The E.U. will start screening foreign investment

The European Union has just introduced a way to scrutinize and, in some cases, reject incoming foreign direct investment deemed dangerous for national security and critical European interests. The E.U.-China Summitalso takes place this week. Is this new foreign investment screening simply a protectionist move prompted by fears of a Chinese takeover of Europe? Here are five things to know about the new E.U. policy.

  1. The new screening framework isn’t a mirror of the U.S. CFIUS mechanism.

This isn’t a European version of the Committee on Foreign Investment in the United States (CFIUS), the multiagency U.S. government body that vets foreign direct investment to make sure that proposed mergers and takeovers do not threaten national security.

The new European policy does not enable the E.U. to screen and block investment coming into its member states. Neither does it force individual countries to screen at the national level — only 14 of the 28 E.U. members have national screening legislation in place.

Here’s how it works: For now, the E.U. screening mechanism will facilitate the sharing of information on planned non-E.U. investment in critical technology and infrastructure, such as electric batteries and ports. This will allow any E.U. member to voice concerns about a proposed investment — and in some cases the Commission, the E.U.’s executive body, will give its opinion. Ultimately, however, the E.U. country targeted for foreign investment will make its own screening decision. Germany will not be able to prevent, say, Greece from accepting a deal with a Chinese investor.

  1. No, China isn’t taking over Europe.

It is true that the E.U. drafted this policy against the backdrop of surging Chinese investment in Europe over the past decade. Chinese investors have made big-ticket purchases such as the ports of Piraeus in Greece and Trieste in Italy, vineyards in France, robotics in Germany, Sweden’s leading carmaker, power utilities in Portugal, British soccer clubssolar farms in Hungary and so on.

But Chinese investments in Europe have declined since 2016, in large part because of stricter Chinese controls over capital outflows. China is still a small investor in Europe. In France, for instance, China lags far behind the United States, Germany, the Netherlands and Britain as source of investment. Even in Greece and Portugal, two countries where Chinese companies bought distressed assets for privatization after the euro crisis, China ranks far behind many European countries as a foreign investor.


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