Trump's China Policies Could Increase FDI Risks for EU, European Lawmakers Say

European lawmakers are concerned more aggressive China-related policies put in place by the incoming Trump administration, including around investment screening, could lead more Chinese companies to shift their investments to Europe, possibly raising national and economic security risks for EU member states, they said this week.

Jorgen Warborn, an EU Parliament member from Sweden speaking on behalf of the shadow rapporteur for foreign direct investment screening issues, said lawmakers believe the current EU FDI screening framework is a “step in the right direction.” But he also said it’s “crucial” that the bloc bolster its investment screening rules, including through a January proposal that would make FDI screening mandatory by all member states (see 2401240078).

He said this will help shield the EU against foreign state-controlled companies, including from China, that use investments “as a lever for geopolitical influence.”

“I want to point out that this instrument is not a China-only instrument,” Warborn said during a meeting this week of parliament’s international trade committee. “Yet we have to bear in mind what can happen to, for example, Chinese investments when Mr. Trump decides to close the American market, and when the European market becomes even more attractive for the Chinese.”

Trump has promised to sharply hike tariffs on Chinese imports and take other measures that could impact how Chinese companies view future investments in the U.S. market. It’s unclear what type of changes, if any, the next administration foresees for inbound investments screened by the Committee on Foreign Investment in the U.S., although policy analysts said Trump could look to expand the scope of outbound investment restrictions against China, which take effect in January (see 2411150037).

Warborn said lawmakers are “calling for all member states” to set up their own investment screening mechanism. Twenty-four states have so far implemented a screening tool, and the remaining three have begun official talks to soon put one in place, the European Commission said in its annual report on FDI released last month (see 2410180034).

Denis Redonnet, the EU’s chief trade enforcement officer, said it’s “difficult to say” whether policies put in place by the next U.S. administration could lead to a “diversion of Chinese investment towards the EU.” He also noted that investment decisions usually are “longer term, slower type” of business activities, so it’s not clear the EU will suddenly see a spike in Chinese investment in the coming months.

“So probably, the phenomenon of investment diversion is likely to be less pronounced, at least in the short term, than other types of diversion,” such as “trade diversion,” Redonnet said, “which can be much more rapid in terms of when there are measures that are taken to restrict in the case of trade imports.”

He also stressed that the EU’s FDI screening framework is “country agnostic” and that the percentage of investments from China into the EU in 2023 that raised security concerns was “relatively low.”

But he also said the EU is closely monitoring a rise in foreign direct investments made “for more political reasons than market economy reasons, and notably the role that state-owned enterprises can play in this respect.”

Redonnet, speaking more broadly about the EU’s FDI framework, also told the committee that there are still “gaps” in the current EU rules that he hopes will be addressed by the commission’s proposal from January. He specifically said there are “too many non-critical cases” getting captured by EU screening mechanisms, which may be taking resources away from examining investments that deserve more scrutiny.

“As we screen more and more transactions in particular sectors, hopefully one starts to see certain categories of risks” common across all member states, he said, which will help eliminate “unnecessary divergences in approaches” to EU investment screening.