China’s Influence in the The European Union (EU) & the United Kingdom (UK):
The amount of Chinese foreign direct investment (FDI) in the European Union and United Kingdom had been rising since 2000, amounting to over €215B at the end of 2021. In 2021, Chinese FDI in Europe increased 33% to €10.6B, from €7.9B in 2020. In particular, Chinese FDI increased dramatically after the 2008-2009 global financial crisis, translating in some cases to influence over European countries’ policies toward China.
The Netherlands received most Chinese investment in 2021, followed by Germany, France and the UK. Germany, France and the UK accounted for 39% of total Chinese investment in Europe.
Chinese annual FDI in the EU and UK peaked in 2016 at approx. $41B. It has since declined amidst a global slowdown in China’s outward investment and due to greater European scrutiny. In 2021, Chinese FDI in Europe amounted to approx. €10.6B.
Greater European scrutiny was sparked in part by a jump in Chinese acquisitions of European companies in 2016, specifically that of premier German robotics company, KUKA. The sale exposed the risk China posed to Europe’s technological pre-eminence and national security and underlined the need to shield strategic parts of the economy.
In 2022, FBI Director Chris Wray convened a joint press conference with his counterpart at MI5, Ken McCallum, to discuss the economic and political threats emanating from the PRC. They discussed the large-scale theft of trade secrets, research, and intellectual property from U.S. and UK entities. Director General McCallum stated that, “the most game-changing challenge we face comes from the Chinese Communist Party.”
In its March 2019 strategy paper, the EU labeled China “a systemic rival” in some areas, a significant change from previous EU statements. That same month, the EU approved a new foreign investments screening framework to provide its member states tools to better protect their strategic sectors.
Despite this more assertive approach, the EU seeks to maintain economic ties with Beijing, including by rushing to reach a deal on the Comprehensive Agreement on Investment (CAI) with Beijing before the Biden Administration took office.
- The CAI continues to be on hold after the PRC placed retaliatory sanctions on a group of EU MEPs in response to the imposition of EU sanctions on PRC officials over human rights violations in Xinjiang.
- Moreover, Beijing’s handling of the COVID-19 pandemic and wolf warrior diplomacy has increased calls in the EU and the UK for a rethink of relations with China.
China’s “no-limit” partnership with Russia since the latter’s full-scale invasion of Ukraine has further soured Europe’s relations with China. For example, in an April 2022 virtual EU-China summit, EU officials joined with the U.S. in calling on China not to support Moscow in its unprovoked war of aggression. “A dialogue of the deaf” was how the EU’s foreign policy chief, Josep Borrell, described the overall exchange with China.
- Also, as some EU member states contend with the mistake of relying on the Putin regime for energy in light of the war in Ukraine. Increasingly, European governments are seriously considering the danger of repeating this mistake with the PRC, specifically with critical supply chains.
As of 2022, Lithuania, Latvia, and Estonia took the monumental step of ending their engagement with China’s now-14+1 forum (formerly the 17+1) – an attempt by the PRC to gain influence in Central and Eastern Europe as well as divide the continent.
China’s Foreign Investment and Trade with the EU and UK:
Two-thirds of EU countries have signed agreements to cooperate in China’s Belt and Road Initiative.
China’s Foreign Investment in the EU and UK’s Strategic Infrastructure:
Chinese involvement in European ports – including in Belgium, the Netherlands, Greece, Italy and Spain – has dramatically increased over the last decade. As of 2018, ports in which Chinese state-owned companies have stakes handled about 10% of Europe’s total shipping container capacity.
Chinese state-owned COSCO owns a controlling stake in Greece’s port of Piraeus. Beijing hopes to turn the site into a main entry point for China’s exports to Europe.
85% of Hungary’s largest ever infrastructure project, a €2.3 railway link to Serbia, will be financed with a loan from China’s ExIm Bank. The government has decided to classify all contracts related to the project, opening the door to corruption.
China’s investment in European strategic infrastructure has the potential to interfere with allied military mobility—the ability of NATO to move troops and equipment across Europe.
In its 2022 Strategic Concept, NATO declared China as one of its strategic priorities for the first time, saying, “Beijing’s ambitions and its coercive policies challenges the Western bloc’s interests, security, and values.”
Huawei and the EU and UK’s 5G Networks:
The EU issued guidance to its members in January 2020 that recommends they should limit high-risk 5G vendors, a category that includes Huawei, but stops short of advising an outright ban on the firm.
Following the issuance of the Foreign Direct Product Rule in May 2020 by the Commerce Department, the UK banned the purchase of new Huawei 5G equipment after 2020 and mandated the removal of all Huawei 5G kit from the UK’s networks by 2027.
The UK and every EU country except Hungary joined the Trump Administration’s Clean Network Initiative.
Slovenia, Poland, Czechia, Romania, Estonia, Latvia, Slovakia, Bulgaria, Sweden, Lithuania, Finland, and the UK have either signed memorandums of understanding to shut Huawei out of their 5G market or banned their operations altogether.
China’s Semiconductor Industrial Policy Targets the EU and UK:
Huawei has launched a new collaboration with French-Italian chipmaker STMicroelectronics to co-design mobile and automotive-related chips.
The Trump administration secured the cooperation of the Dutch government to block Dutch semiconductor equipment manufacturer ASML from selling its most advanced machine to a Chinese military company.
Chinese-backed investment company — Canyon Bridge — bought British graphics chipmaker Imagination Technologies in 2017, weeks after the Trump administration blocked Canyon Bridges attempted acquisition of American chipmaker Lattice Semiconductor. In April 2020, an attempt to fill the company’s board with directors from a Chinese government investment fund was only stopped after an intervention by the British government.
It’s believed that in 2016 two Chinese firms colluded to engineer the decline in the stock price of Aixtron, a German manufacturer of equipment used in the semiconductor manufacturing process, in order to facilitate a takeover by a Chinese investor. This resulted in Berlin and Washington blocking the transaction.
In 2022, the U.K. government blocked a merger between Hong Kong based firm Super Orange HK Holding Ltd and circuit producer Pulsic Ltd. The UK’s Department for Business, Energy and Industrial Strategy stated Pulsic’s intellectual property and software “could be used to build defence or technological capabilities,”.
In 2021, Chinese owned manufacturer Nexperia purchased Newport Wafer Fab, the largest producer of semiconductors in the U.K. In the summer of 2022, the UK government launched a national security review of the purchase.
In 2019, the CEO of ARM’s joint venture in China, Allen Wu, refused to hand over the company’s business license and official seal despite being fired by ARM for unethical conduct. Wu sued ARM China for control of ARM’s China operations. In April 2022, ARM finally gained control of its China operations.
Europe’s Evolving Relationship with Taiwan
At the end of 2021, EU High Representative Josep Borrell delivered a comprehensive policy speech on Taiwan that marked the end of the EU’s historical diplomatic reserve over the issue of Taiwan. In the speech, Borrell stressed Europe’s interest in preserving the status quo in the Taiwan Strait and asserted China’s threats to the self-ruling island “may have a direct impact on European security” — partly because Taipei’s microchips are “indispensable” to Europe’s digital development. The speech also dubbed Taiwan a “like-minded partner” and the PRC a “systemic rival.”
Also at the end of 2021, the European Parliament adopted a resolution calling on the European Union to deepen ties with Taiwan and start work on an investment deal with the island.
Lithuania has expanded bilateral relations with Taiwan opening a trade representative office on the island and allowing Taiwan to open a Taiwanese Representative Office in Vilnius, Lithuania. In retaliation, China blocked Lithuanian exports and products containing Lithuanian parts to China. In response, the EU rallied around Lithuania, filing a formal complaint against China’s coercive economic actions at the WTO.
*Last Updated: 11/14/2022