Concerns raised on tightness of EU FDI rules amid Chinese investments
European Commission publishes first report on regulations for screening foreign deals
Eye on Chinese investments
Not too long ago, western countries boasted of the amount of foreign domestic investment they attracted. Now they brag about how much they have rejected, writes Andy Bounds in Brussels.
Yesterday the European Commission published its first report on the FDI screening regulation, which came into force in October 2020. The report also examines actions by member states to rein in on what is seen as hostile takeovers of sensitive technology or strategic assets by companies from outside the EU.
Both the bloc as such and at a national level, Europeans have followed the US and tightened their scrutiny over fears that Chinese groups could be plundering local technology from companies or using them to further Beijing’s foreign policy aims.
Some 18 countries now have an FDI screening system and six more are planning one. The holdouts are Bulgaria, Croatia and Cyprus.
The commission only examines sensitive deals that affect more than one member state or community programmes such as the Galileo satellite system. It cannot block deals itself but can ask national regulators to do so.
Over the past year, the commission looked at 265 projects and put conditions or tried to block only eight. Officials confirmed to Europe Express that they included the purchase of Italian semiconductor company LPE by Shenzhen Investment Holdings.
On the national side, member states’ regulators looked at a total of 1,793 cases and 80 per cent of FDI projects were approved without screening. Of those screened, just 2 per cent were blocked and 7 per cent aborted by one of the parties. Some 45 per cent of cases involved US purchasers, and just 8 per cent Chinese (though the Chinese share of FDI was just 2 per cent).
But the regulation might already need adapting, warned Noah Barkin, an expert in Chinese-EU investment at Rhodium Group, a US consultancy.
“China is shifting its approach,” he said. Chinese companies prefer to build their own factories in the EU rather than gain access by buying EU ones, which tends to attract scrutiny. “Greenfield investment has hit levels last seen in 2016,” Barkin told Europe Express.
Chinese companies also look for smaller deals and use offshore structures to avoid attention, he added.
“The EU needs to remain vigilant to track the shift in how Chinese firms approach the EU market,” Barkin said.
The Wall Street Journal reported this month that Italian authorities have discovered that the 75 per cent stake in drone maker Alpi Aviation was sold via offshore vehicles to China Railway Rolling Stock Corp — a state-owned rail company — and an investment group controlled by the Wuxi municipal government.
Scrutinising deals that are structured through offshore companies would require a whole different level of resources, both at a national and EU level, however. And that is unlikely to happen anytime soon, with commission officials admitting they are already struggling with the volume of cases.