China and the EU are two major forces advancing multipolarity, two major markets in support of globalization, and two major civilizations championing diversity. Amid the increasingly turbulent international situation, the China-EU relationship has strategic significance and implications for global peace, stability and prosperity.
2023 marked the 20th anniversary of the establishment of the China-EU comprehensive strategic partnership. The two sides resumed exchanges at all levels, and held the 24th China-EU Summit in Beijing. The summit delivered consensus and outcomes on a range of important issues, and reaffirmed China and EU’s opposition to decoupling, demonstrating the strong resilience and vitality of China-EU relations. China and the EU maintained sound trade and economic cooperation and remained each other’s second largest trading partner. In 2022, direct investment flows from Chinese enterprises into the EU reached USD 6.901 billion, ranking third among China’s outbound direct investment (ODI) destinations around the world.
China and the EU share widespread common interests. China keeps stable and consistent policies towards the EU. In 2023, however, trade protectionism was on the rise in the EU. It hyped up and used the concept of “de-risking” to expand its policy toolbox along with some member states, raised market access barriers, abused the concept of economic security, intervened in the operation of foreign enterprises by non-market means. These moves caused a negative impact on Chinese enterprises in Europe.
To make the voices of Chinese enterprises in Europe be heard and urge the EU to improve its business environment, the CCPIT Academy has conducted surveys on the EU’s business environment for six consecutive years. The research group has comprehensively reviewed the laws and policies of the EU and its member states, and surveyed Chinese enterprises in Europe via on-site visits, questionnaires, telephone interviews, and online and offline forums. The number of companies we surveyed accounted for 10% of the total number of Chinese enterprises established in the EU in 2022. Respondents generally acknowledged the attraction of the EU market, but pointed to four problems in its business environment.
First, trade protectionism is on the rise.
The EU has continued to generalize and instrumentalize the concept of de-risking. In the European Economic Security Strategy, trade and investment control measures, which got increasingly rigorous in the past five years, were put under the general framework of “safeguarding economic security”. As a result, a growing number of member states have begun to interpret the concept of de-risking from a confrontational perspective and view Chinese-funded enterprises as a “common security threat”. For the so-called “de-risking” purpose, the EU has comprehensively strengthened export controls in key industries and paid close attention to dual-use items in sensitive areas, ranging from energy, aviation, and aerospace to defense and security, telecommunications, semiconductors, and computing.
This has made it difficult to export software and technologies to China. The EU has also tightened restrictions on two-way direct investment in key and emerging technology sectors, creating barriers for Chinese enterprises to invest in these sectors or receive investments from European companies.
Second, the EU has expanded its policy toolbox to raise market access barriers.
In recent years, EU member states have continued to establish or update their foreign investment review mechanisms in accordance with the EU Regulation on Foreign Direct Investment Screening. Nearly 30% of Chinese enterprises believed that access to the EU market has narrowed. Due to the tightening of foreign investment review, nearly half of Chinese enterprises plan to hold back investments in the EU or switch to member states with less screening. The Rules for Implementing the Foreign Subsidies Regulation lowered the threshold for the declaration of business operators’centralized and public procurement activities, putting foreign enterprises under more compliance obligations. In 2023, the European Commission, on its own initiative, launched an anti-subsidy investigation into imports of electric vehicles originating from China, while the EU itself increased the intensity and scope of subsidies for NEVs. This has directly hit the development of upstream and downstream enterprises in China’s new energy vehicle industrial chain, and undermined bilateral economic and trade relations.
Third, the EU has abused the concept of national security to make non-market intervention in business operation.
In its second progress report on the implementation of the EU Toolbox on 5G cybersecurity3, the European Commission, for the first time, declared Chinese companies Huawei and ZTE as “high-risk” vendors, limiting or prohibiting member states from using services from these two companies. In its first National Security Strategy and Strategy on China, Germany positioned China as a partner, competitor and institutional rivalry. While the two strategies emphasized that China is one of Germany’s partners, they noted that China is competing with Germany in a way that is not in line with its interests, and cautioned against China’s digital infrastructure expansion and the investments from Chinese IT service providers. The Italian government has expanded its “golden power” to strictly review production and investments by Chinese companies. The national screening mechanism for foreign direct investments4 of Luxembourg, which has been officially implemented, covers a plethora of areas and puts 12 categories of activities involving national security under its scrutiny.
Fourth, geopolitical conflicts and weaker economic growth have brought systemic problems to the EU.
The crisis in Ukraine and broader geopolitical tensions are creating uncertainties for the EU economy. After the outbreak of the Ukraine crisis, national economies of some member states have been hit to varying degrees, due to the global financial market turmoil, disruption in the raw materials supplies, surging energy prices, and unstable logistics. In 2023, inflation in the EU and the eurozone fell slightly, but remained at a high level, and the pressure of stagflation lingered on. In its Autumn Economic Forecast, the EU said that heightened geopolitical tensions would add to the uncertainties and cast a shadow over the economic outlook.