Chinese investment in Europe falls as regulators step up scrutiny

Chinese investment in Europe fell to its lowest point in almost a decade last year as European countries tightened rules to thwart a slew of Chinese acquisitions.

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

The researchers found that at least 10 of 16 investment deals pursued in 2022 by Chinese entities could not be completed in the technology and infrastructure sectors, mainly due to objections raised by authorities in the UK, Germany, Italy and Denmark .

Several of the aborted deals, such as proposed acquisitions of semiconductors in Germany and the UK, were blocked after reviews of the specific technology targeted by the Chinese investor. In other cases, deals that had already been agreed were canceled or fell through after the imposition of regulatory provisions, the report added.

“Strengthened controls on inbound investment are likely to continue in the coming years,” said the report by Agatha Kratz and Mark Witzke of Rhodium Group and Max Zenglein and Gregor Sebastian of Merics. The authors note that their study of 16 investment deals is by no means exhaustive, as government reviews of transactions are often not made public.

Some of the deals blocked by European regulators include Germany’s ban on Sai MicroElectronics’ proposed acquisition of Elmos Semiconductor’s automotive chip assets, the UK’s stop of Hong Kong’s Super Orange buying electronics design company Pulsic and Italy’s cancellation of the sale of a military drone group, Alpi Aviation, to Chinese state-backed companies.

The authors highlight that more EU countries are tightening their oversight of Chinese investment, including with powers to review regulatory approval for past deals.

“In 2023, review mechanisms will enter into force in Belgium, Estonia and Ireland, also retroactively in the latter,” the report said. “The Netherlands plans to launch a broader review system that will allow reviews of sensitive technologies and energies, also retrospectively.”

The increased European scrutiny of the deals follows a similar trend in the US, where the Committee on Foreign Investment in the US – the interagency body that scrutinizes deals by non-US companies – has become more active in vetting proposed Chinese acquisitions of US technology assets.

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

Other factors weighing on investment flows include the coronavirus pandemic, which has severely curtailed travel to Europe by Chinese businessmen, as well as domestic Chinese controls on capital outflows.

Regulatory barriers to Chinese acquisitions in Europe mean that greenfield investment now dominates China’s profile in Europe, amounting to €4.5 billion in 2022, or 57 percent of the total.

One big focus of investment is the electric vehicle value chain, with Chinese battery companies announcing $17.5 billion in investment 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 reasonably good charging infrastructure and generous government subsidies for purchase, developed as part of a wider green agenda to decarbonise road transport.”

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