Europe and Chinese Foreign Direct Investment: Screening the Screen

Dr. Jean-Marc F. Blanchard's picture

Chinese outward foreign direct investment (FDI) is not a particularly new story as far as European Union (EU) countries are concerned. As a result of three factors, however, Chinese outward FDI (OFDI) has become a much more sensitive issue One is the massive increase in Chinese investment in the EU that took place, for diverse reasons, after the 2008 Great Financial Crisis. A second is Chinese companies’ acquisition of marquee companies as well as companies possessing advanced technology, a particularly provocative issue in Germany which worried about maintaining its economic superiority (at least in some sectors) vis-à-vis China. A third is China’s increasing presence in EU infrastructure, some of which, like airports and nuclear power, policymakers deem “critical.” More recently, the United States (US) has been a force, encouraging, directly and indirectly, the EU to be more cautious about Chinese OFDI (COFDI). The EU has struggled to find a common and substantive response to COFDI, though recent news reports indicate it is moving forward on a circumscribed European-wide FDI screening mechanism. This limited mechanism has something to do with the disparate economic needs of EU states. It may have something to do with politics, too. More specifically, the so-called PIGS (Portugal, Italy, Greece, and Spain) may not favor a strong stance towards COFDI perhaps because they feel, albeit in different degrees, that good relations with China provide them with some bargaining leverage against the “Northern” states such as France and Germany which are not always attentive to their desires. To create a meaningful and durable screening mechanism, the EU thus needs to consider both its political and economic features. For their part, Chinese companies must recognize the environment is changing and that the way they deal with this “new world” requires strategies that are attentive to political and economic dynamics.