Chinese investment: EU divided once again

The EU is slowly but steadily climbing out of economic crisis: economic growth in Europe is expected to continue at a moderate pace in the coming period. In order to sustain this, the EU needs, amongst other things, free trade agreements (FTA) with various countries and more foreign direct investment (FDI). However, the EU seems to be divided on the issue of investment from China. What position should the EU take?

Two sides of the same coin

With its many solid brands and well known manufacturing technologies, Germany is a top European destination for Chinese investors. About 17% of China’s foreign investments since 2010 targeted German industries. Earlier this year, the acquisition of Kuka, an innovative robot manufacturer, by Midea, a Chinese appliance maker firm for $5 billion provoked controversial reactions in Germany. The workforce of Kuka, along with some government and European representatives (including Günther Oettinger, a close political ally of Chancellor Angela Merkel and the EU’s digital commissioner), expressed their objections to the rapid Chinese expansion in the industry. More recently, Germany, in an unexpected move, withdrew approval for the acquisition of the chip equipment maker Aixtron by a group of Chinese investors. In general, the Germans feel they are being taken advantage of despite reaping certain benefits from China’s investments in German jobs and R&D funding. State-sponsored Chinese company takeovers of German companies and others often provide unfair financing advantages that make it difficult for European or American counterparts to come up with better or even similar offers. Moreover, the Chinese government has strict foreign investment regulations that prevent foreign companies from taking over Chinese companies, or require they form joint ventures with Chinese companies. Chinese Premier Li Keqiang reassured German Chancellor Angela Merkel at a press conference in Beijing last June that China had no intention of starting a trade war that would not benefit anyone.

Nevertheless, conflict has been growing in the background and is expected to linger for some time to come. Contrary to the German reservations, a number of Central and Eastern EU countries see Chinese investment as a silver bullet for their staggering economies. Especially after the economic crisis in 2009, Chinese enterprises have headed towards this area to invest. The UK sees FDI from China as an opportunity as well. After the Brexit vote earlier this year, it is trying to woo Chinese investors. Prime Minister May said: “I am determined that as we leave the European Union, we build a truly global Britain that is open for business. As we take the next step in this golden era of relations between the UK and China, I am excited about the opportunities for expanding trade and investment between our two countries.”

Pragmatic Approach?

Although Germany withdrew approval for the acquisition of German company Aixtron recently, the ability to definitely block the merger is limited. Under Germany’s Foreign Trade Act, the government may only intervene if an investment threatens national security. Any proposal to change the definition of threat will have to be implemented at the European level. Given that the EU is composed of countries with different economic situations and motivations, EU Member States do not have a common approach toward Chinese investment expansion. Hence, the European Commission is not expected to support any change to the definition.  The European Commission has other good reasons to take this approach. With Euroscepticism on the rise, the EU will have to deliver. It has to show it is able to improve the livelihoods off all citizens and voters residing in the EU. Moreover, the Chinese could invest their money elsewhere. There is a severe competition over FDI going on between trade blocs worldwide. According to the Global Enabling Trade Report 2016 the Association of Southeast Asian Nations (ASEAN) is currently a more accessible market for trading goods than either the EU or United States. In short, the EU simply needs the money. Hence, it would be best off being pragmatic on the Chinese investment issue.