Christian Milelli
email: christian.milelli@u-paris10.fr

Françoise Hay

Chinese and Indian firms' entry into Europe: characteristics, impacts and policy implications

Keywords: foreign direct investment, European economies, policy implications JEL Classification: F14, F23

This contribution deals with the rise of direct investment flows from ‗third-world' to ‗firstworld' countries. To analyze this trend, we chose to focus on China and India due to their high economic growth regime and their rapid pace to embrace the world economy, which place them at the forefront of the surging wave of FDI and multinational companies from emerging economies. The European Union which is the largest host region worldwide for FDI flows is the target of the paper, and the central point is to better assess the possible effects of the arrival of Chinese and Indian firms on its economy. The paper is based on firm-level data. After providing understanding on Chinese and Indian FDI on a global scale, we draw from the existing academic literature hypotheses that are tested on findings derived from a proprietary dataset. On the basis of these insights, we identify and discuss the plausible economic impacts of those investments on European economies.

INTRODUCTION

The extent and amount of Chinese and Indian investment has vastly increased on all continents over the last few years, and Europe is getting its share since 2002. Even if the phenomenon is very recent and still of modest magnitude for Europe, it makes good economic sense to get a better knowledge of it and to identify the discernible trends.

The reasons of such interest are well balanced: on the one hand, China and India have embarked in a high economic growth regime and their firms are at the forefront of the surging wave of multinational companies originating from the ‗third-world' and, on the other, the European Union is the largest host region worldwide for FDI flows4 and a significant trade partners with both Asian economies5 as both aspects are increasingly interrelated. Besides, some high-profile merger-and-acquisition deals involving Chinese and Indian companies have been fulfilled across Europe6 these last years. This general issue is however still underdeveloped by academics whereas the available information is either too aggregated or, when accessible at a micro-level, largely anecdotal or fragmentary.

Our first main motivation was to get convincing evidence about the characteristics of the European affiliates of Chinese and Indian companies. One can rightfully ask why it is relevant to consider India and China together as home-countries, rather than China alone or India alone, or than the emerging economies as a whole? At least, two reasons stand out. First, both Asian countries are, to date, the main emerging countries exhibiting outward FDI (OFDI) in Europe, if the Federation of Russia is put aside. Second, such a choice allows us to bypass the usual limitation of individual monograph and to enrich the analysis thanks to comparisons, because each country has its own specificities (distinct economic, social, regulatory, legal and historical features).

Our second motivation was to stimulate the discussion in a very new area, namely the possible effects of the arrival of Chinese and Indian companies in Europe.

We had in mind two research questions. The first one is basically academic-oriented and aims to test the soundness of the traditional theoretical approaches adopted to explain OFDI from advanced countries, and see if the displayed attributes by the ‗newcomers' fit the standard framework. The second question is more policy-oriented and tries to address the possible economic impacts of Chinese and Indian investments on European economies, and also to look into their policy implications.

The paper is structured as follows:

In the first section, we introduce the existing academic literature related to our topic and draw the main hypotheses.

In section 2, we briefly provide some insights of Chinese and Indian FDI on the global stage, and we draw the salient features of Chinese and Indian affiliates in Europe from the dataset, and then we match and test them with the related literature.

In section 3, we identify, categorise and discuss the possible economic impacts of these new investments on European economies on the basis of their main characteristics.

Last, we put in perspective the outcomes and explore what policy issues the arrival of Chinese and Indian multinational companies (and presumably Southern ones in general) could imply at national and EU level.

Section 1. THEORETICAL CONSIDERATIONS

Our purpose here is to review the relevant academic literature as a way to draw up general hypotheses. The current academic literature on FDI from emerging economies is grounded on theories and studies developed to explain the motives and pattern of FDI in general (or supposed to be). S. [START_REF] Hymer | The international operations of national firms. A study of direct foreign ivestment[END_REF], R. [START_REF] Vernon | International investment and international trade in the product cycle[END_REF], C. [START_REF] Kindleberger | American business abroad[END_REF], R. [START_REF] Caves | International corporations. The industrial economics of foreign investment[END_REF] and P. Buckley and M. Casson (1976) were prominent contributors in providing basic assumptions: they had in common to explain FDI by market imperfections and to postulate that would-be multinationals must possess specific advantages (tangible or intangible assets) over local firms in order to face higher transactional costs and therefore to succeed in foreign markets. In a similar vein, J. [START_REF] Dunning | Economic analysis and the multinational enterprise[END_REF]Dunning ( , 1978Dunning ( , 1981) ) provided arguably the most exhaustive framework called the eclectic theory -better known as the OLI theory with ‗O' for ownership, ‗L' for location and ‗I' for internalization. Accordingly, firms undertake FDI when meeting the three above conditions. This approach has emerged as the central paradigm during the 1980s and 1990s, and is still dominant in the literature on International Business.

However, the rise of multinational firms from developing countries pointed some limitations in the explanatory capacity of the OLI theory, due in particular to its static aspect. J. Dunning (1981) further proposed the investment development path hypothesis (hereinafter IDP) 7 which asserts a causal connection between outward investment and the country's relative stage of development seized by its gross national product per capitaboth variables being normalised by the size of the country population. He postulates that higher income levels of a country are associated with higher levels of OFDI. Thanks to its focus on the idiosyncratic and contextual aspects of the home country along with its dynamic aspect, this approach provides a framework better suited to the ongoing phenomenon. It has been extensively used and tested on numerous countries.

More recently, the rise of a ‗second wave' of multinational companies from large emerging economies (e.g. BRICs) has come under closer scrutiny by academics. Of course, the current stage of the world economy is a tremendous force that greatly affects the activities of multinational firms in general (Dunning 2005). C. [START_REF] Bartlett | Going global: lessons from late movers[END_REF] highlight that the firms from developing countries may seize the opportunity to move overseas even if they do not necessarily have peculiar advantages based on superior technology or competitive products.

Also, many authors such as K. [START_REF] Sauvant | The rise of TNCs from emerging markets: the issues[END_REF], S. [START_REF] Mathews | Dragon multinationals: new players in the 21st century globalization[END_REF], A. [START_REF] Goldstein | Multinational Companies from Emerging Economies[END_REF], P. [START_REF] Buckley | The determinants of Chinese outward foreign direct investment[END_REF], and P. [START_REF] Gammeltoft | Emerging multinationals: outward FDI from the BRICs countries[END_REF] estimate that, in order to address their lack of specific competitive advantages, which was a prerequisite in conventional explanations8 , the firms from emerging economies when they invest abroad take advantage of the new context (relentless globalisation) or their home-country characteristics.

Furthermore, in reaction to conventional theories prone to explain extensively motivations of multinational companies by incentives in the host countries, more scholars put emphasis on the characteristics of the home-country context [START_REF] Buckley | The determinants of Chinese outward foreign direct investment[END_REF]Matthews 2006;[START_REF] Morck | Perspectives on China's outward foreign direct investment[END_REF]Dunning 2008).

In quite a reverse perspective, J.H. Dunning (2008) sees the home-country common advantage as the main driver for emerging country's firms. He also adopts together with other social scientists a more systematic approach (push versus pull factors) to categorize the constraints and incentives related to the investment decisions without opposing the conventional approach. P. [START_REF] Tolentino | Explaining the competitiveness of multinational companies from developing economies: a critical review of the academic literature[END_REF], estimates that firms from emerging economies have rarely ownership advantages to insure success in their investments abroad, and that features of their home country, in terms of institutional settings and cultural context, are particularly relevant and worth considering when one regards their related behaviour and choices9 .

S. Matthews (2006) underlines the strategic goal of the latecomer multinationals: catch-up with the incumbent multinationals, and move as fast as possible from imitation to innovation.

Three processes are mobilised by these companiesi.e. the linkage or interconnections with the global value chains, the leverage of their capabilities, and through repeated practice they get the appropriate learning.

A number of additional points have been raised in the literature. For example, ‗psychic distance' introduced by the so-called Uppsala model [START_REF] Johanson | The internationalization process of the firm. A model of knowledge development and increasing foreign market commitments[END_REF] can be a useful concept when studying multinationals from emerging economies. Indeed, it encompasses the cultural, linguistic, institutional and developmental levels and other gaps between a firm's country of origin and the countries to which it may internationalise.

Actually, among emerging economies, China and India are getting the lion's share of the academic interest. If the contribution for the Chinese side is to date more substantial, some

Indian scholars are taking a fresh view on the Indian ongoing experience.

The academic view of Chinese OFDI bound to developed countries and its underlying rationale are not uniform. Indeed, on the one hand, the rise in acquisitions by Chinese firms across Europe validates the Dunning's theory (1998) of asset-seeking motivation and the observations made by P. [START_REF] Deng | Outward investment by Chinese MNCs: motivations and implications[END_REF][START_REF] Deng | Investing for strategic resources and its rationale: the case of outward FDI from Chinese companies[END_REF]. However, the pace remains slow, presumably because of the sizeable absorptive capabilities that Chinese companies need, before they become efficient in their undertakings. Another limitation is the frequent need to keep the acquired firm's managerial staff in place: that involves high costs, especially when compared to current Chinese standards. In this regard, H. [START_REF] Rui | Foreign acquisitions by Chinese firms: a strategic intent perspective[END_REF] see the foreign acquisitions made by Chinese firms as a mean to acquire ‗strategic capabilities' to offset competitive disadvantages and to leverage ownership advantages.

On the other hand, J. [START_REF] Zhan | Transnationalization and outward investment: the case of Chinese firms[END_REF] and P. [START_REF] Buckley | The determinants of Chinese outward foreign direct investment[END_REF] have pointed the predominance of market-seeking motivations of Chinese and Indian firms in Europe. J. Zhan advances that this characteristic is somehow the logical consequence of China's export oriented policy over the past years with FDI following their export channels to expand market shares. P. Buckley et al. pursue a little different line of reasoning: since market-seeking strategies are often correlated positively with large markets in developed countries, the engagements of Chinese multinationals may be driven by market-seeking motivations.

On the opposite, the IDP hypothesis is shared by most economists. X. [START_REF] Liu | Chinese economic development, the next stage: outward FDI?[END_REF] investigate the relation between China's development path and its outward FDI. They bring convincing evidence that the pattern followed by Chinese outward FDI has so far been largely consistent with the prescriptions of the Dunning's hypothesis.

J. Child and S. Rodrigues (2005) use a broader approach on China's OFDI. To better portray the patterns and the internationalization motives of domestic companies, the authors place them at the interplay between globalisation and the domestic socio-economic settings, altogether subsumed in a political economy framework. They connect ‗inward' and ‗outward' internationalisation as one single process. Moreover, by taking into account the very nature of the Chinese economy, the authors bring in alternative views on the push factor side. They argue that initially disadvantaged firms from countries like China can acquire the necessary assets to offset these drawbacks through partnerships arranged with foreign multinationals, either in their home country (‗inward internationalization'), or abroad (‗outward internationalization').

P. [START_REF] Nolan | China and the global economy: national champions, industrial policy and the big business revolution[END_REF] and F. [START_REF] Wu | The globalization of corporate China[END_REF] have also underlined the importance of the push factors in the Chinese context, particularly the minus side (harsh general conditions, severe competition and overcapacity, and heavy-handed interventionism by the State).

In the case of India, J. [START_REF] Pradhan | Trends and patterns of overseas acquisitions by Indian multinationals[END_REF] and other Indian scholars [START_REF] Nagaraj | Indian investments abroad: What explains the boom?[END_REF], Nayyar 2007) have comprehensively documented the emerging phenomenon of outward FDI and multinational firms. They give an in-depth understanding with the major characteristics of the whole phenomenon, i.e. the predominance of developed countries as recipient ones (particularly Europe), the relatively narrow sector distribution and the incline for takeovers (including hostile bids).

In conclusion, two general hypotheses largely shared by scholars can be drawn from the existing academic literature.

Firstly, the general theory seems still appropriate: put simply, OFDI is explained in terms of China and India's stage of development, and the IDP hypothesis is a valid tool, as well as the increased context of globalisation.

Secondly, due to the growing awareness that FDI from China and India are, in some respect, unique, it is postulated that the formal and informal set of institutions in these countries (presumably emerging countries in general) shape the strategy and the performance of their enterprisesbe at the domestic or the international leveland have to be taken in consideration.

Section 2. Another difference lies in the fact that Indian firms mainly invest in developed countries while Chinese firms are more prone to elicit the developing ones. As a result, Europe is the first destination for Indian FDI 11 followed by North America, while Asia and Latin America are the primary goals for Chinese firms whereas Europe gets a tiny part (figures 1a and 1b).

In summary, if macroeconomic data on Chinese and Indian OFDI are worthwhile when one wants to sketch out the general trend, they obscure relevant details which matter both for the analysis of the nature and behaviour of the economic agents, and for drawing the right policy implications. Actually, on the one hand, outflows are overestimated because of round-tripping investments in both cases (China -Hong Kong SAR -China, and India -Mauritius -India), or flows following circuitous route through tax havens (Virgin Islands, Cayman Islands or Bermuda). On the other hand, outflows are underestimated because many of them are financed from funds raised abroadi.e. reinvestment of earnings, loans from the parent company or new equity raised through financial markets in host countries or on international marketsall of this combined and not usually taken into consideration by official data. Last, Chinese and Indian firms in their own right often discount the amounts they invest abroad to avoid controls of exchange (until March 2006 in China), to pay taxes, and in some cases to play off anticipated critics of ‗unfair competition' as a consequence of their arrival.

Data collection

In order to analyse the investment carried out by Chinese and Indian enterprises across Europe since the early 1980s 12 , we constructed our own data base while referring to multiple sources 13 . Additional information was gleaned from annual corporate reports and press releases; besides, information was collected through selected face-to-face interviews in order to get more detail on some critical points 14 .

Our aim was to collect significant (real or potential) operations undertaken across Europe.

Two modes of entry stand for the bulk of these ventures: the setting up of subsidiaries on one side (also called greenfield investments), and the acquisitions (or controlling interests)15 of 11 In reality the Federation of Russia accounts for nearly 70% of the current stock far head the United Kingdom.

12 Actually, the data span the period from 1980 to 2007. 13 From investment promotion agencies, Thomson Reuters database, and Chinese and Indian embassies in Europe. 14 The authors have conducted them across Europe during the second half of 2007 through a structured questionnaire to match up available information or to get new one.

companies on the other. Other modes such as joint ventures, expanding of existing affiliates through diverse channels (or even closures) were not significantly recorded in the dataset.

Beyond the tedious task in collecting relevant raw data at this level, we also encountered some methodological difficulties related to the service sector with numerous small or very small premises (Chinese restaurants or ‗mom and pop' shops are illustrative). To address this point, we put a cut-off at 10 employees; we also put aside the majority of the premises of the Chinese retail chains 16 , and we did the same for the representative offices of the Chinese companies of maritime transport.

The main empirical findings

For the sake of clarity, we will clarify the main findings we draw from the dataset according to relevant topics about the behaviour of Chinese and Indian companies in Europe.

Historical differentiation

If the arrival of Indian companies and Chinese ones (essentially from Hong Kong) date back to the 1960s, a first tide emerged in the 1980s. Interestingly, both sub-groups have experimented different waves of arrival reflecting changing conditions in their home country.

Besides, the arrival of companies from Hong Kong in the 1980s has been a source of fresh experience and knowledge for companies originated from mainland China and willing to invest in Europe. Note that the former were generally controlled by families from ‗ethnic origin' and, in some cases, with high family involvement in management. Their advantage laid in the high expertise of the ‗home country' in specific business service and its openness to trade (Hong Kong was a true market-oriented economy). Half of all acquisitions occurred in the United Kingdom because of historical and cultural ties, and the British citizenship of their founders was of great help.

Indian firms for their part have experimented two distinct waves after inroads made in Switzerland and Germany in the early 1960s (Pradhan 2008). Finding 1. The arrival of Chinese and Indian firms in Europe is linked to home country constraints and incentives (regulatory framework affecting OFDI, government commitment to support domestic companies when they embark on internationalization through FDI).

Geographic pattern

Germany, France and the United Kingdom are the first recipient countries as well for Chinese investment flows in Europe (including those from Hong Kong) as for Indian ones. Such a trend concerns both organic growth and the acquisition route. Two potential explanations can be advanced: on the one hand, they are the EU's largest countries and markets17 and, on the other hand, they are the largest European trade partners of China and India: that shows that FDI really supports trade and services-oriented investments. A closer scrutiny unveils that Germany is the top target country, in Europe, for the investments and acquisitions made by Chinese companies whereas the United Kingdom is the first country for takeovers conducted by Indian companies. ‗Psychic distance' and ethnic relatedness along with opportunities seem to be of most importance. German medium-sized companies with specific and valuable technical know-how and customer bases are of particularly interest for both Asian investors.

Central European countries (Hungary, Romania, the Czech Republic, Poland and Bulgaria) follow these core countries. Their attractiveness lies in wages which are 30 per cent lower than the average prevailing in the older EU members18 . Such advantage is critical for labourintensive activities as the assembly of household appliances, consumer electronics or transport equipment.

Finding 2. Large European countries are the most favoured destinations due to their size and their status of major trade partners with China and India.

Underlying motivations

For Indian and Chinese investors targeting the European area, access to the market is their first motivation. For the Chinese side, this dimension includes trade-support thanks to many sales offices and trade representatives which primary motivation is to facilitate and promote the influx of ‗made-in-China' products into Europe. They are also dedicated to various services to end-customers, a better assessment of local preferences and tastes, a faster satisfaction of needs coupled with a better after-sales service 19 .

Indian companies implemented in Europe, particularly in sectors such as software and ITenabled services, and pharmaceuticals (generics) -which represent the lion's share of their sector distribution hereare basically driven by market-access. Indeed, the former need to have a local presence in their overseas market for effective exports of software and related services.

If the asset-seeking motivation (management capabilities, technological know-how, marketing expertise and brand awareness) takes the second place for both investors, it is quite substantial for Chinese companies whereas it is far behind for Indian ones. As expected, acquisitions is the main route to tap intangible assets, but organic expansion is also used to set up Indian companies are also looking for specific assets when locating in Europe, but in the majority of cases this motivation is associated with market-access motivations. For example, when Wipro Technologies took the decision to locate in France, they chose scientific parks (in the South -Biotand in the West -Rennes), in order to get direct connections and capture technological externalities, but also to provide business services to large European companies.

Finding 3. Access to the market is before the asset-seeking motive as the main driver of the arrival of Chinese and Indian firms in Europe.

The different features of Chinese and Indian investments on a global and European level have been summed up in table 3.

Interpreting the evidence

The question to consider here is whether the above findings fit the existing theories and are consistent with the main hypotheses? A prima facie evidence of the European situation look rather more nuanced than the existing academic literature permits to anticipate. Even in its infancy, the presence in Europe of Chinese companies, either from Hong Kong SAR or mainland China, or Indian ones displays a complex picture. No ‗one-size-fits-all' approach seems able to encapsulate the current aspects along with the ongoing trends. The Dunning's ILO and IDP hypotheses are major candidates for our objective. However, the ILO assumption has some basic limitations, as it is explicitly founded on prior competitive advantage, and is historically grounded in the pre-globalisation era. The IDP hypothesis seems more attractive, but it does not take into account the whole effect of the overarching phenomenon with different modes and motivations. ‗Psychic distance' seems to matter in some cases, particularly at explaining failures of Chinese investments when compared to Indian companies, even whether the gradual process can be better explained by common sense. Indeed, Chinese companies possess little of the crucial managerial resources and capabilities required to run foreign wholly-owned affiliates or to integrate acquisitions when compared to Indian companies.

We also found some evidence of the assertions made by Child and Rodrigues. Up to a point, ‗inward internationalization', through joint ventures and other partnerships in mainland China, can be an alternative route to get the needed assets, but also a prerequisite stage to buy out the European partner, and consequently acquire facilities, brands and skills in Europe. On the contrary, the successful experience of Indian drug companies in a sheltered economythanks to the Patent Act of 1970provides convincing evidence of endogenous development for developing countries. It somehow stresses the importance of ‗special institutions' that accelerate and facilitate the catch-up process [START_REF] Mathews | Dragon multinationals: new players in the 21st century globalization[END_REF]).

To sum up, two competitive trends and correlative theories are at play: on one side, exportsupport FDI versus asset-seeking FDI, and on the other, a gradual approach based on greenfield and wholly-owned subsidiaries, which mostly represents the Uppsala school, versus a faster and riskier move, based on takeovers, which is supported by Mathews, Deng or, to a lesser extent, Child and Rodrigues. Both trends have to be viewed not as competing but rather complementary explanations, and therefore, no new approach or theory seems required to characterise and analyse the arrival of Chinese and Indian companies in Europe.

Section 3. THE IMPACTS OF CHINESE AND INDIAN FDI ON EUROPEAN COUNTRIES

This topic is of particular importance for policy-makers and public sentiment across Europeit's also of great interest for social scientistsas several and contrasting effects might be expected. But, to our knowledge, no assessment has been conducted at the European level. At least three reasons can be advanced: a phenomenon still in its early stage, the significant delay required to properly grasp the whole consequences, and the relatively low amount of operations under consideration. Furthermore, these impacts may be quite different according to the European countries, and to the distinct groups inside each country (producers, consumers). Notwithstanding, we took the initiative to go beyond the common explanation which is largely anecdotal, by resorting to an appropriate analytical tool.

An analytic framework

To think about the issue, we started with the scheme put forward by R. [START_REF] Kaplinsky | The Impacts of Asian Drivers on the Developing World[END_REF] whose purpose was a little bit different, namely to capture the different interactions of FDI from China and India (dubbed ‗Asian drivers') and the global economy, with a focus on some developing countries in Africa, and their resulting impacts.

Here, our goal is less ambitious, with just one channel of interaction -FDIalong with only individual recipient economies, which are mature ones (European countries). In this respect, we restricted ourselves to two sets of impacts, namely the complementary or the competitive impacts. Complementary impacts, which meaning is quite intelligible, are actually increasing effects already at play, while competitive impacts are rather challenging the previous ones. In both cases, we didn't presume that the consequences are positive or negative for recipient economies, but the complementary impacts are generally viewed as positive, or at least neutral, whereas the competitive ones are more negative in their nature.

What we tentatively have done in what follows is: first, through the lens of our findings, we identified the diverse impacts; and, second, we tentatively connected the various effects.

Inside Europe, we picked up four different economic domains that could be significantly impinged by Chinese and Indian FDIi/ other inward FDI ii/ international trade iii/ employment and qualifications iv/ competition on product markets. We put aside such aspects as environment and security concerns (considered as central animating issues nowadays) because they are much more complex to tackle. Of course, other domains could be affected, but not in first instance in our opinion. For example, the improvement of consumer welfare had rather to be viewed as an outcome of increased competition (downward prices) or of enlarged imports (increase of the variety of goods available resulting in more choice).

Likewise, the innovation at the corporate level is related to the competition in the related industry than a pure autonomous phenomenon.

Figure 2 articulates the different aspects.

Discussion

Let us introduce some comments and discussion on table 4.

First of all, the possible economic effects of Chinese and Indian investments are somehow linked to the importance of their presence in European countries or sub-regions. Indeed, it is reasonable to presume that the impacts might be more significant in countries where their oil-rich Gulf statesthey have reintroduced political and strategic considerations to be taken into account in the FDI domain.

To summary, one has to bear in mind the contingent aspect of all these effects on the European economies. If the general scheme previously used is valid for the time period under consideration, it can evolve significantly in the future.

PERSPECTIVES AND POLICY IMPLICATIONS

Indian and Chinese companies, as they are at their early stage of their arrival in Europe, would presumably enlarge their presence because they are aspiring to become significant global players in their respective industries. Moreover, investment promotion agencies across Europe are establishing (or expanding) representative offices in both countries to attract local investors. However, the context would be slightly different. What is at stake here is the choice made by many companies in China and India towards low-cost production. Unquestionably, it has been the main engine of China's economic miracle. More generally, as inputs, labour and energy costs, and protection for employees and environment all got tougher (notwithstanding currency appreciation for China), the set-up of manufacturing facilities across Europe might be a real option for Chinese and Indian investors in the coming years.

Policy implications resulting from both investors may be distinct particularly in two sensitive areas: international trade and the role played by the Chinese ‗sovereign wealth fund' (SWF).

These issues are commonly addressed by the European Commission. Obviously, the steady increased of the trade deficit with China bear economic and political consequences. This dynamic has already put severe pressure on a number of European industries. The European Commission, which is in charge of the trade relationships between the EU members and the world, resorts to antidumping measures to protect European producers against ‗unfair' practices. But consensus here is not easy to reach due to contrasting point of views at national level.

OFDI financed by SWFs are viewed as controversial, due to close link with their homecountry government. Indeed, it's questionable and requires monitoring. So far, the stakes detained in Europe by the China Investment Corp., the Chinese SWF 22 , are tiny, and do not exhibit any activism contrary to hedge funds or private equity-funds, and they are long-run committed. However, it makes good economic sense to look after its behaviour in some detail, particularly with the consequences of the subprime mortgage crisis initiated in the United

States, that will be severe in its effects and long-lasting duration.

The policy followed by the European Commission is to ensure reciprocity on these different issues. But such approach is particularly inefficient in terms of close outcomes, as India and China are still developing countries, even if they are transforming their domestic context rapidly.

At a national level, there is no economic rationale or supporting evidence to reverse the current policy to welcome these investments. For example, as far as employment and qualifications are concerned, there is no clue of negative impacts. So, sectors such as the Chinese telecom equipment one or the Indian software and IT-enabled sector, which have grounded their entrance and further development in Europe, through de novo investments, have created numerous jobs with medium and high qualifications23 . This general picture could be different if mergers-and-acquisitions prevail in the future, as they usually deprive the job toll with, at times, relocation of manufacturing lines in the home country. Surprisingly, the opposite prevails, in some cases, with jobs being kept on or even extra jobs24 .

In conclusion, further field research on China and India's outbound FDI in general, and towards Europe in particular, are worth considering to getting an up-to date view of a phenomenon still in its early stage both to address academic considerations, and also to flesh out policy implications.

  From the late 1980s to the early 1990s, several takeovers conducted by state-owned enterprises (SOEs) occurred in Europe. In parallel, Indian groups acquired physical assets in Central and Eastern Europe resulting from the privatisation sale of plants. In the early 2000s, took place a second flood driven by numerous acquisitions made by pharmaceutical companies across Europe, and the set-up of 16 Such as the Esprit clothes chain, the Agatha jewelleries or the Marionnaud perfumeries. representative offices and development centres by IT firms aiming to enlarge their customer bases in Europe. Companies from mainland China entered Europe during the 1980s: this first stride was made of large and quintessential SOEs in strategic sectors such as finance, shipping or specialized services. A second surge emerged in the 1990s and swelled in the early 2000s, following the government policy to promote and back OFDI (‗go outside'). It was characterised by diverse ownership structuresprivate ownership, local government ownership, and foreign participation.

  development centres and design institutes within/or close to technological clusters or scientific parks in recipient countries. Both modes of entry have their advantages and drawbacks. Greenfield investment and wholly-owned subsidiaries allow a complete control on activities, but it is a slower route to be operational in a distant cognitive context. The acquisitions permit to rapidly tap specific assets, particularly intangible ones, but they include also disadvantages when the foreign company has to run the acquired company (liability of foreigness). If some Chinese firms 20 are displaying a keen interest to set up research and development (R&D) activities in Europe, their subsidiaries are mostly ‗observation outposts' bring back to the parent company new sources of knowledgewhereas ‗market colonizers' i.e. adapt products to local customers and get experience and learningare to date scarce. For example, the Chinese telecom equipment manufacturers Huwaei and ZTE have set up 14 R&D facilities, just opposite from Ericsson's head office in the Kista scientific park close to Stockholm 21 , whereas Hisense also has established a R&D centre close to Philips' headquarters in Eindhoven (The Netherlands).

Figure 2 .

 2 Figure 2. The general scheme

THE EMPIRICAL ANALYSIS AND DATA DESCRIPTION: A FIRM'S LEVEL PERSPECTIVE 2.1 The background: China and India's FDI in a global perspective

  Worldwide data on FDI which are regularly released by the UNCTAD show that outward FDI from China and India are still low in volume and value when compared with the global picture (table1). Note that it's a relatively new phenomenon with more than half of the operations being carried out since 2002.

Table 1 .

 1 Stocks of OFDI from mainland China, Hong Kong SAR, andIndia -1990India - -2006 (billions of dollars) (billions of dollars)

1990 1995 2000 2001 2002 2003 2004 2005 2006 2007

	World	1,763 2,901 6,148 6,319 6,866 8,197 9,732 10,672 12,474 15,602
	Developing
	countries	133 311 817 807 849 859 1,036 1,274 1,600 2,288
	Mainland China	2,5	16	28	33	35	37	39	46	75	96
	Hong Kong SAR	12	79	388 352 370 336 406	470	689 1,026
	India	0.3	0.5	1.9	2.1	2.5	5	6.6	9.6	13	29
	Source: UNCTAD 2008
	By the end of 2007, India, China and the China's Special Administrative Region (SAR) of
	Hong Kong respectively held 0.2%, 0.6% and 6.6% of FDI's world stocks, and 1.3%, 4.2%
	and 45% of the stockpile of developing countries. So far, Chinese investments are higher than
	Indian ones: 96 billion of dollars -1,122 billion if FDI from Hong Kong SAR is taken into
	consideration as it is the place that attracts the highest amount of Chinese OFDI with a
	substantial part returning to mainland China through round-tripping route or being
	provisionally invested into offshore financial centres 10 -versus 29 billion of dollars for India
	in 2007 (table 1).

Table 2

 2 conspicuously shows that the pace is gaining momentum for Chinese and Indian OFDI since 2004it is particularly impressive for Indian flows between 2005 and 2006whereas the discernible trend for the Hong Kong SAR outflows is more problematic during the same time period.

Table 2 .

 2 FDI Outflows from China, Hong Kong, and India, 2000-2007 (billions of dollars)

		2000 2001 2002 2003 2004 2005 2006 2007
	Mainland China	1	6.9	2.7	2.9	5.5 12.3 21.2 22.5
	Hong Kong SAR 59.4 11.3 17.7 5.5 45.7 27.2 44.9 53.2
	India	0.3	0.8	0.4	0.9	2.2	2.5 12.8 13.6
	Source: UNCTAD 2008

If FDI outflows and inflows for India are relatively balanced, China tells a different story with inflows much greater than outflows: in 2007, if China's inward FDI flows amounted to 83.5 billions of dollars, outward FDI flows for the same period had a total of 22.5 billions of dollars. Of course, the opening and the integration of the Indian economy to the global economy is more recent -1990s versus the end of the 1970s for China. entrepreneurs could grow their business only via foreign registration, particularly in Hong Kong‖ (Lenovo case is particularly illustrative). Source: Chinese Ministry of Trade Figure 1b. Indian OFDI stocks by region, April 2006 (billions of dollars) Source: Reserve Bank of India

Table 3 .

 3 Characteristics of Chinese and Indian OFDI at a macro-level and micro-level

	China	India

Table 4 .

 4 Thereafter, table 4 gathers and classifies the various effects that are already observable. Complementary or competitive effects on European countries resulting directly from the arrival of Chinese and Indian companies

		FDI from China and India
			European Union
	Other	International	Employment and	Competion on
	Inward FDI	trade	qualifications	product markets

With more than 800 billion of dollars in 2007 it accounted for 44% of the world total.

This is particularly true for China. Note that the Russian Federation as part of the emerging countries group (or BRICs) is also a prominent trade partner for the EU.

Thomson from France was sold to the Chinese TCL, Jaguar and Land Rover UK icon brands were sold to the Indian Tata Motors, among others.

Later J.H.[START_REF] Dunning | The Investment Development Path Revisited: Some Emerging Issues[END_REF] introduced some refinement by incorporating dynamic interaction between variables.

Besides, they were focused on ‗first-movers' of European and North-American multinational companies.

More broadly, the current institutional literature emphasizes the institution requirements as preconditions for economic growth.

Y.[START_REF] Huang | Capitalism with Chinese characteristics[END_REF] documents this point at a micro-level: -Until 2005, many of the high-tech and so-called strategic industries were declared off-limits to domestic private entry in China. As a result, indigenous private

For the sake of clarity: acquisition is a transaction that gives the acquiring firm a majority stakei.e. more than 50%whereas controlling interests range from 10% up to less (or equal to) than 50%. It has to be reminded that according to the current international standard, the proportion of equity ownership needed for an investment to qualify officially as ‗direct' is 10%.

This finding is consistent with the empirical results of the ‗new economic geography'(Markusen & Meskus, 2002).

See UNCTAD/WIR06.

If one takes into account the many retail outlets of chain stores, like Esprit or the Watson Group, and the reception or representative offices of shipping companies, such as China Ocean Shipping Co. or China Shipping Container Lines Co., the whole picture is even more suggestive.

Notably TCL, Wanxiang and ZTE.

Interestingly, Huawei set up its R&D centre in 2001, when the Swedish company was downsizing, and therefore a lot of human resources were available. Similarly, it set up an R&D centre in 2007 in Brittany (France) where and when Alcatel-Lucent was closing its R&D facilities.

This fund has been created in 2007; its amount is estimated to about 200 billion of dollars, with about 90 billion of dollars to be spent on assets abroad; furthermore, the State Administration of Foreign Exchange is trying to establish itself as a sovereign investor.

For example, Huawei now has 2,000 people on the payroll in its European subsidiaries.

By way of illustration, Nanjing Automobile relocated its production of MG Rover cars in China before moving back two years latter to the UK.

affiliates are the more numerous (UK, Germany and France); however, these countries are the largest ones, and somewhere, the effects are diluted, except when the investment is made in a depress region.

The effects can also change according to sectors, and complementary versus competitive impacts are potentially significant at this level. For example, by targeting the machine-tools sector in Germany, both Indian and Chinese companies can raise economic issues and stir political concerns. Last, the possible effects are also dependent of the entry mode: indeed, buyouts have not the same result as greenfield investments or the set-up of joint ventures. The former can result in a loss of control over strategic assets, of asset-stripping or the sharp reduction in the workforce.

Second, it can readily be seen that the main features of Chinese and Indian enterprises in Europe are not similar. Hence, the possible effects might be different, particularly in the international trade domain with a very contrasted figure: on the one hand, the EU has a swelling trade deficit with China (from -49 in 2000 to -160 billions of euros in 2007) and, on the other, it runs a positive balance of trade with India (from 1 to 3 billions euros for the same period). And, as far as China is considered, the trend unveils a competitive aspect when Chinese companies are climbing up the value ladder when they set up European affiliates to get direct contact with local consumers or to venture into marketing activities. More generally, the distinct figure of Indian-EU and Chinese-EU trade exchanges generate distinct economic impacts on European economies with different policy implications. In turn, these ‗trade barriers' can enhance the arrival of Chinese companies in Europe.

Third, we put emphasis on impacts directly affecting individual European countries, but some indirect effects are also at play and, although still of minor importance, they could become more significant in the future. By taking into consideration the US economybecause it is still the prominent driver of the global economyas a host country alternative for Europe when considering Chinese and Indian OFDI (currency change effect), it could yield some several side effects.

Four, we have downplayed strategic implications in a context of permissive liberalisation for FDI. But things can change. By way of illustration, just have a look at the emerging of ‗sovereign wealth funds'. If they have contributed to stabilize an US financial system in complete disarrayduring the second half of 2008 when the financial crisis was quite out of controlthey are also an alternative source of financing for FDI. But their geographic origin basically countries with significant forex reserves, i.e. China, Russian Federation and the