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Chinese FDI in Europe: 2019 Update

Chinese foreign direct investment (FDI) in the European Union (EU) continued to contract in 2019, mirroring the decline in Chinese investments globally. Chinese firms completed FDI transactions worth EUR 12 billion, a decline of 33 percent from 2018 levels, bringing the total back to 2013 levels. This was due mainly to continuing capital controls, a clampdown on “irrational” acquisitions of a few key investors and a deleveraging campaign that reduced Chinese firms’ ability to finance overseas assets purchases. Along with a shift in geographical distribution, preferred sectors changed, with consumer products and services overtaking automotive as the main target for Chinese investors.

While equity investment has fallen, research and development collaborations between Chinese and foreign firms, universities and governments have continued to grow. Although the majority are benign and desirable from a European perspective, some raise concerns that must be addressed, including the transfer of critical and dual-use technologies to China’s military-industrial complex or contribute to the state’s ability to exert control over its population.

These are the key findings of the latest joint report of Rhodium Group and MERICS “Chinese FDI in Europe: 2019 Update” by Agatha Kratz, Mikko Huotari, Thilo Hanemann and Rebecca Arcesati, that was released today.

The authors argue that the global Covid-19 pandemic will deeply impact global capital flows. Early data points indicate that the first quarter of 2020 will show the lowest outbound deal volume from China in almost ten years. Yet the crisis is also creating buying opportunities in Europe and elsewhere. The authors expect Chinese outbound investment to increase during the remainder of the year, but a return to boom levels of 2015-2016 levels is unlikely.

As with investment screening, EU leaders need to find solutions that address specific concerns while preserving Europe’s economic openness. The authors argue that scrutiny should be expanded to cover R&D collaborations. Failure to act will invite pushback from key allies and OECD partners, risking costly and unnecessary decoupling. Researchers, whether at companies or universities, must understand China’s firms and policies better, to identify and mitigate against risks. Addressing these challenges, MERICS and Rhodium Group give initial recommendations on how to respond.

You can read the full report “Chinese FDI in Europe: 2019 Update” with the special focus on research collaborations online here.


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