The Flanders-China Chamber of Commerce, with the support of Flanders Investment & Trade, organized a webinar focused on financial incentives for doing business with China on 12 September 2023.
Ms Gwenn Sonck, Executive Director, Flanders-China Chamber of Commerce, welcomed the participants to the webinar and introduced the speakers. China is changing and doing business with China has become more complex in a slowing market and with local competitors scaling and geopolitization running hot. It is a challenging business environment. Many of our companies view it as imperative to maintain a footprint in China because of its market size, dynamism and industrial clusters which are not replicated anywhere else in the world. According to a recent survey of European companies in China, the top three challenges for European companies are the slowing down of the Chinese economy; the global economic slowdown and the geopolitical situation.
Mr Koen Van Loo, CEO, Federal Participation and Investment Corporation, talked about the China Belgium Direct Equity Investment Fund. The sovereign wealth fund of Belgium (SFPIM) is investing in six sectors: finance; aeronautics; health; impact (circular economy); energy & utilities; and transport & mobility. If possible, SFPIM is co-investing with the regional investment companies. It has a balance sheet of €10 billion with a profit of €515 million last year and 170 direct participations. In China SFPIM is active through the China Belgium Direct Equity Investment Fund (CBDEIF), which was established in 2004 between Belgium and China with a total capital of CNY1 billion and an SFPIM stake of €8.5 million. The fund has established a very strong track record. The working capital was raised to CNY2 billion in 2013 and by the end of 2022 it had invested in 115 companies, including 32 successful IPOs, with an average multiple of x 8 on equity invested, a net after tax average IRR of 31%. The financial return is quite amazing, which shows that we should not neglect the Chinese opportunities. There is a very strong business case to be made in financial terms. CBDEIF is one of the most successful private equity funds in China. The fund manager is a joint venture between BNP Paribas Fortis and Haitong Securities. The Fund has invested €25.5 million in five Belgian-related projects or three times the equity SFPIM invested in the Fund. The companies are active in chocolates; solar energy; microprocessors; metal etching solutions; and 3D printing.
SFPIM's daughter SFPIM International, founded in 1971, has invested in more than 300 projects in 60 countries. The capital of CBDEIF will be injected into SFPIM International, so in the future this will be your partner in China. SFPIM International's capital of €83 million will be doubled. The size of investment is up to €10 million, which makes it an interesting co-investment partner. Our experience in financial terms in China is very successful. It is still an opportunity despite the geopolitical evolution.
Mr Steven Levecke, Partner, Capricorn Partners, introduced the Capricorn Fusion China Fund. Capricorn Partners is investing in innovative public and private companies. It is an independent and partner-owned company regulated by Alternative Investment Fund Manager (AIFM). Capricorn Partners is investing for return, but also to have an impact on people and planet, so it will not invest in e.g. weapons or tobacco. It has 30 years of experience and is currently managing more than 10 funds with €550 million assets under management invested in close to 100 portfolio companies. There are around 30 employees from PhDs to MBAs, with an entrepreneurial or corporate background and quite diverse in age and nationality. Venture and growth capital is invested in cleantech; digital; health and fusion.
The aim of the Capricorn Fusion China Fund is building investment bridges between Europe and China to unlock the potential of doing business in and with China. It focusses on investments in Europe, China and South-east Asia. The markets are cleantech; digitalization; healthcare and industrial technology. It invests in growth capital in equity, focussed on relatively mature companies that are looking to expand their operations by entering new markets. The Capricorn Fusion China Fund only takes minority positions. The initial ticket size is €1-3 million. The Sino-European investment team consists of Mr Steven Levecke, Partner, and Mr Zhang Ke, Investment Director, who joined in 2022. Investors represented in the Board of Directors are SFPIM; Heylen Group; and Quest for Growth. The Fund has invested in five companies: Xian-Thiebaut (pharmaceutical packaging); Xenomatix (solid-sate Lidar); Spectricity (hyperspectral imaging); Finquest (big data & AI); and Fruitcore Robotics (industrial robotics). The Fund aims to support EU-China oriented entrepreneurs active in technological or manufacturing innovation, or consumption upgrade addressing the growing Chinese middle class. The main roles of the Fund are providing growth capital; introducing trustworthy partners; opening its domestic and global network; and providing sector-related insights and added value. One real-life success story is the Fund's investment in Punch Powertrain.
Mrs Caroline Steensels, Teamleader Financial Support, Flanders Investment and Trade explained the financial support provided by Flanders Investment and Trade. The focus is on export promotion by Flemish companies in China. FIT is a public agency which is part of the Department of Foreign Affairs. About 50% of the staff work abroad and the other 50% in Brussels or the regional offices. In China, FIT has representatives in Beijing, Shanghai, Guangzhou, Taipei and Hong Kong. There are also science & technology offices, focussing on climate, digital or health tech. Representative Peter Tanghe in Guangzhou is focussing on digital tech. Services are all for free.
FIT has two components: investment and trade. Investment is attracting Chinese companies to invest in Flanders. The trade component includes advice; financial support; actions & events; and market information. The subsidies and financial instruments are only for projects that stimulate the export from Flanders to the rest of the world. It is not meant for investing in China or importing Chinese goods. The focus is on Flemish SMEs. Each of the instruments has a clear focus, e.g. a booth at a trade fair or a prospection trip. Subsidies are not automatically awarded when criteria are met as FINSTIM evaluates the Flemish added value. There are five types of subsidies: development and translation of digital commercial international business communication, such as setting up a multilingual website; participation in international trade fairs (cost of renting a booth or travel expenses); business prospection trips outside the EEA (meeting potential clients); establishment of prospection offices outside the EEA; and custom-made projects. An applicant can chose a maximum of four projects per year.
If you travel to China for a trade fair or prospection trip it is strongly advised to contact the economic representatives and make use of the information that they have or work through the Flanders-China Chamber of Commerce to prepare your trip.
Mrs Mireille Janssens, Business Development Specialist, Credendo, introduced the financial incentives offered by Credendo. Its mission is to support trade relations and it provides tailor-made solutions related to domestic and international trade. Credendo has more than 100 years of experience in credit insurance and is supported by the Belgian state. China is a good country because the political risks are very low. For short-term risk, China is in the best category and for the medium and long-term risk it is in category 2.
Credendo can offer two types of trade credit insurance: comprehensive policy by private credit insurance and cash transaction insurance by the Export Credit Agency. This solution will help you and your bank to sleep well and as a result your bank will be keen to offer more credit. The risks of non-payment and of cancellation of your contract are covered. With the financing tool you can offer financing to your customers. The credit facility for the foreign buyer has a minimum of €50,000 and a maximum of €8 million per transaction. The tenor is between two and five years. The benefits are the competitive advantage and the fact that the Belgian exporter is being paid. Credendo also offers financial guarantees which can help the Belgian exporter get credit facilities. Credendo can participate up to 50% in a bank credit facility, sharing the risks with the bank with no additional cost to the exporter.
A Q&A session concluded the webinar. Q: What are the biggest challenges companies are having investing in China? Mr Levecke: In the past three years sentiment toward China has been quite negative, but the trade level between the EU and China still continues to rise. We still believe that there is a incredible opportunity doing business with China. Mr. Van Loo: It's a bit more complicated than it was, but not always for objective reasons. As we have seen in this webinar there are a lot of possibilities to take things with some more caution: you can find co-investors; insurance against certain risks; and subsidies from FIT; so there are opportunities to protect yourself in case of an investment, but certainly do not hesitate to make the investment. The trade and the market are still there and not going away. Don't stay away but take it a bit more cautiously.
Q.: What are the three main success factors? Mr. Van Loo: Don't go to China alone. It's a huge opportunity, but not the same way of doing business. It's also a huge risk which you can mitigate. Also try to have a local present in your business, because that can help. Mr. Levecke: Bureaucracy is hard in China, so it's not always easy to enter the market. It is not because something is successful in Europe that it will be automatically successful in China. Do your homework.