Home Personal Finance Chinese investment in Europe falls as watchdogs increase surveillance

Chinese investment in Europe falls as watchdogs increase surveillance

Chinese investment in Europe falls as watchdogs increase surveillance

Chinese investment in Europe fell to its lowest point in nearly a decade last year, as European countries tightened regulations to thwart a slew of Chinese takeovers.

The 22 percent drop in investment in 2022, charted in a study by Rhodium Group, a research firm, and Merics, a Berlin-based think tank, reflects Europe’s recent moves to control asset sales to China after years of enthusiastic courtship investment from Beijing.

The researchers found that at least 10 of the 16 investment deals pursued by Chinese entities in 2022 failed to close in the technology and infrastructure sectors, mainly due to objections from authorities in the UK, Germany, Italy and Denmark.

Several of the aborted deals, such as proposed semiconductor acquisitions in Germany and the UK, were blocked after reviews of the specific technology targeted by the Chinese investor. In other cases, already agreed deals were nullified or collapsed after the imposition of legal provisions, the report said.

“Increased scrutiny of inward investment is likely to continue for years to come,” said the report by Rhodium Group’s Agatha Kratz and Mark Witzke and Merics’ Max Zenglein and Gregor Sebastian. The authors noted that their study of 16 investment deals was by no means exhaustive because government reviews of transactions are often not made public.

Some of the deals blocked by European regulators included Germany’s ban on Sai MicroElectronics’ proposed acquisition of Elmos Semiconductor’s automotive chip assets, the UK stopping Hong Kong-based Super Orange from buying electronic design company Pulsic and the annulment by Italy of the sale of a military drones group, Alpi Aviation, to Chinese state-owned companies.

The authors stressed that more EU countries were tightening their oversight of Chinese investments, including with the power to review the regulatory approval of past deals.

“In 2023, review mechanisms will come into force in Belgium, Estonia and Ireland, in the latter also with retroactive effect,” the report said. “The Netherlands intends to launch a broader assessment system that will enable assessments of sensitive technologies and energies, including retroactively.”

Greater European scrutiny of deals follows a similar trend in the US, where the Committee on Foreign Investment in the US – the inter-institutional body that screens deals from non-US companies – has become more active in vetting proposed Chinese acquisitions of US technology assets .

The overall level of Chinese investment in the EU and the UK fell by 22 percent to €7.9 billion by 2022, the report said. The investment level was a fraction of the €47.4 billion recorded in 2016 and the lowest total since 2013. Totals include investments in new businesses, as well as mergers and acquisitions.

Other factors weighing on investment flows included the coronavirus pandemic, which severely restricted travel to Europe by Chinese businessmen, and domestic Chinese controls on outgoing capital.

The regulatory barriers to Chinese acquisitions in Europe have led to greenfield investments now dominating China’s profile in Europe, accounting for €4.5 billion by 2022 or 57 percent of the total.

A big focus of the investment has been the electric vehicle value chain, with Chinese battery companies announcing $17.5 billion in investments in Europe since 2018.

“China’s interest in Europe, the world’s second largest EV market after China, is . . . not surprising,” the report said. “It has relatively good charging infrastructure and generous government purchasing subsidies, developed within a broader green agenda to decarbonise road transport.”

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