Blackening Skies for Chinese Investment in the EU?

Abstract

Chinese Outward Foreign Direct Investment (COFDI) in the European Union (EU) has recently increasingly drawn attention because of the opacity of state-sponsored Chinese firms, COFDI targeting of sectors including technology and infrastructure, the suddenness of COFDI, and sensitivity in the EU to China’s continuing political rise. This article focuses on how China uses OFDI as a tool of economic statecraft, and how the fact that OFDI is a tool of economic statecraft influences the reception of Chinese investment in European host countries. Proceeding through case studies of the high profile KUKA and Aixtron cases, it analyzes the conditions in the host country under which economic statecraft facilitates or complicates the completion of an acquisition, and demonstrates the challenges that Chinese firms are facing when investing in the EU due to their inseparable or suspected connections with the Chinese party-state. It finds that besides political or private party and stakeholder support, the sector and the lack of reciprocity, there is a critical role for legal frameworks, which is reflected in various calls for legal bases and screening mechanisms to block state-backed moves on strategic industries.