From Chinese takeovers of technology companies to Russian acquisitions of energy infrastructure, Europe is struggling to find an answer to politically sensitive foreign investments. A consensus to promote a more strategic approach is slowly emerging but the European Commission is still dragging its feet. A common strategy to manage foreign economic statecraft in Europe’s economy is urgently needed.

Last year Chinese foreign direct investment reached new heights. Over 180 billion euros was invested abroad, a rise of 40 per cent compared to the previous year. Europe in particular saw many of these investments.  Over 35 billion euros – a 77 per cent increase – flowed into European companies. These staggering figures naturally attest to the strength and attraction of the EU’s economy. The European Union is home to a large common market, leading research and development, and top-notch companies. Something would be seriously wrong if China didn’t want to invest in European companies.

Chinese investment in Europe is entering a new phase

However, there’s more to some of these investments than meets the eye. In several cases, Chinese investments in European companies aren’t pure economic plays. They are strategic moves facilitated by the government. In 2015 almost 70 per cent of all Chinese investment in Europe was undertaken by state-owned enterprises that enjoy access to cheap Chinese capital to fund such takeovers. What we are seeing, according to Sebastian Heilmann, President of the Berlin-based Mercator Institute for China Studies, is “governmental-programme capital working behind the scenes.”

And gone are the days when China invested in low-value added economic segments such as basic manufacturing. It’s now about high-value added companies ranging from software and robotics to waste management and advanced machinery – all technological areas highlighted as economic priorities in the 13th Five-Year-Plan and the Made in China 2025 industrial strategy. Chinese companies are becoming ever more internationally competitive by acquiring high-tech companies and hidden champions [1]. This is providing them with a competitive edge in the future. In the niche market of concrete pumps, for example, the world’s three most important producers from Germany and Italy are now under Chinese ownership. In itself, there’s nothing wrong with Chinese investment – or any other investment for that matter – in European companies. Nevertheless, it begs the question of whether European companies holding important, sensitive technologies relevant for future competitiveness, should be so easily sold to third countries, particularly when the investment is politically backed. And particularly, when the third country itself doesn’t allow such investments in its own market (as is the case in China).

Europe is waking up to strategically important foreign acquisitions

For a long time, European policymakers have been blind to these developments. Even in the case when Russia’s Gazprom bought up relevant gas storage facilities in Germany, most other EU Member States and the European Commission took little notice. Now a number of high-profile cases have brought attention to the issue of politically sensitive foreign investments. Besides such an obvious example as the Nord Stream 2 pipeline constructed by Gazprom, the Chinese acquisition of Kuka and the attempted buy-out of Aixtron in particular, made headlines.

Kuka, a robotics company described as Germany’s crown jewels in its drive to automate and digitise manufacturing and labelled “the future of German industry” by Chancellor Merkel, was bought up by the Chinese company Midea last year. At the time, the German government was completely caught off-guard. It scrambled to find another European bidder, tried to see how it could use its national security screening regime for foreign investment to impede the acquisition, and in the end realised it couldn’t do much and watched the takeover take place.

The case of Aixtron, a German technology company, also showed a lack of government sensitivity towards strategically relevant investments. China’s Fujian Grand Chip Investment Fund made a bid for the company and nobody in Germany blinked an eye or saw any issue with it. In the end it was up to the US to block the deal (given that Aixtron had a subsidiary in the US) and to inform Germany’s economics ministry about the fact that Aixtron technology can be used in sensitive military applications, satellite communications and radar.

Both cases underscored the helplessness of Germany and Europe in general on how to deal with foreign acquisitions of strategically important companies that hold technologies relevant for future competitiveness.

There is no overall European foreign investment screening regime. Instead, Europe has a hodgepodge of different national security screening regimes for foreign investment [2]. Some EU Member States have investment security screening regimes that limit government intervention to M&A activity related to national defence. Others take a broader perspective allowing the government to halt foreign investments in the energy, water, health, or telecoms sector, while yet again other EU Member States don’t have any such legislation at all.

Pressure is mounting on the European Commission to act

A consensus is now emerging that this situation is no longer tenable. A variety of actors ranging from the Greens and the European People’s Party in the European Parliament to Member State governments such as France, Germany, and Italy, are asking the European Commission to act and allow better scrutiny of foreign investments. Newly elected French President Macron has also taken this issue on board and is promoting it as part of his European reform package. Greens in particular have called on the Commission to study the example of CFIUS – the Committee on Foreign Investment in the United States, a kind of gold-standard when it comes to foreign investment screening.

This inter-agency committee can ask companies to modify the terms of their deal and advise the US President to block a merger and acquisition. Its mandate is broad enough to look at a very wide variety of investments and it commands such respect internationally that the mere notification that it is investigating a deal can suffice for companies to withdraw their offer. In 2012, for example, out of 114 notices of mergers and acquisitions, the CFIUS investigated 45 cases. Out of these, a single one was blocked with executive power by President Obama while 22 cases were abandoned as the companies withdrew their merger plans after finding out they had the CFIUS investigating them. This agency actively looks for transactions of interests, particularly those that they hadn’t been notified about.

…but the Commission is dragging its feet

The European Commission, however, is reluctant to take any steps in such a direction. European Commission Vice-President Jyrki Katainen in particular has poured cold water over the idea of the EU interfering in mergers and acquisitions or allowing Member States more leeway in doing so. In a recent paper on globalisation the European Commission only briefly mentioned the issue, recommending more discussion on it.

The issue of greater European investment control is indeed a fine balancing act. In a world with increasing protectionist tendencies, there is the danger of EU Member States using enhanced powers to block all kinds of foreign investments. Closing down the European market to foreign investment would backfire and cause more harm than good. On the other hand, the European Commission shouldn’t be so blue-eyed as to believe that all investments are non-political, purely economic, and that every European company and infrastructure should be open for grabs.

The Commission’s naivety in this regard places too much confidence in free markets. They ignore the strategic dimension of foreign economic statecraft. China buying European high-tech companies is a play for future competitiveness – ultimately it can be a power play somewhat similar to Russia buying European energy facilities. And in both cases the impact goes beyond the simple company or infrastructure taken over.

The fact of the matter is that with globalisation and digitalisation economic markets are changing. They are becoming more complex and interconnected. They are becoming more enmeshed with other actors. When a foreign state-owned enterprise buys up a technology company, it doesn’t just run the staff and its equipment. It owns its data. Data that can provide important insights into value chains, other companies’ operations, and customers.

Politically sensitive investments need to be Europeanised

Why shouldn’t the European Union and its Member States update its foreign investment screening regimes to take on board new issues and challenges? Particularly given the fact that the EU doesn’t even have a mechanism and the Member State mechanisms fall far behind what other actors such as the US, Japan, or South Korea have. The latter is particularly interesting. South Korea has a compulsory review mechanism that targets foreign investments in entities that hold key national technologies and that received government funding and transfer of national technologies. Indeed, one might ask the question whether it makes sense to let a foreign state-owned company just buy up a European company that has immensely benefited from EU research and development and technology transfer programmes, which ultimately have been funded by EU taxpayers.

As it stands, the chances of having a powerful EU decision-making body that could impede strategically important foreign acquisitions are pretty slim. And in spite of some positive movement in this regard in different national capitals, it’s clear that the EU Member States wouldn’t accept a supranational authority that decides on foreign investments into their national corporate landscape.

In this context, it might be more realistic to adapt EU legislation enhancing the possibilities for EU Member States to impede mergers and acquisitions that endanger strategically important future technologies, as well as to take steps towards establishing a common European consultative body. For example, in the field of energy security, the EU has a European Gas Coordination Group that brings together national and EU experts on gas security and adopts opinions and reports. A similar group could be formed to look into foreign investments or a particular taskforce made up of different European Commission bodies such as the Directorates General for Competition and for Trade could be formed with a mandate to look into cases that have particular cross-border implications.

An EU body – even if just a consultative one – would help towards creating a European public debate on certain foreign acquisitions and it could help Europeanise national decision-making on foreign investments. By highlighting possible ramifications of a deal for third-party Member States (for example the impact on Poland if Gazprom buys up natural gas storage facilities in Germany), it would allow those indirectly affected to get publicly engaged in that process. That way it could still influence national decision-making and put pressure on Member States. Such a body and more importantly the political will behind would show European citizens that the European Union, and particularly the European Commission with its overarching competence on trade issues, promotes an open market but that it first and foremost protects the interests of European citizens.

This is an important issue for Greens to pick up. In the European Parliament, and to some extent in Germany, they have done so and are pushing this agenda. But this is an issue that should be taken up in all EU Member States. Greens in national parliaments should call on their governments to become active on this issue and put pressure on the European Commission. France, Italy, and Germany have already written a letter but more EU Member States need to join in. For example, the European Trade Council (gathering EU Ministers for Trade) could come out with an ambitious position on this issue and team up with the European Parliament in moving this agenda forward. Greens should advance this issue and have a balanced position that avoids protectionism and open-market naivety.

Recent merger cases should be a wake-up call to get active. Europe shouldn’t fear Chinese, Russian, or any other investment but neither should it naively believe all these investments are pursued by a purely company logic. It should put in place the right safeguards that make sure it can separate the wheat from the chaff.


[1] A hidden champion is a company that belongs to the top three companies in its global market, has less than 5 billion USD in revenue, and is little known to the general public.

[2] The think-tank MERICS has an excellent overview of the different regimes in its policy paper:

Cookies on our website allow us to deliver better content by enhancing our understanding of what pages are visited. Data from cookies is stored anonymously and only shared with analytics partners in an anonymised form.

Find out more about our use of cookies in our privacy policy.