China’s direct investments in Europe rose significantly last year

At the end of May, Rhodium Group and the Mercator Institute for China Studies (MERICS) jointly published their annual update of China’s foreign direct investment (FDI) flows to countries in the EU and the UK. China’s direct investments in Europe last year rose by 67 % to 16.8 billion euros. Following seven consecutive years of decline, investments have increased over the past two years, but at levels well below the peak years of 2016–2017, when China invested more than 40 billion euros annually in Europe. Last year, the EU and the UK accounted for nearly a quarter of China’s total FDI (17 % in 2024). About 60 % of Chinese outward FDI went to developed countries. The report estimates that the total value of Chinese FDI grew last year by 18 % to 69 billion euros, and was well over a third of the 2017 peak (182 billion euros).

Growth in FDI flows to Europe have been driven in particular by corporate merger & acquisition (M&A) transactions, with the value of such deals nearly doubling to 7.9 billion euros. Nearly half (44 %) of M&A activity involved just three transactions in the consumer electronics and gaming sector. Venture capital firm HongShan purchased Swedish consumer electronics manufacturer Marshall Group for 1.2 billion euros. Tencent purchased Cyprus-based game studio Easybrain for 1.1 billion euros, and a 25 % stake in Ubisoft’s Vantage Studios unit in France for 1.1 billion euros. Greenfield investment, however, remained the primary FDI channel, representing 51 % (8.9 billion euros) of inward FDI flows as construction work at e.g. the battery plants of CALB, CATL and Gotion got underway. Electric vehicle (EV) projects have kept Hungary as Europe’s top destination for Chinese FDI (3.9 billion euros), although its share fell from 32 % to 23 %. The next biggest recipients of Chinese FDI were Germany (2.5 billion euros) and France (1.9 billion euros).

The car industry remained the most important sector for Chinese investors in 2025. About 7.6 billion euros in investments – 45 % of all FDI (52 % of Chinese FDI in 2024 went to the car industry). Some 93 % of investment in the car industry went to EV value chains, particularly battery production. New investment to the ICT and energy sectors also grew. New investment in the energy sector increased six-fold to 1.2 billion euros, due largely to SDIC Power’s offshore wind farms in Scotland. A key project in the ICT sector is the construction of TikTok’s data centre in Finland.

Chinese investment flows to Europe now appear to be ebbing. The value of reported new greenfield projects fell last year to 5.2 billion euros (5.7 billion euros in 2024 and 16.9 billion euros in 2023), and new EV project announcements fell to 4 billion euros from a 2023 peak of 16.3 billion euros. Chinese firms appear to be shifting their emphasis in an increasing degree to exporting rather than investing in production abroad. The value of China’s goods exports to Europe grew by 9 % last year. Growth has been highest in those sectors that received heavy investment earliest. Battery exports rose by 43 %, automobiles 15 % (volume up 29 %) and wind turbine equipment 65 %. The shifting preference for exports rather than direct investment is reflected to some extent in artificial yuan weakness. For example, the yuan declined by 8.4 % against the euro last year. The IMF estimates that the yuan’s real effective (trade-weighted) exchange rate was undervalued by about 16 % as of October 2025. The move to exports, however, is also driven by domestic overcapacity, as well as the fact that Europe’s regulatory tightening and geopolitical uncertainty have dampened China’s enthusiasm for foreign investment. In December 2025, EU institutions reached an agreement on a reform of foreign investment screening regulations. Among other things, the new regulatory package obliges all member states to establish national monitoring mechanisms and extend their monitoring to include European subsidiaries in third countries. In addition, the European Commission has become more active in listing cases of violations the EU Foreign Subsidies Regulation (FSR), which bans companies from receiving foreign subsidies that distort competition. In March, the European Commission released a proposed version the Industrial Accelerator Act that would increase the local input requirement for FDI. Projects currently underway, however, are sufficient to sustain China’s FDI for Europe at a reasonable level in coming years.