19.09.2017 Author: Vladimir Terehov

EU is About to Put an End to China’s Carefree Shopping Spree


In late August, German Federal Minister of Economic Affairs and Energy, Brigitte Zypries issued an official letter to the President of the European Commission Jean-Claude Juncker in which she proposed to tighten the existing merging and acquisition principles applied in cases when a European company is to be acquired by legal entities that operate outside of the EU.

It’s no secret that it was primarily the heads of large Chinese companies that have been making over the recent years the so-called “shopping trips” to Europe to buy a handful of companies at a time. Usually they would be bying off manufacturers of various high-tech products by investing in their businesses or simply by acquiring them.

The above mentioned letter was based on a study conducted by the Berlin-based private institute for the study of China’s economy, the so-called Mercator Institute for China Studies (MerICS), which was established in 2013 by Stiftung Mercator. The report presented by MerICS would note a spike observed in China’s foreign direct investments (FDI) in recent years, which reached a level of 200 billion dollars last year.

It’s no secret that Europe is the main market for overseas investments for China, but their level has spiked by 77% in just a year, while a third of the above mentioned sum was invested in Germany. Together with Great Britain and France, Germany receives almost 60% of direct Chinese investments in the EU region.

At the same time, the total volume of direct Chinese investments in the countries of Eastern Europe remains rather small, in spite of the official rhetorics about the plans to make this region a part of the One Belt One Road project. This last remark in the MerICS report is going to become particularly noteworthy if you care enough to finish reading this article.

The study provides concrete examples of multi-billion Chinese investments in European companies engaged in the development and production of high-tech products. In this connection, Germany has been observing an ever increasing anxiety across the state that those investing from abroad may present a security threat to the state, since Berlin is running the risk of losing the competitive advantages of that are achieved by this country’s technological achievements.

It should be noted that the MerICS study can hardly be regarded as revolutionary, since there were a lot of discussions about the need to block “politically motivated” foreign investments in the economies of the EU back in March.

But now, as it becomes obvious from the letter of Brigitte Zypries, when Germany has found itself in the same boat on this issue together with political representatives of France and Italy, it seems that the EU is about to start reacting to those appeals.

NEO has repeatedly examined various challenges that exist in the Sino-European economic relations, even though at first glance those relations look healthy enough. The level of annual bilateral trade, for example, has recently reached an impressive milestone of 600 billion dolars.

But the deficit in this trade is on the side of the EU exceeds 200 billion dollars already, so it’s no wonder that there’s been talks about the imminent bankruptcy of certain European industries due to the nature of the trade relations the EU has with China. Therefore, since last year the EU has been engaged in a sort of a steel war with China, while preventing the latter from acquiring the status of a “market economy”.

The latest German-French-Italian demarche has forced China’s Global Times to run a piece about “disappointing” facts that exist in the bilateral relations between China and the EU. The article is preceded by an illustration showing a gentleman that is bitterly closing a narrow valve that connects China’s investments and the EU economy.

The list of negative factors that one is to observe today confirms the adequacy of the above mentioned illustration, in addition to those listed above, one can mention the absence of leading EU political figures at the recent OBOR summit in Beijing; the absence of a joint communiqué following the meeting between China’s Prime Minister Li Keqiang and the EU leaders, and the bald-faced sabotage by the European officials of the implementation of the Chinese project to build a high-speed railway, which should stretch from the Mediterranean to the Baltic Sea.

It is important to note that the present day European-Chinese relations are considerably less politically motivated than the US-China relations.

There’s no need turning to conspiracy theories like the one about the alleged “oath of loyalty to the United States” that each new German chancellor gives to explain the approach that the leading EU figures show in their dealings with China. Everything can be brought down to pure economics.

Brussels remains pretty skeptical about the prospects of One Belt, One Road project and it sees no need in softening this skepticism.

Those who support this project are usually painting the pictures of breathtaking thousand miles long highways and high-speed railways, giant objects of the sea transport infrastructure. However, all of this costs money, since the transport infrastructure is not created to allow the next journalist who watches the process of its construction to get excited.

So there is no doubt that Europe will get aboard the OBOR project only when it receives reliable and long-term guarantees of the high return on investments.

But when the existing economic relations between the EU and China serve as a source of a major headache for Brussels, why would it want to aggravate it by smoothing the transport infrastructure creation?

Vladimir Terekhov, expert on the issues of the Asia-Pacific region, exclusively for the online magazine “New Eastern Outlook.”