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Mon, Jul 05, 2004 - Page 12 News List

Europeans eyeing potential of India, China: FDI study

AFP , PARIS

European investors searching for overseas outlets are these days lured abroad as much by vast market potential in the booming economies of countries such as China and India as by a search for cheap labor, Organization for Economic Cooperation and Development (OECD) analysts have found.

A just-released OECD study of recent trends in foreign direct investment (FDI) also revealed that France, often depicted as being excessively regulated and unfriendly to private enterprise, was a strikingly more attractive destination for foreign investors last year than the US.

It is also attracting huge sums for the purchase of residential property.

France garnered US$47 billion worth of FDI last year to US$39.9 billion for the US, US$14.6 billion for Britain and US$12.9 billion for Germany, according to the OECD.

For the agency, foreign direct investment covers overseas mergers and acquisitions, the construction of new production plants and capital transfers to foreign-owned enterprises.

Pierre Poret, head of the OECD's investment division, says France is not fundamentally more appealing than its Britain and Germany.

But neither is it so hostile to free enterprise as it is sometimes said to be.

"The reality is that French laws on foreign direct investment are liberal and even more open that the OECD average," he says. "There is little room for restricting foreign investment."

There are cyclical factors involved as well, he added, noting that France is still attracting foreign merger and acquisition activity in traditional manufacturing operations rather than high-tech, Internet-related businesses.

He pointed to the 4 billion euro (US$4.5 billion) purchase last September of French packaging and aluminum group Pechinney by Alcan of Canada.

Britain and Germany by contrast enjoyed "huge peaks" in high-tech investment in 2000 -- US$119 billion in Britain and US$198.3 billion in Germany -- and are now experiencing a fall-off in such flows that followed the bursting of the Internet bubble.

Then, too, FDI flows into France reflect purchases of land and homes by foreigners drawn to the country's temperate climate as well as its unspoiled countryside, deserved gastronomical reputation and a comparatively generous health insurance regime.

The OECD study likewise highlighted what it said could be "a paradigm shift" in corporate strategy on the part of investors in Europe who look abroad.

"They are not only looking for low production and labor costs," Poret says. "They are looking for markets. China is such a huge market that it's important to be present there to seize growing business opportunities."

The OECD report spoke of an increasing interest in selling "to the host country market and producing locally."

The OECD study found that China last year overtook the US as the largest recipient of foreign direct investment, attracting US$53 billion.

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