On 8 January, French President Macron visited China for the first time, seeking closer relations between China and Europe. Some believe it is meant to reposition France as Beijing’s pivot in Europe after Brexit. But the visit comes at a complex time of growing concerns vis-à-vis China’s influence on the continent, warns Harry Nedelcu.
Harry Nedelcu PhD is a policy advisor at Rasmussen Global.
At the onset of the financial crisis in Europe, Chinese foreign direct investment in the EU was just under €2 billion. Seven years later, it increased by almost 2,000%, reaching €35 billion. All the while, EU investments in China have fallen by 25% as they are being squeezed out of the Chinese market.
The buying spree included critical ports and shipping terminals like Greece’s Piraeus and Belgium’s Zeebrugge, industrial robot manufacturers like Germany’s Kuka Group, a critical stake in Deutsche Bank, data centres like UK’s Global Switch, and travel fare metasearch engine Skyscanner – to name just a few examples.
Yet while most attention is directed at the staggering imbalance between the EU and China, what is alarming is not that Chinese businesses – and money – are coming to Europe.
What is alarming is that companies linked to the Chinese state are investing strategically in new technologies and know-how – some of which having not just civilian but also military applications. Already, French, German and British technology has found its way on Chinese aircraft, surface vessels, and submarines.
To say that the trend is raising red flags is an understatement. Under the auspice of free-trade, EU states are at risk of losing both their technological edge as well as their ability to formulate an independent foreign policy.
Some states in particular, in the South and East, are nearing the risk of state capture – not at the hands of private interests but at the hands of another country through its state-owned enterprises.
The weak positions of the Union and some of the member states on China’s human rights record and the South China Sea are just a few examples of how some countries put their commercial interests with China ahead of common basic European norms and values.
In 2017, following repeated calls from some member states to take action, the European Commission put forth a proposal establishing a framework for screening foreign direct investment.
Yet while some have drawn parallels to CIFIUS in the US, the proposal is far less ambitious and nowhere near an actual investment screening mechanism at the Union level. It simply seeks to share information between member states and Commission since – as stunning as it may sound – as of now, nobody actually knows the full extent of strategic foreign direct investment in Europe.
What we do know of is just the tip of the iceberg – the visible, large-sized transactions. What we are missing are the small pieces of the puzzle that together can begin to answer the question: how much foreign influence is exercised and how.
Therefore, the new proposal is all very critical and timely. However, the Commission’s recent effort will need to address a number of concerns which otherwise pose a serious hurdle ahead.
First, the issue of FDI screening is an issue of security which implicitly also means it is an issue of trust among Europeans. Member states must trust that, when some larger countries ask for information, it is not for commercial purposes.
Confidentiality of information must be explicitly safeguarded by the EU investment screening framework. And this safeguard should be clearly communicated. In addition, the proposal should give the Commission the tools to discipline those who abuse the information sharing prerogative. At the same time, it should give sceptical member states the tools which would enable them to correct the new framework if they find that it is being misused.
Secondly, strategic investment and the EU’s FDI screening mechanism is only one dimension of a much broader strategic effort by non-democracies to influence our societies and weaken our system. And it is not just China. Through means that resemble ‘soft power’, non-democratic states go way beyond in terms of dividing, capturing or piercing democratic societies.
For instance, China’s influence over Western democracies is not just limited to strategic investment. It includes an influence over educational institutions and academia. Sometimes strapped for cash, many colleges and universities accept Chinese financing, in exchange for setting up Confucius Institutes and classrooms.
Spread all over the Western world, the institutes have often come under fire for being closely linked to Beijing, restricting academic freedom and propagating positions close to those of the Chinese Communist Party on topics such as Taiwan, Tiananmen Square, and Tibet.
An even more alarming source of influence is that over elected representatives and political decision-makers – most notably in Australia and New Zealand, but recently also in the US.
And Europe has not been left out. Just recently in December 2017, former UK Prime Minister David Cameron accepted a leadership role in a $1 billion investment fund related to China’s Belt and Road initiative.
While investment screening is a welcome initiative, it makes little sense to limit ourselves to screening foreign acquisitions if the legislators and decision-makers are susceptible to being rallied by foreign states.
Much like in the US and Australia, European legislators and policy-makers must begin a debate on how to prevent – or at least disclose – foreign donations, business interests, and links to foreign interests at the EU level.
Above all, European decision-makers must begin a conversation about a holistic approach to avoiding state capture that includes but goes beyond investment screening.