Researchers found that China’s investment in the 27 EU member states and the United Kingdom tumbled to a decade-low in 2020, and the downward trend could continue this year due to the climbing bilateral defense and “souring political relationship.”
A 45 percent decline in completed Chinese foreign direct investment (FDI) occurred in Europe last year, down to $7.7 billion from $13.9 billion in 2019, taking Chinese investment in Europe to a 10-year low, according to the joint report, “Chinese FDI in Europe: 2020 Update,” concluding that it was partly due to COVID-19 travel restrictions and changed domestic economic circumstances.
“However, the pandemic was not the only force at work,” said the full report, adding the headwind of capital controls in China, the EU FDI screening, and depreciating public tolerance due to “China’s tit-for-tat sanctions.”
In March, the European Union imposed sanctions on four Chinese officials over their alleged roles in the human rights abuses of Uyghur Muslims. Days later, the Chinese regime announced its sanctioning of nine individuals and four entities on the UK side in retaliation.
Rising EU attention over the disputed South China Sea and Taiwan could also exacerbate current political tensions, it said.
“Experience has shown that it was the souring of political relations, rather than FDI screening, that triggered drastic falls in Chinese investment into the US.”
European Commission President Ursula von der Leyen said on Tuesday that China’s record on human rights is the main issue that divides it from the European Union, making Beijing a systemic rival for the alliance.
The European Union has also enhanced its investment screening process to tackle national security threats by securing cutting-edge technologies, and to limit the politicization surrounding certain transactions, said the report.
“Transactions in sensitive sectors are more likely to be reviewed and potentially blocked.”
Notable screened acquisitions in the EU-27 and the UK in 2020 and early 2021. (Courtesy of MERICS)
The research said that infrastructure, ICT, and electronics had attracted over 50 percent of total Chinese investment, taking up the top three sectors.
China’s global outbound merger and acquisition activity, which has been annually declining since 2016, was found to shrink to a 13-year low in 2020, with completed deals totaling around $40 billion—a drop of 45 percent in the past year.