Chinese investment in Europe plunged to a 10-year low in 2022, as the country’s zero-Covid policy coupled with geopolitical factors like Russia's invasion of Ukraine weighed on the flow of capital. Investment from China into the European Union and Britain fell to just €7.9 billion last year, a 22% decline on the previous year. This brought Chinese investments in Europe back to roughly the same level as 2013, before the investments related to the Belt and Road Initiative (BRI). The retreat in Europe aligned with a broad collapse in China’s global outbound investment, according to a joint study by the Rhodium Group and the Mercator Institute for China Studies (Merics).
Around the world, China’s investments fell to an eight-year low, at €111 billion, down 23% on 2021’s levels. Mergers and acquisitions (M&As) dropped by 21% from a year earlier to €22 billion. The diminished activity comes as European governments look more closely at Chinese investments in critical infrastructure. The EU in recent years has rolled out an inbound foreign direct investment (FDI) screening process to its member states, whereby Brussels officials flag perceived risky investments. For example, last year the European Commission recommended that the German government reject a bid from Chinese state-owned shipping conglomerate Cosco to buy a stake in a terminal at Hamburg port. The German government waved the transaction through at a reduced rate so that the Chinese buyer would have no voting rights.
The report noted a “sharp downturn” in Chinese investments in energy, infrastructure, real estate and finance, sectors that previously accounted for the lion’s share of inbound Chinese spending in Europe. “This stems from a greater focus on reducing financial risks from highly indebted companies in these sectors in China, stricter capital controls, and now tighter investment screening measures in Europe, particularly in critical infrastructure because of deteriorating EU-China relations and Russia’s invasion of Ukraine,” the authors wrote, as reported by the South China Morning Post.
Driven by electric vehicle battery factories, Chinese greenfield investment in Europe overtook M&A transactions for the first time in 20 years, reaching €4.5 billion, or 57% of the total, according to the Rhodium-MERICS report. The increase in greenfield investment was driven mainly by a few large-scale projects, concentrated in the automotive sector as Chinese battery giants – including CATL, Envision AESC and SVOLT – invested in building battery plants in Germany, Hungary, the UK and France, the China Daily adds.
