In his annual State of the Union address for 2017, the president of the European Commission, Jean-Claude Juncker, recalled the importance for Europe to defend its strategic interests. This announcement came in the midst of several European countries voicing their increasing concerns about security and order issues related to foreign direct investment (FDI), and mainly that linked to Chinese interests, taking control of European industrial florets or strategic infrastructures.
In 2016, Chinese FDI inflows into the European Union reached a record high, in contrast to the steady decline in FDI flows from the EU to China. Beijing is looking for markets and strategic assets and particularly targets advanced technologies in major European economies, deploying an aggressive and sometimes opaque strategy. In this context, several member states, including France and Germany, responded by tightening their national legislation and calling for stronger European rules that included adopting a regulation on FDI screening.
The FDI screening aims at unifying the applicable framework within the EU by defining common principles and establishing a cooperation mechanism involving the Commission and the members to exchange information on FDI projects falling within their jurisdiction. This should not be seen as a point of arrival, but rather a starting point of a process of awareness-raising and collective adaptation to major issues regarding the prosperity and competitiveness of the European Union. It’s also important to mention that it is necessary to adopt multidimensional approaches to support the different aspects of an investment decision.
Firstly, an attractive framework for foreign investment, which the EU is dependent on, based on clear and commonly accepted rules, while learning to identify problematic FDI projects, regardless of origin, should still be present. The EU must also refrain from using the screening mechanism to force concessions from China on reciprocity.
Secondly, a necessary adaptation of the European approach is needed, always marked both by the divisions between member states on how to consider certain FDI, but also by a market regulation approach. The definition and update by the EU and its member states of the list of technologies and assets they consider as strategic would be a necessary step. Considering the interlocking levels of overlap, the emergence of a culture of economic intelligence and a geoeconomic approach to these issues also seems necessary.
Thirdly, the issue of FDI screening cannot be addressed independently of China’s systemic challenge for the EU. This requires considering how Beijing deploys its influence in Europe and identifying the risks associated with it on the one hand, but also the need for European companies to obtain better access to the Chinese market on the other hand by pressing for a bilateral investment agreement. In doing so, the EU must seek allies to consolidate an international order based on rules accepted by all.
Ultimately, EU must think about how it will ensure the preservation of its competitiveness, the securing of value chains, but also of its technological and industrial capital in a context of accelerating technological changes and hardening of the economic competition, in order to be the first to control them.
‚Will the EU Let Itself Be Bought? New Framework for Foreign Direct Investments in Europe‘ – Study by Éric-André Martin – Institut français des relations internationales / IFRI.