BOFIT Viikkokatsaus / BOFIT Weekly 2018/48

The EU Parliament, the Council and the Commission last week (Nov. 20) reached agreement on monitoring mechanisms for foreign direct investment flows into the EU. The EU wants to assure that FDI in critical infrastructure and technology do not imperil the EU’s internal or external security.

The EU has sought tighter supervision of direct investment for years. While the new EU policy does not mention China specifically, the accord has been driven by fears that Chinese state-owned enterprises could target European firms involved in infrastructure and technology. Concerns over possible media ownership and influence over domestic policies have been also expressed.

The new regulations, which still require formal approval by EU bodies, are expected to enter into force in 2020. Half of the EU’s 28 member states currently have some sort of FDI monitoring arrangements to assess possible security threats. The new arrangement does not move decision-making on FDI away from the national level, but rather seeks to increase oversight of FDI through coordination and information-sharing among member states. It also gives the European Commission the possibility voicing its position on major investment projects that are important for the Union.

While the views of the member states on Chinese investments differ, the general attitude also in Europe has become more critical. The German government, for example, last summer in practice torpedoed an effort by the Chinese Yantai to purchase German machine tool maker Leifeld.

US scepticism towards FDI, particularly deals involving the Chinese, has garnered far more attention than in the EU. The Committee on Foreign Investment in the United States (CFIUS) recently expanded its mandate to protect 27 strategic industries. Many other large countries have also increased scrutiny of foreign investments.