EU agrees investment screening rules to fend off China

“It will mark the end of European naivety.”

- Franck Proust, a French member of the 28-nation assembly and the chief negotiator for the EU Parliament

This Tuesday, November 20th, negotiators representing EU governments and the European Parliament provisionally agreed on draft legislation to screen FDIs into Europe, notably from China.

Franck Proust, a French member of the 28-nation assembly also heading the parliament’s negotiating team, said “All the world powers, the US, Japan, China, have a method of screening. Only Europe does not.” And “it will mark the end of European naivety.”

Complying with the proposed investment screening rules which aim to limit foreign investments in “critical infrastructure” and “critical technologies”, the European Commission will conduct investigations in certain relevant sectors and provide opinions. According to the commission, it is the goal of this framework to protect the strategic infrastructure in the energy, transport, communications, data, space and financial industries and strategic technologies such as semiconductors, robotics and AI. It would be addressed in their opinions whether the security of vital infrastructure could be compromised or that innovations which have cost years of expensive research could be handed over to foreign investors.

The rapid economic development of China has drawn the western world’s concerns about their national security and sovereignty in the area of investment. Last year, a China-backed investor’s purchase of Lattice Semiconductor was blocked by the US president Donald Trump due to a national-security worry; earlier this year, a Chinese bid was stopped since the German government vetoed machine-tool manufacturer Leifeld Metal Spinning’s potential purchase. Though China was not named in the proposed new rules, Beijing has been explicitly referred to in the backers’ complaints over the investments by state-owned companies.

The proposal, demanded by France, Germany and the previous government of Italy, needs the 28 EU states’ support at a meeting on December 5th. “This is not about closing down our markets but about acting responsibly,” said Economy Minister Margarete Schramboeck of Austria who represented the EU member states and urged them to back the compromise text. Given the objection from Cyprus, Greece, Luxembourg, Malta and Portugal, the backing is not certain. Parliament will vote on the proposal in February or March. However, EU members, not the Commission, would still make final decisions on whether to block foreign investments on the grounds of security and public interest.

For more information contact Joost Vrancken Peeters +31620210657 or jvp@kneppelhout.nl, Anting Zhang +31634011860 or az@kneppelhout.nl.