EU urged to tighten scrutiny of Chinese investment

The European Union (EU) must change how it screens Chinese foreign direct investment (FDI) in strategic and dual-use sectors while determining whether Europe's investments in China have links to its defence sector, according to industry and policy analysts.

Pointing to the EU's regulation for screening FDI mergers and takeovers in Europe (EU 2019/452), which entered force in October 2020, the analysts warn that Beijing's changing FDI tactics in Europe and European investors' high-tech joint ventures in China are slipping below the EU's radar.

“Some 13,000 European companies have taken their know-how to Asia to form joint ventures with Chinese majority holders, and China has 500,000 entities directly or indirectly involved in the defence sector,” said Jaap Van Etten, CEO at Eindhoven-based Datenna, which generates economic intelligence on China. “No one is checking this.”

Van Etten and others addressed their remarks to a 7 February hearing on Chinese FDI held by the European Parliament's Subcommittee on Security and Defence (SEDE).

Noting that Datenna has globally mapped 1,000 of China's FDI transactions during the past 10 years, Van Etten said “40% of China's [foreign] M&A [mergers and acquisitions] activity is driven or influenced by the state. When you combine that with the fact that Beijing has a huge budget to support the transfer of technologies from civil companies to its military, it is imperative that you look for FDI connections to the Chinese defence industry.”