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Breakingviews - EU foreign investment review raises bar for China
September 13, 2017 / 4:12 PM / 10 days ago

Breakingviews - EU foreign investment review raises bar for China

European flags are hung outside the European Commission headquarters in Brussels January 22, 2014. REUTERS/Yves Herman

MILAN - The European Commission is raising the investment bar for China. Brussels has come up with a pan-European scheme to vet sensitive purchases by other countries. Unlike the government committee that scrutinises acquisitions in the United States, its rulings will be non-binding. Even so, the People’s Republic will find it harder to buy European infrastructure and technology.

The move, announced by Commission President Jean-Claude Juncker on Wednesday will be welcomed by Germany and France. Together with Italy, they demanded the EU re-think its approach to foreign takeovers amid fears buyers were snatching European know-how. The purchase of German robotics maker Kuka by China’s Midea, for instance, caused an uproar.

Some of the concerns are justified. While Berlin and Paris have passed laws to monitor investment in sensitive industries, about half of the EU’s member states do not have any formal mechanism in place. If investments in those countries are not assessed for security risks, this could theoretically pose a threat to the whole bloc. One concern is that foreign companies which have established a base in the EU will then be free to make acquisitions across the single market.

Europe’s relative openness to foreign capital means Chinese investments are at record highs: purchases from the People’s Republic jumped 77 percent to 35 billion euros last year, according to Merics data. Compare that with the limits EU companies face when trying to invest in China, which issues detailed lists of sectors where foreign ownership is restricted.

To be sure, the EU framework lacks the teeth of the Committee on Foreign Investments in the United States. The ultimate decision on whether or not to give an investment the green light will remain with member states.

Still, Europe is sending a clear message to China about defending its strategic interests. It does not want to be a naïve free trade player, Juncker said in his speech. The unwritten goal of the exercise, however, may be reciprocity. As developed countries tighten restrictions on acquisitions by Chinese companies, the hope is that Beijing may lower its own barriers. Though that hope has been in vain so far, the EU proposal is another reason for Beijing to make some concessions.

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