Chinese investment into Europe fell to its lowest point in almost a decade last year as European countries tightened rules to stymie a slew of Chinese acquisitions.
The 22 per cent decline in investment in 2022, charted in a study by Rhodium Group, a research company, and Merics, a Berlin-based think-tank, reflects Europe’s recent moves to police the sale of assets to China after years of enthusiastically courting investment from Beijing.
The researchers found that at least 10 out of 16 investment deals pursued in 2022 by Chinese entities could not be completed in the technology and infrastructure sectors, principally because of objections raised by authorities in the UK, Germany, Italy and Denmark.
Several of the aborted deals, such as proposed semiconductor acquisitions in Germany and the UK, were blocked following reviews into the specific technology targeted by the Chinese investor. In other cases, deals already agreed were annulled or collapsed after the imposition of regulatory stipulations, the report added.
“Increased scrutiny of inbound investment will likely continue in coming years,” said the report by Agatha Kratz and Mark Witzke at Rhodium Group and Max Zenglein and Gregor Sebastian at Merics. The authors noted that their study of 16 investment deals was by no means exhaustive because government reviews of transactions are often not made public.
Some of the deals blocked by European regulators included Germany’s ban on Sai MicroElectronics’ proposed acquisition of the automotive chip assets of Elmos Semiconductor, the UK’s stopping Hong Kong’s Super Orange from buying electronic design company Pulsic and Italy’s annulment of the sale of a military drones group, Alpi Aviation, to Chinese state-backed companies.
The authors highlighted that more EU countries were tightening their oversight of Chinese investments, including with powers to revisit regulatory approval for past deals.
“In 2023, review mechanisms will come into effect in Belgium, Estonia and Ireland, in the latter also with retroactive effect,” said the report. “The Netherlands is planning to launch a broader review system that will allow for reviews of sensitive technologies and energies, also with retroactive effect.”
Increased European scrutiny of deals follows a similar trend in the US, where the Committee on Foreign Investment in the US — the inter-agency body that screens deals by non-US companies — has become more active in vetting proposed Chinese acquisitions of American tech assets.
The overall level of Chinese investment into the EU and UK declined 22 per cent to €7.9bn in 2022, the report said. The level of investment was a fraction of the €47.4bn recorded in 2016 and the lowest total recorded since 2013. The totals include investment into new operations as well as mergers and acquisitions.
Other factors weighing on investment flows included the coronavirus pandemic, which severely limited travel to Europe by Chinese businesspeople, and domestic Chinese controls on outbound capital.
The regulatory barriers to Chinese acquisitions in Europe have meant that greenfield investments now dominate China’s profile in Europe, accounting for €4.5bn in 2022 or 57 per cent of the total.
One big focus of the investment has been the electric vehicle value chain, with Chinese battery companies announcing $17.5bn in investments in Europe since 2018.
“China’s interest in Europe, the world’s second-biggest EV market after China, is . . . not surprising,” said the report. “It has comparatively good charging infrastructure and generous government purchasing subsidies, developed within a wider green agenda to decarbonise road transportation.”
Source: Economy - ft.com
