Welcome Package initiative and are now offering visa support to make immigration procedures
12
as simple as possible for foreign investors who need residence and work permits in the Czech
13
Republic
14
In addition, the Czech government has launched an economic program based on the
15
promotion of entrepreneurship and the modernization of public administration (in terms of
16
greater functionality and transparency). This has resulted, for example, in making it easier to
17
obtain public funding in the areas of science, research and innovation.
18
In 2019, the government made significant changes to the Investment Incentives Law,
19
eliminating incentives for investments aimed at growing low-skilled labor and limiting
20
incentive payments to high-value-added investments that focus on research and development
21
and create graduate jobs.
22
5. FDI in Poland
23
Poland has a lot to offer to foreign investors - first of all, it is well-connected and guarantees
24
free access to the rich EU market, while remaining a country with relatively cheap, well-
25
educated and numerous labor force. Therefore, it is an excellent location for companies looking
26
to build factories or establish service centers, and scores well in the ranking of the largest
27
recipients of greenfield investments. Poland is among the most attractive countries in Europe
28
in terms of foreign direct investment. According to UNCTAD's 2021 World Investment Report
29
(UNCTAD, 2021) FDI inflows to Poland remained stable in 2020, reaching USD 10 billion,
30
the same as the previous year's figure of USD 10.8 billion, despite the outbreak of the
31
Covid-19 pandemic causing a 42% drop in global FDI. The country's total investment stock
32
amounted to USD 236.5 billion in 2020. In terms of the value of greenfield projects announced
33
in the same year, Poland ranked fifth in the world with a total of USD 24.3 billion (UNCTAD,
34
2021).
35
Chinese FDI in Poland and the Czech Republic… 293
Among the most important projects is Google's construction of a cloud region in Poland for
1
$1.8 billion. Poland is the largest recipient of foreign direct investment in Central Europe.
2
Most holdings are held by the Netherlands, Germany, Luxembourg, and France, with
3
investments flowing mainly into the manufacturing, finance and insurance, wholesale and
4
retail, and real estate sectors. In addition, data from recent years show that a high percentage of
5
investors come from China and South Korea. According to the latest OECD figures,
6
FDI inflows to Poland totaled $12.3 billion in the first half of 2021, up 27.4% from the same
7
period last year (when FDI inflows totaled $9.6 billion). Poland's main assets are its strategic
8
location, large population, membership in the European Union, economic stability, low cost of
9
skilled labour, and a tax system attractive to businesses. In addition, Poland has a number of
10
dynamic Special Economic Zones and the government founded the Polish Investment and Trade
11
Agency (PAIH. Why Poland) to improve conditions for FDI. Under the 2021-2027 EU budget,
12
Poland will receive USD 78.4 billion in cohesion funds as well as approximately USD 27 billion
13
in grants and USD 40 billion in loan access from the EU Recovery and Resilience Facility.
14
However, Polish law limits foreign ownership of companies in selected strategic sectors and
15
restricts acquisition of real estate, especially agricultural and forest land. Furthermore, a new
16
law came into force giving the President of the Office for Competition and Consumer Protection
17
the authority to review FDIs by non-EEA and non-OECD investors on the grounds of public
18
security, order and health. Overall, the Polish business climate is good and the World Bank
19
ranks Poland 40th out of 190 countries in its latest Doing Business ranking (Doing Business,
20
2021), seven positions lower compared to the previous edition.
21
Moreover, in 2022, Poland widened and extended its controls on new foreign direct
22
investments for another three years, until mid-2025.
23
Advantages of FDI in Poland:
24
Growing economy.
25
Central geographical location in the heart of Europe.
26
Multilingual workforce, qualified, able to export trades (at a low cost) and whose
27
productivity is growing rapidly.
28
Stable banking sector and a controlled currency.
29
A healthy and resilient economy even during economic crises.
30
Unlike other Central European countries, its population does not face over-
31
indebtedness.
32
Disadvantages of FDI in Poland:
33
Rigidity of the labour market.
34
Slow administrative procedures (120th country for the speed of starting a business
35
according to the World Bank).
36
Current account in deficit.
37
294 K. Łukaniszyn-Domaszewska, K. Mazur-Włodarczyk, E. Karaś
The adoption of the euro initially planned for 2012 has been jeopardised by the financial
1
crisis, thereby delaying its beneficial effects on the economy.
2
The relatively unstable political landscape slows down the implementation of necessary
3
reforms.
4
6. Comparison of China’s investment in Poland and the Czech Republic
5
As shown in Figure 3, China is investing much more in the Czech Republic than in Poland.
6
Since 2016, China has become the second largest trading partner of the Czech Republic (2018
7
- EUR 24.3 billion in trade in goods). After Germany, China is the largest supplier of goods to
8
the Czech market. In 2018, imports from the PRC amounted to EUR 22.1 billion and were ten
9
times higher than Czech exports to China.
10
The negative trade balance is unfavourable for the Czech government, which expects its
11
Chinese partner to deregulate and liberalise the market. This position stems from the ANO
12
(ANO) programme which, which in the context of China mentions respecting the rules of
13
international trade and protecting Czech industry from unfair competition.
14
The Czech Republic's cooperation with China was established through a declaration on
15
strategic partnership, and both sides signed several memoranda reflecting Czech aspirations to
16
increase trade with China and hope for greater Chinese investment. Initially, it was assumed
17
that in the first year of cooperation in 2016, Chinese investments in the Czech Republic would
18
amount to CZK 95 billion, i.e. approximately EUR 3.5 billion (Bankier.pl, 2016).
19
20
Figure 3. China's FDI actually utilized by Poland and Czech Republic in 1997-2018 [USD mill.].
21
Source: Own elaboration based on: (National Bureau of Statistics of China, 2022, 2021, 2020, 2019,
22
2018, 2017, 2016, 2015, 2014, 2013, 2012, 2011, 2010, 2009, 2008, 2007, 2006, 2005, 2004, 2003,
23
2002, 2001, 2000, 1999).
24
Unfortunately, FDI, which was supposed to flow to the Czech Republic thanks to the Belt
25
and Road initiative, is not growing in the wake of imports from China. FDI from China in 2017
26
amounted to around EUR 0.2 billion, whereas it reached EUR 0.5 billion a year earlier.
27
Chinese FDI in Poland and the Czech Republic… 295
This result contrasts with President Zeman's announcement in 2016 of an investment inflow of
1
€3.7 billion by the end of that year. In fact, credibility to these plans was added by
2
17 agreements between economic entities of both countries, concluded together with a strategic
3
partnership. In addition, during Miloš Zeman's visit to China in April 2019, the Bank of China
4
signed memoranda on cooperation with the Chamber of Commerce of the Czech Republic and
5
with the financial company CITIC, the main Chinese investor in the Czech Republic (Ogrodnik,
6
2019).
7
Transatlantic relations also have a significant impact on the Czech Republic's policy
8
towards China. The United States wants to stop China's technological expansion in Central
9
Europe. Currently, it is noted that Czech-Chinese relations are deteriorating. Although the
10
Czech government is currently disappointed with the state of investments from the PRC,
11
in the long term they want them to grow. The guarantee that they will not pose a threat will be
12
the regulation of the EP and the EU Council of 19 March 2019, implemented by the Ministry
13
of Industry and Trade (for which ANO is responsible). The 14 EU members, including the
14
Czech Republic, do not have national investment screening mechanisms (Ogrodnik, 2019).
15
Poland is one of the most attractive locations for foreign investment. Regional aid is the
16
most popular type of aid for companies carrying out investment projects in Poland. They are
17
granted only for "initial" or "new" investments, which are generally defined as investments
18
related to the establishment of a new establishment, the expansion of the capacity of an existing
19
establishment, or the diversification of the production of an establishment to include products
20
not previously produced. The maximum amount of aid a project can receive depends on the
21
size of the company and where in Poland the project is to be located. Regional aid can be granted
22
in Poland in various forms, such as exemption from corporate income tax (CIT) in so-called
23
special economic zones (SEZs), state grants (support from the state budget), and cash grants or
24
loans from EU funds. The state grant (Multi-Annual Support Programme - MASP) is a regional
25
aid programme financed by the Polish government and designed to support large investments
26
in the so-called “priority sectors”: automotive, electronics, aviation, biotechnology, modern
27
services (particularly IT centres, BPOs and telecommunications) and R&D (UNCTAD, 2022).
28
In Poland, a limited number of sectors have restrictions on foreign ownership and foreign
29
capital. Polish law limits non-EU nationals to 49% of a company's capital in air transport, radio
30
and television, and airport and seaport operations. Licenses and concessions for defense
31
production and seaport management are granted on the basis of national treatment for investors
32
from OECD countries. The Law on Freedom of Economic Activity (LFEA) requires companies
33
to obtain government concessions, licenses, or permits to operate in certain sectors, such as
34
broadcasting, aviation, energy, arms/military technology, mining, and private security services
35
(UNCTAD, 2022).
36
In May 2020, the Polish government adopted regulations designed to make it more difficult
37
for investors from outside the European Union to acquire at low-cost companies that Poland
38
considers strategic to its economy. The regulations were part of a government rescue package
39
296 K. Łukaniszyn-Domaszewska, K. Mazur-Włodarczyk, E. Karaś
worth more than PLN 300 billion to help the country survive the new coronavirus pandemic
1
and the resulting economic crisis (UNCTAD, 2022).
2
Even though Poland is the leading recipient of FDI in central and eastern Europe it has
3
attracted little Chinese FDI. This may be partially explained by the rather cool political relations
4
between the two countries since the early 1990s, when Polish politicians often criticised Beijing
5
for violating human rights and supported the case of Tibet.
6
McCaleb's findings show that the motivation originally associated with the pursuit of
7
markets and efficiency, mostly involving greenfield entry, has been broadened to include the
8
strategic pursuit of assets, as reflected in the acquisitions of Polish companies in the 2009-2014
9
and 2015-2018 periods (McCaleb, 2021). Another feature of Chinese companies that have
10
recently gained a foothold in Poland is that their presence is the result of acquisitions by Chinese
11
multinational companies (MNCs) located in third countries, especially Germany. This is
12
a consequence of the Chinese MNCs entry into European value chains. The industrial structure
13
of Chinese MNCs in Poland also evolved from assembly of electronics, to manufacturing of
14
parts and components for automotive sector, utilities, and services. Chinese firms are mainly
15
located in Poland's key industrial regions, namely the Mazowieckie, Dolnoslaskie, Malopolskie
16
and Slaskie voivodeships. The ten largest Chinese employers employ between 372 and 2103
17
people and are mainly active in the automotive industry (Biswas, Dygas, 2021).
18
7. Summary
19
Although the countries examined here – Poland and Czechia – differ in many respects, they
20
have some common features as well. They have been in the process of economic catching up
21
over recent decades; their development paths are defined mainly by the global and European
22
powers, rules and trends; and FDI has a key role in restructuring their economies. In recent
23
years, the abovementioned countries have started to get more interested in Chinese relations –
24
more properly in attracting Chinese investments and boosting trade relations – since the new
25
millennium, although the economic and financial crisis of 2008 drew their attention more than
26
ever to the potential of Chinese economic relations.
27
In the context of Chinese strategy, the location is an advantage of Poland and the Czech
28
Republic. The initiative created by Chinese government in 2015 “One Belt, One Road” was
29
supposed to open the possibilities for Chinese investors to go global. The scale of Chinises
30
investments in Europe will change and that is an opportunity for Poland, the Czech Republic
31
and other countries from Central and Eastern Europe. Foreign direct investment is one of the
32
most important areas of potential development in bilateral relations. Investment relations
33
between China and CEE countries are expected to develop, based on the announced strategy of
34
Chinese central authorities towards this region (Jankowiak, 2016).
35
Chinese FDI in Poland and the Czech Republic… 297
However, the Covid-19 pandemic caused a notable decline in global foreign direct
1
investment (FDI) in 2020, bringing FDI flows back to 2005 levels. The crisis had an immense
2
negative impact on the most productive types of investment, namely greenfield investment in
3
industrial and infrastructure projects, which significantly affected the entire global economy
4
(UNCTAD, 2021).
5
It is unlikely that Chinese investment in Europe will recover in 2023. The Chinese
6
government is expected to maintain strict capital controls, financial deleveraging,
7
and Covid-19 restrictions. The war in Ukraine and the expansion of regulations to monitor and
8
control Chinese investment in the EU and UK will cause additional difficulties.
9
The limitation of the conducted research is, among others, the fact that the comparison of
10
Chinese investments was made only in terms of two neighbouring countries, exemplary for the
11
European Union, but certainly not characteristic of each EU member state. Additional,
12
the Covid-19 pandemic and the war in Ukraine, therefore, made it necessary to deepen further
13
research on the phenomena of foreign direct investment, its inflows, its determinants, and the
14
challenges associated with them in a turbulent world.
15
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