EU struck deal to get control over the rising Chinese investment. “It will mark the end of European naivity”

This Tuesday, the European Union has reached an agreement on the creation of a deal to protect the most strategic technologies and infrastructures in the region, from foreign investment. The deal was proposed by France, Germany and the former Italian government, but will need the support of all EU member states. It might get some friction from countries like Cyprus, Greece, Luxembourg, Malta and Portugal, some of which have welcomed Chinese investment, Reuters said this Tuesday.

This proposed plan will ultimately mean that from now on, the European Commission will investigate the FDI coming from China, especially that which targets vital sectors of the economy. According to Reuters, these opinions will “address concerns over whether the security of vital infrastructure could be compromised” or even that certain “innovations” which had “years of expensive research could be lost to foreign hands”.

Also, the news agency Reuters journalists in Brussels got in contact with Franck Proust, who is heading the parliament’s negotiating team, who stated, prior to discussing the plan, that “It will mark the end of European naivety”, noting that “All the world powers – the United States, Japan, China, – have a method of screening. Only Europe does not.”

In 2016, the Chinese investment in Europe went up to €36bn and lowered to €30bn in 2017. Most of it is coming from state-owned companies, as is the case of CTG’s takeover bid to EDP in Portugal.

The Chinese investment in Europe is growing, and it is mostly “state-backed and speaks of the Communist Party’s ambition to keep Europe from helping America to contain China’s rise”, according to the Economist. The newspaper also showed that the European leaders had been largely supportive of Chinese investment, until the boom in 2016, which made Brussels, Berlin and others “worry about the power and influence China was gaining in the process, especially in the EU’s smaller countries”.

First steps towards more control

This is the first step for the EU to get more control over foreign investment coming from countries like Russia and China, in some of the most strategical areas of the region’s economy. Portugal is particularly exposed to the Chinese FDI.

The European institutions — The Council, The Parliament and The Commission — met this Tuesday, agreeing on a political and legal framework which will allow them to scrutinize foreign investment in the community, establishing a mechanism of sharing information between all EU member states and the EC, about the transactions that might menace the public order.

The agreement was confirmed to ECO’s sources, during the last phase of the “trialogue” (which is the community’s jargon for the negotiations and conversations involving the three EU bodies), this Tuesday.

The mechanism establishes a legal framework, which will filter the FDI in sensitive sectors such as energy, space, telecommunications and transports, as well as in some strategic assets such as technologies and infrastructures considered to be critical, or sensitive data, etc).

The regulation is aiming at increasing safety and transparency in the community. Unlike any other of the EU’s international partners – like the US, Canada, Australia and Japan – there are only 12 member states who dispose of a mechanism which evaluates the potential risks of FDI.

Pressured by Germany and France, Brussels proposed a legal framework last year that makes it compulsory for EU member-states to share information on critical FDI which involves these sensitive areas. This proposal already defined the timings of the answer and the type of information to share. It also predicts that the country which is targeted by the FDI in question should inform other European member-states. These might show their concerns and require more information, but it is up to the Commission to issue a final opinion (non-binding). In any case, the principle of subsidiarity is applied, as any member state is sovereign and has a final say over the EC’s opinion.

The Position of the European Parliament is way more ambitious than any of the others involved in the trialogue, as they have pushed for a mechanism that also includes new regulations on those companies which are state-owned.