EU Firms Resist Plan to Screen Private Investments in China

As reported in the South China Morning Post, the European Union’s plan to screen private investments in China faces strong resistance from EU firms and governments, casting doubt over the policy’s viability. The European Commission’s proposal, announced by Chief Ursula von der Leyen last year, aims to prevent advanced technologies such as semiconductors, artificial intelligence, biotechnology, and quantum computing from falling into the hands of the Chinese military.

However, industry groups and national governments are opposing the plan, citing concerns over interference in entrepreneurial decisions and international investment flows. German companies, which have invested heavily in China, are particularly opposed to the proposal, with the Federation of German Industries arguing that such investments strengthen the German economy and promote prosperity. Other key players include ASML, a Dutch chipmaking equipment giant, and SEMI Europe, an industry association representing the global electronics manufacturing and design supply chain.

EU Firms Resist European Commission’s Plan to Screen Private Investments in China

The European Commission’s plan to screen private companies’ investments in China has faced significant resistance from businesses and governments within the European Union. The proposed policy, announced by Commission Chief Ursula von der Leyen in March 2023, aims to prevent advanced technologies from falling into the hands of the Chinese military. However, many EU firms and national governments have expressed concerns that the plan would constitute a significant interference in entrepreneurial decisions and international investment flows.

The Federation of German Industries (BDI) has been vocal in its opposition to the plan, stating that it would reject any new mechanisms to control foreign direct investment. The BDI argues that German companies use foreign direct investment to gain market shares worldwide, strengthening the German economy, securing jobs, and promoting prosperity. Similarly, SEMI Europe, the industry association representing the global electronics manufacturing and design supply chain, has expressed concerns that introducing state controls on European companies’ outbound investments would not be the right policy path to achieve economic security.

Concerns Over Administrative Burden and Lack of Evidence

One of the primary concerns among EU firms and national governments is the potential administrative burden associated with implementing the proposed policy. Many have questioned the need for an instrument that could be administratively burdensome, especially given the low levels of EU investment in these sectors of the Chinese economy. According to a recent report by the Institut Français des Relations Internationales (IFRI), European investments in the four sectors in China are “very modest,” ranging between 2% and 4% per year of all capital between 2019 and 2023.

Furthermore, there is a perceived lack of evidence on the potential risks of technology leakages via outbound investments. Only three of the 52 participants in the EU’s consultations were national government departments, with two expressing concerns over a “knowledge gap” on the potential risks of technology leakages.

Alternative Approaches to Achieving Economic Security

Some experts have suggested that alternative approaches could be more effective in achieving economic security. For instance, Tobias Gehrke, an expert in geoeconomics at the European Council on Foreign Relations, has proposed that von der Leyen’s best chance of passing the tool would be as a “political bargain” with the US. Others have argued that a unified, EU-wide export controls regime could mitigate the need for outbound screening.

Supporters of an EU-wide export controls regime point to perceived US bullying of Dutch chipmaking equipment giant ASML, which had to stop shipping its top-of-the-range lithographic machines to China under duress from Washington. The company itself is lobbying for the EU to harmonize the disparate regimes found in its capitals, arguing that 27 voices would be stronger than one in standing up to the US.

Next Steps and Challenges Ahead

The European Commission is now set to embark on a monitoring period with the 27 member states, during which they will note the flows of investments in the four sectors, followed by a risk assessment report. However, the challenges ahead are significant, with many EU firms and national governments remaining skeptical about the proposed policy.

As the EU navigates this complex issue, it must carefully balance its economic security concerns with maintaining open investment channels and avoiding unnecessary administrative burdens. The outcome of this process will have significant implications for the EU’s relations with China and its ability to promote economic security in a rapidly changing global landscape.