China’s Direct Investment in the European Union: Challenges and Policy Responses

The dramatic rise of Chinese direct investment into the European Union has sparked a debate about the control that China may be seeking to take over European economies. Quite naturally these concerns have led to repeated calls that action be taken to slow down, if not to halt entirely, this growing trend. The objective of the paper is to shed light on this debate. Following a thorough analysis of Chinese direct investment in the EU, the paper suggests that the challenges posed by these inflows are widely overblown. Despite this, the paper concludes that it is necessary to have a systematic approach to regulating inbound foreign investment (including from China) in the EU. Such an approach may help guard against the risk of a protectionist drift inside the EU, as well as the possibility that some investors may one day pose a threat to national security. The paper concludes that although the current fragmented regulatory approach is unsatisfactory, due to the difficulties associated with a unified EU-wide review process, the most realistic option is to promote a more systematic and coordinated use of existing mechanisms such as competition policy. Also, pushing for the negotiation of a China-EU BIT is certainly a promising avenue to enhance the EU’s bargaining leverage based on the principle of positive reciprocity.