[The author is with the Institute of European Studies at the Chinese Academy of Social Sciences. She specializes in European industrial economics and policies, and the Italian economy.]

SMARTER, SMALLER COMPANIES OFFER IMPROVED VALUES SOUGHT IN CHINESE ECONOMIC REFORM

In the first half of 2013, foreign direct investment from the European Union grew rapidly, up 15 percent year-on-year - a great improvement considering the continuing international economic downturn. Small and medium-sized enterprises played a vital role in this recovery.

SMEs' direct investment from Germany, the Netherlands and France grew significantly, but it also increased from Italy and other southern European countries. And they have all shown increasing interest in operating in China.

This comes as a result of the companies' rational assessment of the EU and Chinese markets under pressure of a continuing crisis, and the policies adopted by the two sides.

Expectation of development prospects in both markets was a direct reason for European SMEs adding more investments in China.

Since late 2008, European countries have been hit by financial crisis, economic crisis and sovereign debt crisis, and they are not out of the recession yet. Although the debt crisis has gradually subsided, the economic governance and reforms aimed at solving the fundamental problems are still far from complete. Therefore, a downturn in investment and consumption in Europe will linger in the short term.

Given that SMEs are generally vulnerable to such a crisis, they have stronger motivation to seek breathing space and expansion outside their own market.

From the Chinese perspective, although economic growth this year is slowing mildly, China is still able to maintain a growth rate of about 7 percent, and profit margins for investment are still quite large.

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