China’s investments in EU on downward path, as share among state-owned firms hits 20-year low

New report outlines difficulties and uncertainties threatening to keep overall Chinese investment in Europe on a downward trajectory this year

EU is moving ahead with new regulations that could hinder market access for Chinese companies in Europe and diminish their appetite for investment

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A number of factors are taking a toll on Chinese investments in the European Union, including geopolitical tensions and tight capital controls. Photo: Xinhua

Published: 12:03pm, 27 Apr 2022Updated: 1:55pm, 27 Apr 2022

The era of vast amounts of Chinese capital investment flowing into Europe “seems over for now” in wake of unfolding geopolitical tensions and the pandemic, according to a new report.

Multiple factors – from a strained relationship with the European Union and Russia’s invasion of Ukraine, to Beijing’s zero-Covid policy and tight capital controls – could keep Chinese investment in Europe on a downward trajectory this year.

That’s according to research released by the Rhodium Group and Germany’s Mercator Institute for China Studies (Merics) on Wednesday. Their report also shows how much Chinese state-owned investors scaled back investments in Europe last year, as their share of all EU investment plunged to a two-decade low.

The data comes amid a growing debate over whether China’s state-owned firms are becoming more reluctant to hold or expand their overseas assets, particularly in the face of risks stemming from Western sanctions.

“The era of massive Chinese investment in Europe seems over for now,” the report said, noting that Chinese investment is unlikely to rebound in the EU this year.

Beijing and Brussels remain embroiled in disputes over human rights, economics and trade.

As part of efforts to assert its strategic autonomy, the European Union has been strengthening its screening of investment – a move widely seen as targeting China, “an economic competitor and a systemic rival”, the report said.

The authors expected that tensions between the EU and China will continue to weigh on bilateral ties, putting the EU-China Comprehensive Agreement on Investment on ice throughout 2022.