Emerging Giant Shaking up the EU? Impacts, Challenges and Implications of China’s Investment Frenzy in Europe

Summary

• Chinese Foreign Direct Investment (FDI) has experienced an exponential surge globally over the past decade, challenging the traditional norms of international investment. This phenomenon is the result of a long series of policies formulated by the Chinese government, that have ushered in key reforms driving China’s economic liberalization and its integration into the global economy. While initial reforms launched under the aegis of Deng Xiaoping in the 1970’s, were conceptualized as a tool to attract foreign capital and know-how, the onset of the millennium marked a new phase in China’s internationalization strategy, with Chinese multinationals staggeringly expanding their presence abroad and conquering global markets.
• The influential role of the party-state in shaping economic policies has remained a perennial element of China’s governance model. A thorough examination of the evolution of FDI policies since the opening-up reforms, and the linkages between the Chinese government and commercial actors, evidences that this system has been further consolidated under President Xi Jinping’s leadership, as strong institutional, managerial and legal control mechanisms remain in place to ensure the party-state apparatus a decisive power over all corporate decisions that it has deemed necessary to its objectives.
• Forty years into the economic liberalization drive, China’s FDI policies and strategy have undergone major restructuring. While the core motives and strategies driving the internationalization of Chinese firms still partly derive from a complex set of commercial priorities (resource-seeking, market-seeking and strategic asset-seeking interests), the strong interconnection between the Chinese party-state and business actors also creates overlaps with political and geostrategic considerations. Increasingly, FDI is mirroring President Xi’s ambitious vision for the nation’s modernization, including the rebalancing of the economy towards a new model of growth and the industrial policy objectives of building China into a global technological and innovation leader. It also contributes to supporting flagship projects such as the Belt and Road Initiative (BRI) and the Made in China 2025 plan.
• The post-2008 global recession and China’s GDP growth slowdown – a result from its economic rebalancing efforts, created stronger impetus for Chinese firms to invest overseas and particularly in Europe. Chinese FDI in Europe experienced an unprecedented peak between 2015 and 2016, with the core EU countries retaining the lion’s share of investments, although Eastern Europe is increasingly gaining traction as an investment destination through the “17+1” framework.
• Concerns have, however, emerged about the long-term consequences of Chinese firms’ foray into European markets, as the accelerated trend of acquisitions in strategic sectors as well as the lack of reciprocity and openness in commercial relations with China, entails far-reaching consequences for the competitiveness and technological leadership of European enterprises on the long term. The overbearing involvement of the Chinese party-state in the commercial sphere also raises key political and geo-strategic challenges for European countries, considering the risks of a “trojan horse” effect disrupting EU norms and unity, and the potential threats to national security it entails.
• Despite those challenges, it would be counterproductive to interpret Chinese economic engagement solely as a predatory geopolitical move to weaken the EU and “buy off” its technology. Investments from Chinese enterprises represent important opportunities for EU countries, conditioning the need to adopt a pragmatic approach, balancing the risks and gains of engaging with this emerging economic giant.