Sino-EU Investment Relations and Their Interdependencies

Since the outbreak of the Covid-19 pandemic, the EU’s foreign direct investments in China have declined somewhat compared to the previous decade, with a greater concentration of investments in certain sectors coming from a more limited number of European countries. This is partly the result of tensions with the US over semiconductor technology, concerns about increased anti-espionage activities and a more general stagnation of the Chinese economy with declining interest rates compared to those in the US and the EU. Conversely, China’s global foreign investment has recently fallen due to geopolitical tensions, the ongoing Sino-US trade and tech war, tighter outward capital controls, the Chinese government’s crackdown on its technology sector (e.g. Alibaba), and stricter screening of investments in the EU. The overall decline in Chinese investment in the EU has been accompanied by a recent surge of Chinese greenfield investment including electric vehicles above those of mergers and acquisitions at a much lower level than a few years ago. Before 2019, Sino-EU investment opportunities were discussed through a Comprehensive Investment Agreement (CAI) to strengthen cross-border economic ties between the two strategic markets in terms of market access, a level playing field, sustainable development, and a mechanism for the settlement of disputes between states. However, the more recent deterioration in EU–China relations has led to the suspension of ratification of the CAI. Since 2019 the European Commission has launched and adopted several instruments and regulations as part of the EU’s “de-risking” and Economic Security Strategy. They were aimed at improving capacities to deal with the increasing economic and geopolitical influence of China, whose government is increasingly prioritizing politics and national security over much-needed structural economic reforms. In contrast to the EU’s more defensive “de-risking” strategy, the more offensive Global Gateway Initiative (GGI), as a response to China’s Belt and Road Initiative, is more focused on leveraging specific EU infrastructure and connectivity programmes and diversifying supply chains to strengthen influence in the Global South at the expense of China.