European direct investment in China and Sino-French joint ventures

Do European investors in China have a cautious or an enterprising attitude? The question is posed, and it does not ask for a definitive answer, because many factors have to be considered when adopting a suitable investment approach to such an economic context. The aim of this article is to provide food for thought on the viability of European Direct Investment in China. This food for thought concerns a specific type of European investor, such as French investors; a particular type of direct investment, such as the formation of Sino-French joint ventures; and a type of appraisal of the viability of direct investment - the French Stock Market's reaction to the announcement of the formation of these joint ventures. The article identifies the role of the joint venture as a key means of entry for European investors, particularly French investors, into China. The analysis of a Sino-French joint venture's failure will highlight the main constraints and dangers to which these cooperative organisational entities are subjected in China. The in-depth study of the sale of the French automobile manufacturer Peugeot's shares in the GPAC joint venture (Guangzhou Peugeot Automobile Co.) illustrates a concrete case of the difficulties of French Direct Investment in China. In order to better understand the complexity of managing a Sino-foreign joint venture, the situation of GPAC joint venture is compared with the difficulties met by two other automobile manufacturing Sino-foreign joint ventures, which are SVAC-Shanghai Volkswagen Automotive Co. and BJC-Beijing Jeep Co. Lastly, on the basis of an event study methodology, this article presents empirical observations of the Stock Market's reaction to the formation of Franco-Chinese joint ventures. Favourable, unfavourable or indifferent stock market developments will provide some food for thought regarding the viability of direct French investment in China.