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China’s FDI in Europe Fell to a Ten Year Low

According to a joint report by the US-based Rhodium Group and the Mercator Center for China Studies (MERICS) in Berlin, China’s FDI in Europe continued to fall, to a 10-year low: Shrinking M&A activity meant the EU-27 and the United Kingdom saw a 45 percent decline in completed Chinese foreign direct investment (FDI) last year, down to EUR 6.5 billion from EUR 11.7 billion in 2019, taking investment in Europe to a 10-year low.

The UK saw Chinese investment plummet by 77 percent, although more than half of total Chinese investment in Europe went to the “Big Three” economies – Germany, the UK and France. Infrastructure, ICT and electronics were the top three sectors, attracting 51 percent of the total investment from China. Poland rose to become a popular destination, though inflows of EUR 815 million were largely concentrated on one acquisition.

Chinese FDI faces greater scrutiny by EU member states: The Covid-19 crisis prompted the EU to issue guidelines stepping up scrutiny of FDI in Europe’s critical assets. 14 EU member states, including Italy, France, Poland and Hungary, updated their FDI screening mechanisms last year. Member states have also moved to block several acquisitions by Chinese firms.

Headwinds against Chinese investment in Europe will grow in 2021: Chinese FDI activity into Europe continued to fall in the first quarter of 2021 and has remained weak elsewhere. Europe remains an attractive investment location. However, continued disruption from Covid-19, high barriers to outward capital flows in China and rising regulatory barriers to foreign investment in Europe have all contributed to low levels of Chinese investments. Deteriorating EU-China relations will create additional headwinds for Chinese investors going forward.

Source: Radio France International, June 16, 2021