EU foreign investment scrutiny targeting China 'moving away from free market principles’

By Chen Qingqing Source:Global Times Published: 2018/11/19 22:43:41

Bloc ‘moving away from free market principles’

A container carrier shows at Greece's largest port Piraeus, owned by China COSCO Shipping Corp, on February 26. Photo: IC

Proposed new EU rules to screen foreign direct investment (FDI) that will be soon unveiled will not gain a consensus among the bloc's 28 members, but it signals the risk of EU's moving backward to protectionism, experts said on Monday.

The EU is considering the first bloc-wide rules to prevent FDI from threatening national security, and negotiators from EU governments and the European Parliament are likely to agree on draft legislation on Tuesday, Bloomberg News reported on Sunday.

EU officials have been considering tighter rules on FDI since 2017, and the European Commission proposed a framework  in September 2017 for screening inbound FDI. Concerns in Western countries about national-security risks tied to foreign investment, particularly by China, is rising since the country's outbound acquisition has surged over the past few years.

China has stressed the legitimacy of such acquisitions as normal company business activities.

"The proposed regulations signal a big shift in investment policy in the EU, which may also change its overall stance on foreign investment. For Chinese companies, the new rules, if effective, will significantly affect merger and acquisition (M&A) deals for the purpose of technology transfer," Li Yong, a senior research fellow at the China Association of International Trade, told the Global Times on Monday. 

Rapid growth of China's FDI into Europe has drawn attention in recent years. Chinese investors put nine times more money into Europe than North America in the first half of 2018, as Chinese M&A deals reached $22 billion in Europe but only $2.5 billion in North America, a report released by global law firm Baker McKenzie with leading independent research provider Rhodium Group said in July.

The German government, for example, has sought to increase its power to curb foreign investment by lowering the threshold for deals that can be subject to ministerial veto, the Financial Times reported in April. Germany also intends to keep a close eye on investment in critical areas such as defense and critical infrastructure, the report said.

The EU is watching the US when it comes to tougher scrutiny of foreign investment, and the bloc also aims to come up with a body similar to the Committee on Foreign Investment in the US. But experts said that the EU is unlikely to adopt a unified foreign investment approach for all of its members.

"Different European countries have different needs for foreign capital. For North European countries, which are much more competitive and have integrated laws and regulations, they will have concern over tighter rules on FDI that jeopardize their business environment," Cui Hongjian, a senior research fellow at the Beijing-based Center for China and Globalization, told the Global Times on Monday.

As China has invested heavily in infrastructure projects such as ports in Central and Eastern European countries, the EU, afraid of China's rising presence in the region, intends to use new rules to curb its influence there, Cui said. "But those who need Chinese investment may not agree with the new rules," Cui said.

The proposed EU regulations will affect investment in sectors such as infrastructure and technology.

"China and the EU prioritize reciprocity in their partnership. If the new rules discriminate against Chinese investment, the EU would be in violation of the fundamental principles of EU-China relations," Li said.

There is still room for the two sides to conduct negotiations on bilateral cooperation.

For example, the Comprehensive EU-China Agreement on Investment, which is still under negotiation, would provide proper reciprocity in terms of market access, a level playing field and a reliable and more transparent regulatory environment for investors and investments, according to EU official documents.

Still, although the EU is an advocate for free market rules, the new law signals potential government intervention, because screening FDI will provide more scope for authorities to have a final say over business deals. "This might signal the risk of the EU moving backward," Cui said.

Newspaper headline: EU rules on FDI unlikely to gain consensus


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