January 18, 2019

Emerging EU Policies Take a Harder Look at Chinese Investments

By: Ashley Feng and Sagatom Saha

Like the Belt and Road Initiative (BRI), foreign direct investment (FDI) from the People’s Republic of China (PRC) now has a much broader reach than Beijing’s own backyard. It is well-known that Washington is actively working toward mitigating U.S. vulnerabilities to PRC investments in strategic sectors, and those that contain critical technologies and infrastructure. However, Europe, a region that also offers access to high technology desired by the PRC, is also taking a harder look at its own potential investment vulnerabilities. This process is leading to increasing debates and increasing regulation, both of which could impact the future course of Chinese investment in Europe.

While overall PRC foreign investment fell in 2017, investments in Europe were more resilient, increasing to 25 percent of the PRC’s global investment as compared to 20 percent in the previous year. PRC investment in Europe doubled in 2016 to $40 billion as compared to the previous year (Economist, October 4 2018). This figure dipped in 2017, but still remained robust at an estimated $33.7 billion (Merics and Rhodium Group, May 2018). Of the PRC’s top twenty foreign investment destinations in 2017, five were EU member states (PRC Ministry of Commerce, October 2018).

In order to defend its strategic interests, the European Union passed an investment screening mechanism in November 2018 targeted at the PRC. However, the voluntary nature of the mechanism, as well as concerns that the investment screening process may not be strict enough, has caused individual member states to rely on their own national laws and regulations. While there is a definite need to be more vigilant as individual member states decide how to defend their critical technologies and economic infrastructure from the transfer of intellectual property to the PRC, individual EU states should band together against the PRC’s vast economic weight and its tendency to press for bilateral, rather than multilateral, deals. Converging around France’s regime of investment regulation is a place to start.

Read the full article and more in The Jamestown Foundation's China Brief.

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