China and UK relations post Brexit as EU addresses Chinese takeovers

Jean-Claude Juncker, Li Keqiang, Donald Tusk
Date: 02/06/2017
© European Union, 2017
Source: EC – Audiovisual Service

Chinese acquisitions of European companies have attracted the attention of the EU’s largest economies, who requested from the Commission to play a more active role on deciding whether these takeovers are ‘politically driven’ or not. The president of the EC, Jean-Claude Juncker, in turn, is expected to announce plans on how to manage foreign investments on September 13 in his State of the European Union speech.

On the other hand, Germany worries also about its economic growth in the event of a harsh Brexit with no trade deal with the EU. The latter will create the opportunity for the the UK to seek an upgraded cooperation pact with China empowering business ties. Nevertheless, it is too soon to judge the size and quality of the relationship between the EU and UK as talks are now undergoing too early stages and UK seems to be changing stance in the last few days, from a hard to a softer exit from the EU.

EU opposes Chinese takeovers?

Last month Germany, France and Italy sent a letter to the EC expressing their will to create a framework where the Commission would monitor and cast light on the acquisitions being driven by political incentives rather than market and economical decisions. As it was stated in the proposal, the EU member states are the ones to decide on denying takeovers on specific sectors which are of significant importance. That clearly strengthens the position of each and every EU country when a foreign acquisition takes place.

More specifically, it was mentioned there that: “The instruments currently available at the level of EU Member States, based on national security and public order, may not be sufficient to guarantee protection from those kinds of investment operations. To complement existing instruments, we encourage the Commission to look into solutions that respect reciprocity and ensure fair competitive conditions between EU and foreign investors based on market rules. We rely on the European Commission’s expertise as far as the analysis of the investment and foreign investment conditions is concerned. The final decision should be left to member states”.

Especially Germany has stepped up this year on this issue tightening its rules on foreign acquisitions earlier. This is mostly driven by the fact that China is targeting strategic sectors such as last year’s takeover if Kuka, one of the world’s leading suppliers of Robotics as well as plant manufacturing and system technology and a pioneer in Industry 4.0 too. Consequently, German Economy Minister Brigitte Zypries has pressured Jean-Claude Juncker to provide extra powers within the EU members to assess Chinese acquisitions of EU technological companies.

Germany’s concerns of a hard Brexit

On another note, according to a recent report by the German Ministry of Finance, Germany worries about Brexit as its economy is heavily linked to the British one. More in detail, Germany relies heavily on car exports to the UK with approximately 950.000 newly registered vehicles in Britain to have been made in Germany last year. Thus, Germany’s Finance Ministry fears that Britain leaving the EU without a trade deal could have serious impacts on the biggest EU economy.

China-UK relations

China  on the other hand has been investing in the UK, boosting significantly the economy of Albion. The Chinese Ambassador to Britain Liu Xiaoming mentioned in a signed article on the Evening Standard that: “Chinese investment is creating new jobs, generating green, low carbon growth and bringing economic prosperity and stability”. Chinese Ambassador added that “Chinese investments are beneficial for both sides and Britain’s unchanged commitment to staying open is the key to boosting the confidence of foreign investors”.

A balanced approach needed towards Chinese investments in the EU

Undeniably, China is the EU’s second-biggest trading partner right after the U.S. and the EU is China’s biggest trading partner in turn. The EU is always committed to open trading relations with China for a good reason. German Economy Minister Brigitte Zypries stated last week on the matter:  “On the one hand, the inflow of capital is a positive development, as it shows the attractiveness of Europe. On the other hand, one has to note that these investments are one-sidedly concentrated on hi-tech companies and companies that provide key technologies which shows obvious connections to the ‘China 2025’ strategy decided by the Chinese government.”

All in all, the decision to characterise an acquisition as ‘politically driven’ could be very difficult as well as vague and therefore very careful and precise consideration is needed prior to creating a framework where the EC and the EU member states will have more authorities and red tape to determine such takeovers. Chinese investments are much needed and welcome in the EU, especially at a moment when gloomy Brexit and other events are likely to cause considerable turbulences to the EU economy.

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