Romania has traditionally nurtured close ties with China, and is well placed to tap into the huge economic potential it has to offer. Ori Efraim, partner, audit, head of the China practice for CEE at KPMG, whose headquarters are based locally, tells BR what might be holding back progress.
What niches could Romania exploit in its business relations with China?
One would be renewable energy – Chinese investors are keen to invest in green energy and use their technology, especially in wind farm projects, with turbines based on Chinese technology. Romania is apparently one of the best countries in Europe in terms of geographical conditions for wind farms.
Romania also has the benefit of being a low-cost country with a well-educated workforce. Taxes are reasonable. The country is a gateway to Europe, suitable for Chinese investors to enhance their distribution chain by setting up factories here. It could be in any industrial field; they would simply produce here the same products as in China, and then distribute them to CEE. We know about companies that already have factories here such as China Tobacco, but there are many others considering doing business in the food industry. Huawei has hundreds of people working here and has plans to expand, as does ZTE. There are also infrastructure companies such as Shanghai Constructions, which has visited Romania several times. Public-private-partnership (PPP) projects can be a huge opportunity. However the law needs to be clearer.
In what way?
It needs to be completely translated into Chinese. The PPP law is complicated and Chinese investors don’t understand it. It is very hard even for people in Romania to understand the law and how they would manage their risks in terms of these investments, what funds they would get back and how.
A number of such projects have been announced but then nothing happened. Why do you think was this?
The Chinese will not enter into a venture without knowing the entire risks and the reward, and they probably don’t have the answers yet. We have seen a lot of declarations and handshakes, but at the end of the day the decision will not be based on purely political gestures. The Chinese government makes decisions based on cold business analysis.
Currently Chinese investors are sitting on the fence, waiting for the elections. Herein lies the main challenge and I hope that Romanian politicians will be wise enough to understand that even if you change a party, it is still in everyone’s best interest to promote such infrastructure projects.
What Chinese companies are looking at entering the Romanian market?
One is China Railway. We also have Ming Yang, a private Chinese company in the energy field that is looking into projects here. Shanghai Constructions has been here a few times and is now waiting for the elections.
What do Chinese investments amount to in Romania?
I can say that Chinese investments in CEE amounted to around USD 400 million in 2010. Romania represents a significant part, at least 10 percent and probably more.
How many Chinese companies have activities on the local market?
Right now there are about 30 big serious firms already in Romania, out of which five or six are newcomers. They are mainly in renewable energy – some of them have a joint venture with some Israeli developers who moved on to wind, but there are also solar energy companies. They have already signed engagements to start projects here.
How is KPMG’s China practice going locally?
When we set up the headquarters of the China practice locally we envisioned Romania as the most appealing country, with the most significant presence of Chinese investors and I think this has turned out to be true. I would say that we had between 10 and 20 clients last year. A Chinese client who would go to a Big 4 firm is one with large-scale investments. They are very competitive – very price sensitive but very demanding in terms of services, which is very challenging in Romania because you usually end up with lower fees from Chinese clients. They will negotiate a lot. But we do not have a reason to complain in terms of revenues.
In CEE we have five native Chinese speakers, three of whom are based in Bucharest. Whenever a delegation of new investors comes, we give them a lot of material in Chinese so they know about the rules in CEE and Romania, the tax regime and the legal environment. One significant barrier for Chinese workers is the red tape they face when applying for a visa or work permit.