Chinese outbound FDI in Europe: The new EU screening framework

Chinese outbound FDI flourished in the first half of the decade, but it has now hit some turbulence. In 2017, Beijing imposed administrative controls to tame irrational capital outflows. This caused a significant decline in the outbound flow of investment in 2018: -85% in the US and -40% in Europe. The 2019 trade war with the US makes it unlikely that Chinese FDI in the US will recover in the short term.

Europe is in a contradictory situation. On the one hand, it might benefit from the US trade war and become more attractive for Chinese FDI. On the other hand, some European countries have recently approved new screening procedures for evaluating FDI, and they do not share a common position on the Belt and Road initiative and related capital flows.

The European Union (EU) recently approved Regulation 2019/452 on the screening of FDI in the EU, establishing a new cooperation mechanism. The final decision regarding FDI remains the sole responsibility of the recipient Member State, but other Member States and the EU Commission will now be able to exchange information and provide comments on an FDI if they consider that it could affect their security or public order.

The new regulation will be applicable from October 11, 2020. It should not prevent Chinese outbound FDI in Europe, which should still be an attractive destination for Chinese FDI. Nonetheless, to be better prepared for their outbound adventures, Chinese investors should understand the changes that may come about.