Berlin, Brussels EU Commission chief Ursula von der Leyen is campaigning for state controls on investments by European companies in China. The European Union must prevent the capital and expertise of European companies from contributing to “improving the military and intelligence capabilities of those who are also system competitors,” said von der Leyen on Thursday in a keynote speech on European-Chinese relations.
“That’s why we are currently considering whether and how Europe should develop a targeted instrument for foreign investments,” von der Leyen said in Brussels. However, the controls should only apply to “a small number of sensitive technologies”, she restricted.
The head of the commission wants to travel to the People’s Republic next week with French President Emmanuel Macron and hold talks with head of state and party leader Xi Jinping. Von der Leyen warned in her speech that “China’s changing policy could make it necessary for us to develop new defense instruments for some critical sectors.”
The debate about the so-called outbound investment screening has so far mainly been conducted in the USA. As the Handelsblatt reported, officials from the Commission and representatives of the federal government had shown themselves open to developing such control procedures for Europe in the past few weeks. So far, however, no top European politician has backed the concept as clearly as von der Leyen.
As a first step, outbound investment screening would oblige European companies to report certain foreign investments to their respective governments. In the worst case, there could be a ban on a specific investment as a second step.
So far, German law has only controlled foreign direct investments in Germany. In November, for example, the takeover of a Dortmund factory belonging to the semiconductor company Elmos by a Chinese investor was stopped by the Federal Ministry of Economics. Outbound investment screening, on the other hand, is about investments by European companies in China.
Different perspectives in Berlin and Brussels
For some time now, the federal government has been warning that German companies should position themselves more independently of China as a location in view of increasing geopolitical tensions. Nevertheless, the interest of German business in the People’s Republic is unbroken, as a new analysis by the Institute of German Economics (IW) shows. Accordingly, German companies invested more in China last year than ever before. According to IW 2022, 11.5 billion euros flowed into the People’s Republic.
According to an IW study, investments by European companies in China increased significantly last year.
(Photo: dpa)
If the EU introduced outbound investment screening, regulators could ban some of these investments. This is especially true for technologies that could fall into the hands of the Chinese military. In her speech, EU Commission President von der Leyen emphasized quantum computers, robotics and artificial intelligence.
From the Commission’s point of view, it may be necessary to control critical investments in order to close gaps in the existing export restrictions. Already today, dual-use goods, i.e. products that can be used for both military and civil purposes, can only be exported with a permit. However, if a company sets up a factory abroad, it may be able to circumvent these rules.
>> Read here: Federal government stops further Chinese takeover of German semiconductor company
A corresponding instrument is also being discussed within the federal government, but so far skepticism has prevailed. Critics in the competent Federal Ministry of Economics refer to the existing options for export controls. This largely prevents the outflow of know-how.
A close confidant of Federal Minister of Economics Robert Habeck (Greens) says that one first wants to see what the Americans are doing and what effects that has: “You have to be very precise, otherwise you’ll build a huge monster.” But the person says also not to be against such an instrument per se. That applies to many in the ministry – and approval is growing.
There is no data on the investments yet
So far, there has only been an inward investment control in the EU. Takeovers of or investments in European companies by foreign companies are examined. The EU makes proposals, but the decision on approval or ban lies with the member states.
The EU Commission had advised the federal government not to involve the Chinese state shipping company Cosco in a container terminal. Chancellor Scholz ignored this and approved the sale.
(Photo: dpa)
For example, the Commission had advised the German government against agreeing to the sale of shares in a Hamburg port terminal to the Chinese state shipping company Cosco. However, after a word of power from Chancellor Olaf Scholz (SPD), Berlin approved the entry last autumn.
>> Read here: Berlin and Brussels are considering new controls for European investments abroad
It could be similar in future for outbound investment screening. Von der Leyen announced that the commission would present initial ideas as part of its “economic security strategy” later this year.
However, there is still a lack of reliable data on the critical areas in which European companies are even involved in China. This knowledge gap must first be closed before an effective control procedure can be set up.
In principle, von der Leyen advocates reducing economic dependencies on China without completely calling trade with the People’s Republic into question. She calls this approach “risk reduction” in contrast to a complete decoupling strategy. “We do not want to cut the economic, social, political and scientific ties,” emphasized von der Leyen. Most of the trade remains “mutually beneficial and risk-free”.
But there are areas “where trade and investment pose risks to our economic or national security,” particularly in the high-tech sector, where China’s government is promoting the fusion of military and business (“civil-military fusion”).
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