As Trump Puts Brake on China M&A, EU Treads More Carefully

  • EU Commission floats bloc-wide framework for screening deals
  • ‘It’s all about increasing transparency,’ top official says

U.S. President Donald Trump has something that European Union regulators lack when it comes to curbing China’s global investment offensive: decision-making clout.

The European Commission’s push for EU-wide rules on screening foreign investments relies on a familiar, go-slow formula because national sovereignty is being encroached on. The approach involves a combination of data collection, information exchange and peer pressure.

A new draft law would require EU governments to notify the commission, the 28-nation bloc’s executive arm, of foreign direct investments the previous year. The annual reporting exercise would be supplemented by a system allowing the commission and capitals to share information and views about planned foreign direct investments in any EU nation.

As a result, the “framework” would create a centralized database of past foreign investments in Europe and an alert mechanism for future ones without taking the ultimate power of approving deals away from individual EU governments.

“We certainly don’t want to restrict foreign investments to Europe,” Jyrki Katainen, a commission vice president, told reporters on Thursday in Brussels. “But what nobody wants is to get investment which would jeopardize national security.”

Election Victories

The latest commission attempt to bolster Europe’s economic-policy powers follows a series of national election victories by pro-EU forces including French President Emmanuel Macron, who has echoed traditional calls in France for manufacturers based in the bloc to have a level playing field globally. The commission’s proposal needs the backing of EU governments and the European Parliament, a process that can take several years.

Concerns are mounting across the western world over national-security risks tied to foreign investment, particularly by China. Acting on a recommendation by a multi-agency U.S. panel, President Trump on Wednesday blocked a Chinese-backed investor from buying Lattice Semiconductor Corp. as a result of national-security concerns.

Germany recently moved to shield cutting-edge technologies with a new law, drawn up after a bid by China’s Midea Group Co. for robot maker Kuka AG prompted an outcry last year.

Under the draft law, any EU country that believes a planned foreign direct investment in another member state “is likely to affect its security or public order” could seek information and provide comments about the deal.

Public Order

In addition, when the commission considers that a foreign direct investment is likely to affect security or public order in one or more EU countries, it could seek information and issue an opinion. Member states that receive comments from fellow EU governments and a commission opinion would have to give “due consideration” to them.

Furthermore, in cases where the commission considers that a foreign direct investment in an EU country is likely to affect “projects or programs of union interest on grounds of security or public order,” it could ask the responsible member government for information and issue an opinion. The government would have to take “utmost account” of the commission viewpoint and, in instances when the opinion wasn’t followed, provide an explanation.

The draft legislation seeks to limit foreign threats to “critical infrastructure,” including in the energy, transport, communications, data, space and financial industries, and to “critical technologies” such as semiconductors, robotics and artificial intelligence.

“It’s all about increasing transparency, which as such is a powerful tool,” Katainen said. “We want to make sure that nothing happens by accident.”

— With assistance by Sara Forden

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE