Europaudvalget 2019-20
EUU Alm.del Bilag 973
Offentligt
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Review
NO
EN
03
The EU's response to
China's state-driven
investment strategy
2020
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Contents
Paragraph
Note on COVID-19 Pandemic
Executive summary
1. Introduction
2. Scope and approach of the review
3. China’s state-driven investment strategy
Description of the Going Global strategy
Overview of Chinese investments in the EU
Restrictions for foreign investments in the EU
Size of investments from China in the EU
Sectors of investment
I-VII
01-05
06-07
08-28
08-16
17-28
18-20
21-26
27-28
29-32
33-67
33-35
36-56
36-43
44-46
47-51
52-56
57-67
68-83
4. ECA compilation of risks and opportunities for the EU
5. The EU’s response to China’s investment strategy
EU governance arrangements
The EU institutional response
Development process of the key strategic documents
Alignment of the response to the risks and opportunities for the EU
Implementation of the strategy
Monitoring, reporting and evaluation of the strategy
Member States’ response
6. Closing remarks and challenges
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Annexes
Annex I – Panel of Experts
Annex II – Definition, objectives, investments and financing of the
BRI
Annex III – Limitations of FDI Statistics
Annex IV – Overview of Chinese Investments in the EU: FDI
(stocks)
Annex V – Overview of Chinese Investments in the EU: Foreign
Ownership
Annex VI – ECA compilation of the risks and opportunities for the
EU of China’s investment strategy
Annex VII – Actions resulting from the EU strategy towards China
Annex VIII – Areas of EU’s response to China’s investment
strategy and alignment to China’s risks and opportunities
Acronyms and abbreviations
Glossary
ECA team
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Note on COVID-19 Pandemic
Our review work was completed prior to the outbreak of COVID-19, and therefore this
report does not take into account any policy developments or other changes that
occurred in response to the pandemic.
About the review:
Since the 1980s, China has been implementing a “state-driven investment strategy”
to enable a strong export-driven economy. We looked at the EU’s response to this
strategy.
Our review showed that it was difficult to obtain complete and timely data and thus
to gain an overview of investments, which are part of China’s investment strategy in
the EU. Furthermore, we found no formalised comprehensive analysis of the risks
and opportunities for the EU. Future challenges will be to improve the setting,
implementing, monitoring, reporting and evaluation of the EU-China strategy.
Another challenge will be to coordinate the response of the EU institutions and
Member States, by promoting the exchange of information.
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Executive summary
I
Over the last two decades, China has risen as a significant economic player on the
international stage. Since the 1980s, China has been implementing a “state-driven
investment strategy” to enable a strong export-driven economy. The Belt and Road
Initiative, together with Made in China 2025, are the most significant Chinese
investment strategies for economic growth and aim to increase China’s influence
abroad, including on the EU and its individual Member States.
II
We considered it timely to carry out this review, from our perspective as external
auditors, of the EU’s response to China’s state-driven investment strategy, which poses
challenges to the EU because of the growing importance of China as an economic
player. In particular, State-Owned Enterprises benefitting from Chinese public
financing form part of this Chinese investment strategy. Under EU rules such subsidies,
if granted by Member States, would be treated as state aid. This difference in
treatment makes it difficult for the EU to achieve a level playing field vis-à-vis China.
III
This is not an audit, but a review of publicly available information resulting from
studies, articles and academic publications gathered specifically for this purpose. Our
review provides an overview of China’s investment strategy and compiles the
challenges (risks and opportunities) that this strategy presents for the EU. We looked
at the EU’s response to China’s investment strategy, consisting of the initiatives
undertaken by the EU institutions as well as individual responses of Member States vis-
à-vis China.
IV
Our review showed that it was difficult to obtain complete and timely data and
thus to gain an overview of investments, which are part of the Chinese investment
strategy in the EU. Furthermore, we found no formalised comprehensive analysis of
the risks and opportunities for the EU. The actions in the recent three key EU-China
strategic documents cover almost all of the risks and opportunities, with the exception
of three risks.
V
The EU and Member States both exercise competences in policy areas related to
the EU’s response to China’s investment strategy. In policy areas where a concerted EU
approach could be an advantage, the fact that both the EU and Member States
exercise competences means that there are multiple decision-makers (e.g. EU
institutions and national governments) with possible diverging opinions and
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approaches. This can make it difficult to address the challenges faced by the EU as a
whole in a timely and coordinated manner.
VI
Different sources indicate that Member States often act bilaterally with China
according to their own national interests and without always informing or coordinating
with the Commission where necessary. As a result, it is in certain areas difficult for the
EU institutions and Member States to have a coordinated response.
VII
We highlight challenges related to the risks we identified. We discussed these
with the Commission services and the European External Action Service and, where
necessary, have included references to their views:
(1) How to provide more complete and timely data and statistics on investments,
which are part of the Chinese investment strategy in the EU, to help better inform
EU policy-making on China;
(2) How to carry out a formalised, comprehensive and up-to-date analysis of risks
and opportunities for the EU, to help address the full range of challenges posed
by Chinese investment strategy;
(3) How to improve the implementation of the 74 actions set out in EU-China
strategy, in particular those promoting reciprocity and preventing the distortive
effects on the EU internal market, and how to address the remaining risks;
(4) How to allow EU decision-makers to better set and track the EU-China strategy, by
making a prior assessment of the EU financing required to implement the actions
of this strategy going forward, earmarking this financing and compiling an
overview of related spending;
(5) How to ascertain that the challenges posed by the Chinese investment strategy
are addressed by reinforcing the performance measurement, monitoring,
reporting and evaluation arrangements for the EU-China strategy;
(6) How to better coordinate the response of the EU institutions and Member States,
by promoting the exchange of information between them on EU-China
cooperation.
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1. Introduction
01
Over the last two decades, China has risen as a
significant economic player
on
the international stage. This allowed China to become an important
geopolitical actor
globally
(see
Figure 1).
The EU is China’s biggest trading partner, while China is the
EU’s second largest trading partner.
Figure 1 – Demographic and economic data of some large countries
Source:
World Bank, “GDP (current US$)”; “GDP per capita (constant 2010 US$)”; “Population, Total”;
“Current account balance (% of GDP)”, World Development Indicators,
The World Bank Group,
and
Organisation for Economic Cooperation and Development (OECD), Statistical data.
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02
Chinese economic and trade policies are characterised by several strategies for
development where
state-driven investments
have enabled China to become a global
player in economic terms. These encourage Chinese enterprises to invest abroad,
especially in
strategic sectors
(e.g. energy, telecom and railway systems), with
State-
Owned Enterprises (SOEs)
benefitting from Chinese public financing. This can distort
competition notably in the EU’s internal market as China’s SOEs are not subject to EU’s
state aid rules. The EU is committed to ensuring that there is a level playing field for EU
companies that have to compete with Chinese companies.
03
The
“Belt and Road Initiative” (BRI)
is China’s most significant investment
strategy for economic growth. One policy aim pursued is to increase China’s influence
abroad, including in the EU and on individual Member States. The BRI promotes
China’s geostrategic ambitions to expand globally by sustaining domestic growth,
developing regional and global connectivity, introducing Chinese standards to less
developed countries and providing further trade facilitation between the markets
along the BRI.
04
China’s investment strategy has received both
praise and criticism
from the
international community. On the one hand, the economic fruits of the strategy can
have positive effects for both the European and world economies, such as promoting
growth and jobs. Furthermore, China’s unprecedented growth and successful poverty
eradication plans have been credited with lifting more than 850 million Chinese people
out of poverty, with a fall in poverty rate from 88.3 % in 1981 to 1.9 % in 2013
1
. On the
other hand, concerns have been raised also in the EU about the dependence on
Chinese investments in strategic industries, their concentration in sensitive or
strategical important sectors, and the non-reciprocity of access to the European Single
Market
2
.
1
“China systematic country diagnostic, towards a more inclusive and sustainable
development”,
World Bank Group,
Report No. 113092-CN, 2017.
Hanemann, T. & Huotari, M., “EU-China FDI: Working towards reciprocity in investment
relations”,
Rhodium Group
and
Mercator Institute for China Studies,
MERICS,
17 August 2018.
2
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05
As the external auditor of the EU, the European Court of Auditors (ECA) has a
unique perspective on EU policies, initiatives and finances. We considered it timely to
look at the EU’s response to
China’s state-driven investment strategy
(‘China’s
investment strategy’) which poses the challenges outlined above, in the light of China’s
growing importance economically on the international stage. The
EU’s response to
China’s investment strategy
is comprised of initiatives led by the EU institutions as
well as Member States’ individual action vis-à-vis China. As a core tenet, the EU has
laid down that the EU’s engagement with China should be principled, practical and
pragmatic, preserving and promoting its interests and values
3
.
3
European Commission, HR/VP, “EU-China – A strategic outlook”, Joint Communication to
the European Parliament, the European Council and the Council, JOIN(2019) 5 final,
Strasbourg, 12 March 2019, p. 1.
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2. Scope and approach of the review
06
We looked at the
EU’s response to China’s investment strategy.
We consider this
response to encompass the initiatives undertaken by the EU institutions as well as
individual responses of Member States vis-à-vis China. Our review provides an
overview of China’s investment strategy and compiles challenges (risks and
opportunities) that this strategy presents for the EU institutions and Member States.
We further describe how the EU institutions:
o
o
o
developed the EU-China strategy;
aligned this strategy to respond to challenges;
implement, monitor, report on and evaluate the strategy.
We also describe how Member States responded to China’s investment strategy.
Finally, we provide closing remarks where we identify the key future challenges for the
EU.
07
This is not an audit, but a
review
of publicly available information resulting from
studies, articles and academic publications gathered specifically for this purpose until
March 2020. This review was also informed by Commission services and European
External Action Service (EEAS) public documents, interviewing their staff, and
consulting
experts
in the field (see
Annex I).
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3. China’s state-driven investment
strategy
Description of the Going Global strategy
08
Since the 1980s, China has grown into a global economy and aspires to continue
on this growth trajectory. Its share in global Gross Domestic Product (GDP) increased
from less than 3 % in 1980 to 16 % in 2018 (see
Figure 2).
The underpinning force for
this growth is the
Going Global strategy
which emerged in 1999, two years before
China’s admission to the World Trade Organisation (WTO). The
Going Global strategy
was mainly focused on importing oil resources and other raw materials to facilitate its
labour-intensive economy, while manufacturing goods with low added-value (heavy
industry e.g. iron, steel and basic machineries)
4
were predominantly exported globally.
In 2018, the International Monetary Fund (IMF) predicted that China’s nominal GDP
could overtake the US by 2030 as the world’s largest economy
5
.
4
Organisation for Economic Cooperation and Development, “Belt and Road Initiative in the
global trade, investment and finance landscape”,
OECD Business and Finance Outlook 2018,
OECD Publishing, Paris, 2018, p. 24.
International Monetary Fund, ”People’s Republic of China 2018 Article IV Consultation”
Press Release; Staff Report; Staff Statement and Statement by the Executive Director for the
People’s Republic of China,
Country Report No 18/240, IMF July 2018, p. 1.
5
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Figure 2 – Percentage share of global GDP (current US$)
% of global GDP, measured in current prices
40 %
China
European Union
30 %
United States
20 %
10 %
0%
1980
1990
2000
2010
2011
2012
2013
2014
2015
2016
2017
2018
<--10 year scale here-->
Source:
“GDP (Current US$)” Data Bank – World Development Indicators,
The World Bank Group.
Last
updated on 9.4.2020.
09
Until 2008, China had consistently
high annual GDP growth rates.
In the
aftermath of the 2008 financial crisis, this rate has slowed down (see
Figure 3),
mainly
due to reduced exports of low value-added goods. China still experiences significant
year-on-year growth, with the GDP growing 6.6 %, in 2018, compared to the EU which
saw GDP growth of 2.0 % that year
6
. Over the last decade, the
Going Global strategy
underwent a shift towards an economy more focused on the production of high
added-value goods, including the expansion of infrastructure enhancing trade
regionally and internationally.
6
World Bank, “GDP growth (annual %)”, World Development Indicators,
The World Bank
Group.
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Figure 3 – GDP growth, expressed in annual percentage changes from
2001 until 2018
%
GDP growth (annual %)
China
European Union
United States
15
10
5
0
-5
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Source:
World Bank, “GDP growth (annual %)”, World Development Indicators,
The World Bank Group.
10
Two main strategies were formulated to further develop China’s global
competitiveness: the connectivity strategy
Belt and Road Initiative
launched in 2013
and the industrial strategy
Made in China 2025
launched in 2015. We define these
initiatives as
China’s state-driven investment strategy
which supports and financially
encourages Chinese SOEs and private companies to invest in strategic sectors abroad.
11
In the last decade, China engaged more in the area of connectivity through the
Belt and Road Initiative
(BRI), which is a
long-term overarching strategy
comprised of
a multitude of investment projects mainly focusing on building transport and energy
infrastructure, enhancing trade and developing digital networks. Investing in the digital
economy and innovation-driven development are priority areas for the BRI
7
.
7
“Xi Jinping Chairs and Addresses the Leaders' Roundtable of the Second Belt and Road
Forum for International Cooperation (BRF)“,
The Second Belt and Road Forum for
International Cooperation,
28 April 2019; Eder, Arcesati, Mardell, “Networking the Belt and
Road – The future is digital”,
Mercator Institute for China Studies,
MERICS, 28 August 2019.
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12
In 2013, China launched the BRI as it is known today as the
Silk Road Economic
Belt
and the
Maritime Silk Road
to boost regional economic growth.
Figure 4
shows
the geographical extension of the BRI via “economic corridors” which are specific
geographic areas within the countries the BRI passes through, extending to over 64
economies and representing more than a third of global GDP, and over half of the
world’s population
8
. The BRI has gained importance in recent years, which led to its
inclusion in the constitution of the Chinese Communist Party in 2017 and ensured a
constant financial flow into BRI projects
9
.
Figure 4 – BRI: the six economic corridors
Note:
Latin America also included in BRI
10
.
Source:
Organisation for Economic Cooperation and Development (OECD), “Belt and Road Initiative in
the global trade, investment and finance landscape”,
OECD Business and Finance Outlook 2018,
OECD
Publishing, Paris, 2018, p. 11.
8
Organisation for Economic Cooperation and Development (OECD), “Belt and Road Initiative
in the global trade, investment and finance landscape”,
OECD Business and Finance Outlook
2018,
OECD Publishing, Paris, 2018, p. 9.
Eder, T., “Mapping the Belt and Road Initiative – This is where we stand”,
Mercator Institute
for China Studies,
MERICS, 7 June 2018.
Teufel Dreyer, J., “The Belt, the Road, and Latin America”,
Foreign Policy Research Institute,
June 2019.
9
10
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13
Box 1
provides an example of Chinese investment in infrastructure for one of the
six economic corridors.
Box 1
Example of Chinese investment in infrastructure along the New
Eurasian Land Bridge corridor
The 305 km
Khorgos-Almaty road
along the New Eurasian Land Bridge Corridor
was in 2018 upgraded from a two-lane to a four-lane highway. The road connects
Khorgos, a border city in China, with the city of Almaty in Kazakhstan, one of the
major economic centres of Central Asia. The road has reduced travel times
between the two cities by 40 % and transport costs from US$0.26 to US$0.24 per
vehicle-kilometre
11
.
14
From the launch of the BRI in 2013 to its foreseen completion in 2049, estimates
for Chinese investments under this
initiative range from US$1 trillion to
US$8 trillion
12
.
This wide range reflects the limited data available on the size and
scope of the initiative.
Annex II
provides an overview of the definition, objectives,
investments and financing of the BRI.
15
As far as the Chinese investments in the EU are concerned, it is not always
possible to categorise these projects as BRI-related.
There is no publicly available
inventory of official BRI projects,
nor on Member States’ contributions to financial
institutions involved in the BRI, such as the Asian Development Bank (ADB) and the
Asian Infrastructure Investment Bank (AIIB). The BRI projects are mainly financed by
Chinese SOEs, including state-owned policy banks and commercial banks (see
Figure 12
in
Annex II),
which benefit from Chinese public financing. Under EU rules
such subsidies, if granted by a Member State, would be treated as state aid. This
difference in treatment can distort competition in the EU’s internal market and makes
it difficult to achieve
a level playing field between China and the EU
13
. The
11
“Belt and Road Economics Opportunities and Risks of Transport Corridors”, pp. 50-51,
The
World Bank Group,
June 2019.
Hillman, J., “How Big is China’s Belt and Road?”,
Center for Strategic and International
Studies,
April 2018.
European Union Chamber of Commerce in China,
The Road Less Travelled: European
Involvement in China’s Belt and Road Initiative, 2020 p. 2.
12
13
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16
Commission services and the EEAS have highlighted that in June 2020 the White Paper
on foreign subsidies in the Single Market was published to partly address this issue
14
,
which was after the period of our review work. In addition, there is a risk that
environmental, social and governance’ standards are not sufficiently upheld
15
in the
implementation of these projects.
The BRI is a complex initiative that is constantly
evolving, which makes this a “moving target” for EU policy-makers.
16
In 2015, the industrial strategy
Made in China 2025 (MIC 2025)
was introduced as
a ten-year policy and represented a shift to an economy focused more on high added-
value sectors, domestic consumption and exports. This showed China’s ambition to
become a global technological power. While it is difficult to put a price tag on this
strategy due to the use of various financial tools, the Mercator Institute for China
Studies (MERICS) has reported that over 1 800 government industrial investment funds
related to this strategy have an aggregate size of about three trillion CNY
16
(€390 billion).
Overview of Chinese investments in the EU
17
It is not possible to provide an accurate overall picture of Chinese investments in
the EU pertaining to the Chinese state-driven investment strategy (i.e. BRI and
MIC 2025) due to the limited availability of public information (see paragraphs
15
and
16).
We therefore use data on overall Chinese foreign investments in the EU to
provide a high-level analysis. We have reviewed the overall
Foreign Direct Investments
(FDI)
(see
Box 2)
from China (including Hong Kong) into the EU in recent years.
14
European Commission, (2020)
White Paper on levelling the playing field as regards foreign
subsidies,
Brussels, 17.6.2020 COM(2020) 253 final.
“Belt and Road Economics – Opportunities and Risks of Transport Corridors”, pp. 111-112,
World Bank Group.
Zenglein, M. J. & Holzmann, A., “Evolving Made In China 2025: China’s industrial policy in
the quest for global tech leadership”,
Mercator Institute for China Studies,
MERICS, 4 July
2019, p. 12.
15
16
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Box 2
Foreign Direct Investment (FDI)
FDI is defined by the Organisation for Economic Cooperation and Development
(OECD) as a category of investment that reflects the objective of establishing a
lasting interest by a resident enterprise in one economy in an enterprise that is
resident in an economy other than that of the direct investor.
The direct or indirect ownership of 10 % or more of the voting power of an
enterprise resident in one economy by an investor resident in another economy
constitutes evidence of such a relationship.
FDI positions (stocks) are the value of investments held at the end of a year,
representing the accumulation of net FDIs acquired in previous years whereas FDI
transactions (flows) measure the value of investment transactions during that
year.
Restrictions for foreign investments in the EU
18
The OECD’s
FDI Regulatory Restrictiveness Index
measures statutory restrictions
on foreign direct investment in many countries, including all OECD and G20 countries.
This covers four main types of restrictions on FDI: foreign equity limitations, screening
or approval mechanisms, restrictions on the employment of foreigners as key
personnel, and operational restrictions (i.e. restrictions on branching and on capital
repatriation or on land ownership).
19
Figure 5
shows how restrictive EU Member States and other selected countries
(including China) are to foreign investments. Although there exist varying levels of
restrictiveness within the EU, overall the EU has a very open investment regime and
there are few restrictions compared with the rest of the world. The EU indeed
welcomes foreign investments as a source of growth and jobs, linking EU companies
with global value chains. The EU is the world’s leading destination of FDI. In 2017, the
EU accounted for more than one third (35 %) of the world’s inward investment
positions
17
.
17
Eurostat, World direct investment patterns, July 2018.
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18
Figure 5 – OECD Regulatory Restrictiveness Index 2018
Note:
When the Index values 0, it means that the country is open. The value 1 means that the country is
closed. The higher the value between 0 and 1 the more closed a country is considered to be.
Source:
“OECD FDI Regulatory Restrictiveness Index Chart latest year”,
OECD. Stat.
20
Compared with the EU, China is less open for investment. China’s foreign
investment regime, including its
‘Negative Lists’,
limits the access of foreign investors
the Chinese market in several sectors, including several of those defined as key
technological sectors in the
MIC 2025 strategy
18
. The Commission’s Joint Research
18
“European Business in China Position Paper 2019/2020”,
Investment Working Group
Position Paper,
European Chamber of Commerce in China, 29 September 2019, p. 99.
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Centre (JRC) reports that, in some sectors, the European firms are forced to engage in
joint-ventures with Chinese firms and transfer technology. With regards to post-entry
conditions, the Chinese legal framework and the unequal access to the Chinese
market, as well as government funding place European firms at a disadvantage
compared to their Chinese counterparts
19
.
Table 1
provides an overview of the
sectoral restrictions of foreign investments in China as compared to the EU.
Table 1 – Sectoral restrictions of foreign investments in China as
compared to the EU
Sectors
Exploration & exploitation of oil
and natural gas
Printing of publications
Automobile manufacturing
Repair, design & manufacturing
of ships
Aircraft design & production
Production of satellite television
broadcasting
Nuclear power stations
Construction & operation of
power grids
Construction & operation of
network of railways
Construction & operation of civil
airports
Telecommunication companies
Banks
Insurance companies
Chinese Investment Regime
vis-à-vis EU investors
Joint Venture only
Minority only
Max 50 %
Minority only
Minority only
Minority only
Minority only
Minority only
Minority only
Minority only
Minority only
Max 20 %
Max 50 %
EU Investment Regime
vis-à-vis Chinese investors
No restrictions
No restrictions
No restrictions
No restrictions
No restrictions
No restrictions
No restrictions
No restrictions
No restrictions
No restrictions
No restrictions
No restrictions
No restrictions
Source:
Based on Holslag. J., “The Silk Road Trap,
Medford”,
Polity Press, 2019. As the Chinese foreign
investment restrictions are updated regularly, the information provided in this table is subject to change
per these updates.
19
Preziosi, N., et al. (Eds) Dias et al., “China – Challenges and Prospects from an Industrial and
Innovation Powerhouse”,
Joint Research Centre,
Publications Office, Luxembourg, 2020.
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Size of investments from China in the EU
21
The EU monitors investments from non-EU countries (including China) by means
of different sources. The main sources are
official statistics,
compiled by the
Commission’s European Statistical Office (Eurostat), and data on investments resulting
from private sources which are compiled by the Commission’s Directorate-General
(DG) for TRADE and JRC (e.g. the European Commission’s
EC-JRC Foreign Ownership
Database).
DG TRADE also make use of data from Rhodium Group’s EU-China
Investment Monitor.
22
Eurostat publishes data on FDI stocks and flows to and from EU’s Member States.
The data is based on declarations from these Member States and statistical offices
from non-EU countries
20
. These FDI statistics are
not timely
as they are published
between 12 and 24 months after a given year. Furthermore, they are
fragmented
and
incomplete
and thus it is difficult to obtain an overview. As an example, they show
only the
origin
(residence)
of the immediate investor
and they do not capture longer
investment chains such as investments channelled through a Special Purpose Entity
(SPE) in another country (e.g. for tax purposes). An overview of the limitations on the
coverage of FDI statistics is provided in
Annex III.
In addition, there are issues
regarding the
methodology used by the Chinese Ministry of Commerce (MOFCOM)
for compiling investment statistics published
21
.
23
Our review of Eurostat statistics indicates that China’s investment in the EU has
increased, but remains relatively low. In 1995, only 0.3 % of the FDIs in the EU were
held by Chinese investors.
Figure 6
shows how China’s share of the total FDIs in the EU
has increased in the years 1995, 2005 and 2015.
At the end of 2018, this proportion
had increased to 3 %
22
i.e. the Chinese FDIs (stocks) in the EU were €202 billion.
Financial centres with favourable tax environments can attract high levels of FDI
23
,
with Luxembourg being the
largest recipient of investments from China within the EU
at €82.5 billion, followed by the Netherlands. An overview of the Chinese FDIs to the
EU is provided in
Annex IV.
20
21
Eurostat, Database, European Commission, 2020.
Freeman, D., “China’s Outward Direct Investment in the EU: Challenges of Rapid Change”,
EU-China Observer, 2015.
Eurostat, Foreign Direct Investment stocks at the end of 2018, March 2020.
The Rise of Phantom Investments, IMF, September 2019.
22
23
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21
Figure 6 – Increase in the total share of the Chinese FDIs (stocks) in the
EU in the years 1995, 2005 and 2015
Source:
European Commission, “Accompanying the document Proposal for a Regulation of the European
Parliament and of the Council establishing a framework for screening of foreign direct investments into
the European Union”, Commission Staff Working Document, SWD(2017)/0297 final – 2017/0224 (COD),
Brussels 13 September 2017.
24
In response to the limitations of official FDI statistics, the Commission (DG TRADE)
constructed a new non-public database, the “EC-JRC Foreign Ownership Database”
using
firm-level data
(e.g. individual company balance-sheets) based on sources such
as Orbis and Zephyr databases
24
. The EC-JRC Foreign Ownership Database captures
foreign ownership of more than 50 % of the capital of unlisted companies and the
ownership of the largest shareholder(s) for publicly listed companies. This can be used
to identify the ultimate owner of the investment and provides a more granular
classification of sectors than FDI statistics. Similar to issues of completeness for FDI
statistics, this database does not include small companies that are exempted from
publishing their balance-sheets and financial leasing is generally not covered.
25
Based on the
EC-JRC Foreign Ownership Database,
the total amount of assets,
including FDIs, controlled by Chinese investors at the end of 2017 was €2 114 billion.
This represents 0.89 % of total companies in the EU by value, and 0.18 % of the total
number of companies in the EU. According to the EC-JRC Ownership Database, the
main recipient country of Chinese investments has been the United Kingdom (UK),
24
Commission Staff Working Document, SWD (2019) 108 final.
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22
totalling €1 772 billion of assets. An overview of the foreign ownership of companies in
the EU controlled by Chinese investors is provided in
Annex V.
26
Figure 7
shows the evolution over time of Chinese FDIs transactions (flows) and,
in particular, the
significance of investments made from SOEs
as compared to those
from private companies. The large state-owned sector is a hallmark of the Chinese
economy.
Figure 7 – Chinese FDIs in the EU in the period 2000-2019
Source:
Rhodium Group, 2020.
Sectors of investment
27
The sectors of Chinese FDIs from 2000 to 2019 include
strategically important
areas
25
such as
transportation and infrastructure
(29.1 %),
Information and
Communications Technologies (ICT)
(12.4 %), and
energy
(10.1 %), as well as
automotive
(14.1 %), and
real estate and hospitality
(11.2 %).
Figure 8
shows the
sectoral destination of Chinese FDIs since 2000.
25
Strategic sectors and assets as outlined in European Commission (2017)
Welcoming Foreign
Direct Investment while Protecting Essential Interest,
Brussels, 13.9.2017 COM(2017) 494
final.
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23
Figure 8 – Chinese FDI transactions in the EU by Chinese state-owned
Investors, 2000-2019, by sector
Source:
Rhodium Group, 2020.
28
Some
examples of significant acquisitions by Chinese investors in the EU
are:
o
o
o
o
2012: Energias de Portugal for US$3.5 billion. Power utility company, Portugal.
2014: CDP Reti for $2.8 billion. Holding Company, utilities, Italy.
2015: Pirelli for US$7.7 billion. Automotive equipment and components, Italy.
2017: Logicor for US$14 billion. Transportation services and logistics, United
Kingdom
26
.
26
Rhodium Group Cross Border Monitor (CBM): “People’s Republic of China
< > European
Union Direct Investment”,
1Q 2019 Update: Public Version, New York, 2019.
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24
4. ECA compilation of risks and
opportunities for the EU
29
When designing, setting and implementing policy documents addressing EU-
China relations and in particular the challenges posed by the Chinese investment
strategy, the Commission services and the EEAS identify and assess relevant risks and
opportunities. According to these services, this ongoing assessment is based on
information from various sources, including other EU services, Member States, third
countries and experts that work on different policy areas. However, we found no
formalised comprehensive analysis of the risks and opportunities for the EU
of
China’s investment strategy.
30
As part of our review, we therefore carried out an exercise to compile our own
list of risks and opportunities of China’s investment strategy, based on publicly
available information and consultation with experts. Using an international framework
on risk management
27
, we focussed on
risks and opportunities and classified these by
type
as outlined below. See
Annex VI
for a more detailed description of these
risks/opportunities and their sources. While all of these risks and opportunities apply
to China, they may also be applicable to EU relations with other countries. Certain risks
and opportunities may affect the EU directly, while others may impact EU policies in
third countries.
31
Table 2
provides the ECA’s overview of the risks. Over half of the
risks
are
political or economic in nature. In addition, there are also other risks of a social,
technological, legal and environmental nature. The 18 risks listed in this review are not
exhaustive, do not carry equal weight, with some of them creating more substantial
threats to the EU than others. We highlight examples of risks in
Box 3.
27
“Integrating with Strategy and Performance”,
Enterprise Risk Management,
Committee of
Sponsoring Organizations of the Treadway Commission (COSO), June 2017.
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25
Table 2 – EU Risks from China’s investment strategy
Type
#
R.1
R.2
Risk Overview
Chinese investments in sensitive/strategic assets in Europe may affect
security/public order
Individual Member States concluding Memoranda of Understanding
(MoUs) on BRI cooperation may undermine EU unity
BRI projects may weaken Member States’ strategic national
infrastructure ownership, with geopolitical implications
Chinese investments expand cross-border connectivity infrastructure
which is exploited by transnational organized crime/trafficking
Lack of reciprocity in EU-China relationship due to unfair economic
advantage of Chinese companies
Lack of coordination between infrastructure programmes of the EU and
China, which may generate gaps in connectivity infrastructure, or
investment projects which compete with or duplicate others (*)
Chinese SOEs financing unmanageable debts in EU and third countries,
resulting in default with the loss of strategic collateral
EU long-term competitiveness damaged from forced technology transfer
to China
EU importing goods from China priced below production costs
Political
R.3
R.4
R.5
R.6
R.7
R.8
R.9
Economic
R.10
EU economy impacted by negative shocks to its supply chains with key
Chinese suppliers
Social
R.11
Workers labour/social rights not respected by Chinese companies
engaged in foreign investments
R.12
BRI is not sufficiently compliant with EU data security rules, leaving EU
vulnerable to cyber-attacks
R.13
Chinese transport infrastructure does not adhere to EU/international
standards, loss of positive effects
R.14
Chinese investments do not comply with EU financial regulations, e.g.
money laundering
Tech
Legal
R.15
Infrastructure projects in EU are irregularly awarded to Chinese bids that
are artificially low
R.16
Calculation of EU own resources affected by fraud on customs duty and
VAT in Chinese imports
R.17
Chinese companies do not comply with EU/international environmental
or governance standards fostering sustainability
Enviro
Public health being affected by increased interconnectedness in a
R.18
globalised world (including Chinese transport routes along the BRI)
expediting the transmission of disease
Note(*):
The Commission services and the EEAS do not consider this risk to be relevant due to the
political reality and consider the issue of infrastructure coordination to go against the EU's current
policy.
Source:
European Court of Auditors (ECA).
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26
Box 3
Examples of risks posed by the Chinese investment strategy for the
EU
Excessive indebtedness in third countries and loss of strategic collateral
In order to implement the BRI, China has lent funds without taking sufficient
account of the long-term sustainability of projects and with little regard for the
fiscal position of borrowers. This has contributed to
excessive indebtedness
in
third countries such as Pakistan, Tajikistan, Kyrgyzstan, Sri Lanka, Maldives and EU
candidate country Montenegro
28
. This risk could potentially materialize in the EU
if such BRI financing of projects is carried out in Member States.
Per risk
R.7,
there have been examples of infrastructure of strategic national
importance being used as collateral. Hambantota International Port in Sri Lanka is
of national and strategic importance. In 2017, the Sri Lankan government could
not keep up with the repayments on the Chinese loan and the port was signed
over to China Merchants Port Holdings on a 99-year lease with a payment of
US$1.12 billion
29
.
Intellectual Property (IP) and Technology Transfers
Many of the risks outlined in
Table 2
above would negatively impact the goal of
ensuring reciprocity and a level playing field in EU-China relations if they
materialized. Risk
R.8
mentions the transfer of technology from European
enterprises to Chinese entities. In the Business Confidence Survey 2019, published
by the European Chamber of Commerce in China, it was reported that 20 %
respondents felt compelled to transfer technology in order to maintain market
access in China, highlighting the lack of reciprocity in the EU-China relationship
30
.
28
Hurley, J., Morris, S. & Portelance, G., “Examining the Debt Implications of the Belt and
Road Initiative from a Policy Perspective”,
Center for Global Development,
CGD Policy
Paper 121, March 2018.
Ferchen, M. & Perera, A., “Why Unsustainable Chinese Infrastructure Deals Are a Two-Way
Street”,
Carnegie-Tsinghua Center for Global Policy,
July 2019; Panda, A. “Sri Lanka Formally
Hands Over Hambantota Port to Chinese Firms on 99-Year Lease”, The Diplomat,
December 2017.
Business Confidence Survey 2019, European Chamber of Commerce.
29
30
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27
Environmental Standards and Climate Change
R.17
focuses on the risk that Chinese companies do not respect the environmental
standards of the EU. ‘The European Green Deal’
31
is a top priority for the
European Commission. One of its objectives is to have net zero emissions of
greenhouse gases by 2050. Despite the announcement at the Second Belt and
Road Forum for International Cooperation in 2019 to pursue ‘open, green and
clean cooperation’
32
, the BRI continues to pursue coal-fired power projects. An
example of one such project financed by Chinese loans is planned in Bosnia and
Herzegovina
33
, a potential candidate country to the EU.
Public Health
The recent COVID-19 pandemic has shown the risk to public health due to the
interconnectedness in a globalised world. This risk impacts many countries
worldwide. Studies have shown that pathogens can now travel further, faster and
in greater volumes than before
34
. As China is now a leading provider of transport
infrastructure worldwide,
R.18
highlights how new transport routes along the BRI
could pose a risk to public health in the EU and its neighbourhood unless proper
checks and sanitation precautions are in place.
32
Table 3
provides the ECA’s overview of the opportunities. All of the
opportunities
listed have a political and economic nature. We provide examples in
Box 4.
31
32
The European Green Deal, COM/2019/640 final.
Keynote Speech by H.E. Xi Jinping President of the People's Republic of China At the
Opening Ceremony of the Second Belt and Road Forum for International Cooperation,
Ministry of Foreign Affairs of the People’s Republic of China, Beijing, 26 April 2019.
Mardell, J., “China’s Belt and Road Partners Aren’t Fools”,
Foreign Policy,
May 2019.
Tatem, A.J., Rogers, D.J., Hay, S.I., “Global Transport Networks and Infectious Disease
Spread”, Advances in Parasitology,
Elsevier Public Health Emergency Collection,
vol. 62,
2006.
33
34
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28
Table 3 – EU Opportunities from China’s investment strategy
Type
Political
O.2
O.3
O.4
O.5
O.6
O.7
Economic
O.8
O.9
#
O.1
Opportunity Overview
Chinese investments in the EU can foster common interests through
stronger bilateral relationship
Chinese investments contribute to peace and security in EU
neighbourhood/developing countries
EU-China engagement increases international lending capacities,
facilitating economic growth
Chinese investments in EU neighbourhood/developing countries
enhances achievement of EU objectives, improving economic growth
Euro appreciates due to China's foreign currency reserves being
converted to acquire euro-denominated assets.
BRI expands trade by improving connectivity and lowering trade costs
in EU and other countries
BRI provides further development of (commercial) rail as an alternative
for both sea and air in the EU
BRI rebalances freight flows going to/coming from the EU
BRI provides incentive to streamline customs arrangements with a view
to improve connectivity
possible sharing of skills between the EU and China
standards and capacities on digitalization
dependency on any individual country
O.10
EU companies to build transport infrastructure in Central Asia with
O.11
EU exposure to latest technologies presents chance to promote EU
O.12
EU diversifies risks of foreign investment ownership, reducing potential
O.13
EU sectors such as higher education, research, creative/cultural
industries benefit from cooperation and exchanges with China
Source:
ECA.
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29
Box 4
Examples of opportunities presented by the Chinese investment
strategy for the EU
Improved connectivity and freight flows
COSCO Shipping Corporation Ltd (COSCO), a Chinese SOE, has stakes in terminals
in European ports such as Valencia, Rotterdam, Antwerp and Piraeus.
For example, in the case of the
Port of Piraeus:
—
Since August 2016, the COSCO Shipping Group has been the majority owner
of the Piraeus Port Authority – which operates Terminal I,
COSCO Pacific runs Terminal II under a 35-year concession signed in 2008.
—
The agreement between the Piraeus Port Authority and COSCO improved
connectivity (O.6) and freight flows (O.8). It allowed investments in new piers, and
a rail link between the port’s terminals and the national rail system. The World
Bank reports that the Piraeus annual container throughput increased by 168 %
between 2007 and 2016
35
. The Greek port continues to climb the rankings and in
2019 was one of the four most important port in Europe in container volume after
Rotterdam, Antwerp and Hamburg.
Cooperation on academic and research cooperation
There are benefits to be derived from cooperation on academic and research
cooperation, as outlined in opportunity
O.13.
EU sectors such as higher education,
research, creative/cultural industries can benefit from academic exchanges with
China through the Erasmus+ and Jean Monnet Activities programmes, as well as
research initiatives through Horizon 2020. As of March 2019, there were 1 034
Chinese researchers participating in
Marie Skłodowska-Curie
actions. According to
the Commission services and the EEAS, there are also certain risks associated with
this opportunity, for example a lack of reciprocity.
35
“Belt and Road Economics Opportunities and Risks of Transport Corridors”, June 2019,
The
World Bank Group.
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30
5. The EU’s response to China’s
investment strategy
EU governance arrangements
33
Competences within the EU framework include the ability to legislate in the
different policy areas. The EU and Member States both exercise competences in policy
areas related to the EU’s response to China’s investment strategy. Some areas, such as
national security, are the exclusive competence of Member States. Other areas fall
under the exclusive competence of the EU, for example competition rules necessary
for the functioning of the internal market. In some areas such as energy and transport,
these competences are shared meaning that both the EU and Member States are able
to pass laws.
34
In policy areas where a concerted EU approach could be an advantage (see the
example of 5G security in
Box 5),
the fact that
both the EU and Member States
exercise competences
means that there are multiple decision-makers (e.g. EU
institutions and national governments) with possible diverging opinions and
approaches. This
can make it difficult to address the challenges faced by the EU as a
whole
in a timely and coordinated manner.
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31
Box 5
5G Security and Member States
The use of Chinese 5G equipment in critical EU infrastructure is described by many
as a potential threat. 5G technology is an area where a concerted EU approach
could have advantages, especially regarding cybersecurity concerns which might
impact on the functioning of the internal market.
In the light of their exclusive competence as regards national security, Member
States have had diverging responses regarding cooperation with China on 5G.
Some of them took a cautious approach but continued to work with the Chinese
technology company Huawei to roll out 5G networks, for example in Germany and
Belgium. The Czech Republic, on the other hand, has halted cooperation with
Chinese providers of 5G technology after their National Cyber Security Center
issued a warning in 2018.
Following the European Council's call for a concerted approach to 5G in 2019, the
Commission issued a Recommendation with guidelines to Member States on
security of 5G networks. This was followed up with the EU toolbox in January 2020
for national risk-mitigating measures. Ultimately, a concerted approach to 5G in
the EU will depend on an agreed position of the Member States.
35
Policy measures for the EU-China strategy (see
Table 4)
are proposed in
“Communications” jointly published by the Commission and the High Representative
of the Union for Foreign Affairs and Security Policy (HR/VP). These are implemented
either by EU internal legal acts (Regulations or Directives), which need to be adopted
by the Council and the European Parliament, or by foreign policy positions taken by
the Council.
The drawback of this consensual decision-making process is that it
creates the risk of not reacting to challenges faced by the EU in a timely manner.
The EU institutional response
Development process of the key strategic documents
36
In this section we describe the development process of the EU’s key strategic
documents for the EU-China agenda, with a particular focus on:
o
o
the strategic framework for EU action,
the involvement of stakeholders in the process.
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32
37
The Commission and the High Representative of the Union for Foreign Affairs and
Security Policy (HR) have jointly published several strategic documents for EU-China
relations, which include the EU institutional response to Chinese investment strategy.
Figure 9
presents the
EU-China strategic timeline
including the Multiannual Financial
Frameworks (MFFs), and illustrates the complexity of this framework with overlapping
timeframes. There exists other relevant strategic documents that contribute to the EU
policies vis-à-vis China. These documents are not specifically focussed on China, e.g.
the New Industrial Strategy for Europe (March 2020) or the Digital Strategy - Shaping
Europe’s Digital future (February 2020).
Figure 9 – EU-China strategic timeline, including the MFFs
Source:
ECA, based on EU public documents.
38
The Juncker Commission set out
ten EU policy priorities
for 2014 to 2019
36
.
Regarding
priority 9 ”Europe as a stronger global actor”,
the 2016 Commission’s Work
Programme (CWP)
37
mentioned for the first time the objective of deepening bilateral
relations and of updating tailored strategic approaches, particularly on China. This
priority, along with
priority 6 “A balanced and progressive trade policy to harness
globalisation”,
aimed to contribute to a coherent approach to connectivity: deepening
36
“The Juncker Commission's ten priorities, An end-of-term assessment”, In-depth analysis,
European Parliamentary Research Service (EPRS),
May 2019.
Communication from the Commission to the European Parliament, the Council, the
European Economic and Social Committee and the Committee of the Regions, Commission
Work Programme 2016, “No time for business as usual”, Strasbourg, 27.10.2015,
COM(2015) 610 final.
37
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33
trade and investments with China on a level playing field, intellectual property rights,
protection, greater cooperation on high-end technology, and dialogue on economic
reform, human rights and climate action
38
. In this context the
EU-China Connectivity
Platform
(see
Box 6)
was set up in 2015 to enhance cooperation with China.
Box 6
The EU-China Connectivity Platform
In September 2015, the European Commission and the National Development and
Reform Commission of China signed a MoU on establishing a Connectivity
Platform.
The overall objective of this platform is:
—
—
To strengthen the exchange of information,
To promote seamless transport connections and facilitation, and to synergize
related policies and projects: i.e. between the EU’s Trans-European Networks
(TEN-T) and China’s BRI, and
To create cooperation opportunities for Chinese and EU enterprises and an
open, transparent environment, as well as a level playing field for investment
in transport and other fields.
—
The highest level of the platform is the annual chairs’ meeting, the results of these
summits are reported in the joint statement.
By the date of our review, the main outcome of this platform has been the Terms
of Reference on the
Joint Study on Sustainable Railway-based Comprehensive
Transport Corridors between Europe and China
39
(2019) to define the most
appropriate and sustainable railway-based comprehensive transport corridors.
38
European External Action Service, “Shared Vision, Common Action: A Stronger Europe - A
Global Strategy for the European Union’s Foreign and Security Policy”, European Union
Global Strategy, June 2016, pp. 37-38.
Terms of Reference of the Joint Study on Sustainable Railway-based Transport Corridors
between Europe and China, Webpage of DG MOVE, Last update: 9.6.2020.
39
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34
39
In September 2019, the von der Leyen Commission published the guidelines
40
for
the period 2019-2024 with
six key priorities.
Even though not directly mentioned, the
EU-China policy intersects with several of the Commission’s initiatives,
in particular:
o
The role played by the EU in international negotiations to make Europe the first
climate-neutral continent;
The development of joint standards for the new generation of technologies (such
as 5G networks), and of education and skills empowering people;
The EU combatting against criminals and the strengthening of the Customs Union
to better protect the Single Market;
The strengthening of the EU unique brand of responsible global leadership.
o
o
o
40
There have been three recent key strategic documents setting out the EU
institutional response towards China’s investment strategy. See
Table 4.
40
von der Leyen, U., A Union that strives for more: My agenda for Europe – Political
Guidelines for the next European Commission 2019-2024, 2019.
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35
Table 4 – Overview of three key strategic documents setting out the EU
institutional response towards China’s investment strategy
Communication
o
o
o
o
o
o
Overview
Basis of current EU policies towards China
47 Key Actions
To protect EU interests, the Commission services and EEAS
promote universal values underpinned by the three UN
pillars based on a constructive approach to differences
Reminds Member States that any bilateral agreements
with China should reflect and safeguard EU interests
Stipulates that the implementation of strategy will be
reviewed on a regular basis and updated as necessary
While this strategic document on sustainable,
comprehensive and international rules-based connectivity
is not China-specific, it addresses the sustainable
connectivity strategy between Europe and Asia, and thus
China
17 Key Actions
Main goals are:
(1) To contribute to the development of transport,
energy and digital networks between Europe and Asia
(2) To strengthen partnerships with non-EU countries,
regions and international organisations in Asia
(3) To increase cooperation in education, research,
innovation, culture, sport and tourism
Three main objectives:
(1) To deepen the EU’s engagement with China to
promote common interests at global level, based on
clearly defined interests and principles
(2) To seek more balanced and reciprocal economic
relations
(3) To adapt to changing economic realities and
strengthen EU’s own domestic policies and industrial
base
10 Key Actions
“Elements for a new EU
strategy on China” -
June 2016
“Connecting Europe
and Asia – Building
blocks for an EU
strategy” -
September 2018
o
o
o
“EU-China – A strategic
outlook” -
March 2019
o
Source:
Joint Communications of the Commission and the HR, JOIN(2016) 30 final, JOIN(2018) 31 final
and JOIN(2019) 5 final.
41
The three above strategic documents were discussed by the Council: the former
two strategies were endorsed in full, for the latest document (the 2019 strategic
outlook), most of the proposals were endorsed.
42
The
process of setting these strategic documents
involved internal consultations
of Commission services and the EEAS. The external consultation with Member States
was done before their adoption by the Council, by means of discussions in the relevant
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36
Council Working Parties and Committees, as well as in national business associations
and political foundations. However, according to the Commission services and the
EEAS, there was no specific and dedicated consultation process with Member States
and external stakeholders for the 2019 EU-China strategic outlook because of the need
to respond quickly and cohesively. Instead there were extensive discussions that took
place with these stakeholders on China throughout 2018 and 2019, which were fully
taken into account. The Commission services and the EEAS note that this explains the
positive reception of the 2019 strategic outlook.
43
The strategic documents contain 74 actions. In
Annex VII
we have grouped these
into 10 broad areas of EU response. They are summarised in
Table 5:
Table 5 – ECA Compilation of ten thematic categories for the 74 actions
Categories
A) Promoting EU values along with the three United Nations (UN)
pillars (human rights, peace and security, development)
B) Preserving EU unity
C) Reciprocity to balance the relationship and level playing field
D) Preventing distortive effects on the EU internal market
E) Sustainable Economic Development and Good Governance
F) Tackling climate change and protecting the environment
G) Global public health concerns
H) Deepening the engagement on peace and security
I) Fostering cross-cultural understanding and cooperation on
innovation
J) Wider foreign policy approach
Source:
ECA.
Number of
actions
7
5
17
2
16
4
1
10
4
8
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Alignment of the response to the risks and opportunities for the
EU
44
In this section, we describe how the EU actions align to the risks and
opportunities highlighted in section 4. We mapped the risks and opportunities to the
thematic categories (see
Table 5)
and with the 74 actions of the three strategic
documents (see
Annex VII)
and prepared a compilation (see
Annex VIII).
45
Our review showed that the actions
in these strategic documents cover almost
all of the risks and opportunities, with the exception of three risks:
o
R.6: The risk that there is a
lack of coordination between infrastructure
programmes of the EU and China,
which may generate gaps in connectivity
infrastructure, or investment projects which compete with or duplicate others
41
;
R.10: The risk that the
EU economy is negatively impacted from shocks to its
supply chains
with key Chinese suppliers;
R.18: The risk that
public health is affected by increased interconnectedness in a
globalised world
(including Chinese transport routes along the BRI) expediting the
transmission of disease.
o
o
Several initiatives have been undertaken with respect to reciprocity, level playing
field and prevention of distortive effects on the EU internal market (thematic
categories C and D in
Table 5).
In
Box 7,
we show by way of example an ongoing
specific EU action undertaken as part of the 2019 strategic outlook.
46
41
See note under
Table 2
.
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Box 7
Example of ongoing EU action undertaken in relation to reciprocity
and the prevention of distortive effects on the EU market
Negotiation of a bilateral Comprehensive Agreement on Investment (CAI) with
China
The EU is aiming to rebalance the market openness between the EU and China,
address some key level playing field issues and replace Bilateral investment
Treaties (BiTs) between China and Member States (see paragraph
64)
with a single
EU-China CAI. The negotiations were launched in 2012 and at the 21
st
EU-China
Summit of 9 April 2019, the EU and China committed to achieve the progress
required for the conclusion of the CAI in 2020.
Implementation of the strategy
47
We describe below the process of implementation of the EU-China strategy
covering the two key elements which are the responsibilities for implementation and
financing
42
.
48
Out of a total of 74 actions, 34 are EU actions, 38 are bilateral actions to be taken
by both the EU and China, and two require unilateral action from China.
The
responsibilities for implementing these actions depend on the policy area concerned,
without any explicit allocation of these responsibilities e.g. in the Commission,
DG MOVE oversees the response related to transport, and DG ENER is responsible for
the response on energy. Such an approach to responsibilities requires increased
coordination for the successful implementation of an action.
49
The EU-China strategy was implemented without any prior assessment of the
EU financing
required to implement the actions of this strategy e.g. those related to
infrastructure, and
without earmarking any EU financing.
According to the
Commission services and the EEAS, there is neither an obligation nor a need to do so
and, in line with the practice with other strategic partners, they consider that most of
the EU-China actions draw upon the funding from existing EU programmes.
42
C(2018) 7703 of 21.11.2018 – Communication to the Commission “Governance in the
European Commission”.
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50
A downside of this approach is that, currently
it is not possible to have an
overview of EU spending
which is used to implement the EU-China strategy, despite
the fact that such spending exists. In addition, we found examples where the EU
budget funded projects which were part of the Chinese investment strategy. Whilst
these projects were primarily meant to contribute to the objectives of the EU policy
programmes, they also financed projects falling under the Chinese investment strategy
(see
Box 8).
Box 8
EU financing Chinese Investment Strategy projects in Europe
Pelješac bridge in Croatia
In 2017, the Commission allocated €357 million of Cohesion Policy funds to cover
85 % of the cost of the Pelješac bridge in Croatia. This project aims to connect the
area in the South around Dubrovnik to the rest of mainland Croatia. In 2018, the
Croatian authorities awarded a major construction contract for this bridge
43
to a
Chinese consortium led by the SOE China Road and Bridge Corporation, thereby
financing a project which is part of the Chinese investment strategy
44
.
European Bank for Reconstruction and Development (EBRD)
The EU is the largest single donor to the EBRD, an international financial
institution. The EBRD has been deeply engaged in many of the economies along
BRI corridors, where there is a need to develop infrastructure in order to support
more robust and sustainable growth. China joined the
EBRD
in 2016 as a
shareholder with the aim of opening up investment opportunities in eastern
Europe, a region which sits along the BRI route
45
.
43
Silk Road Briefing, “Chinese Contractors Winning Bid for EU Funded Pelješac Bridge in
Croatia Raises Eyebrows”,
Silk Road Briefing,
10 May 2018.
Blockmans, S. & Hu., W., “Systemic rivalry and balancing interests: Chinese investment
meets EU law on the Belt and Road”,
Centre for European Policy Studies (CEPS),
March 2019.
Makocki, M., “China’s Road: into Eastern Europe”,
European Union Institute for Security
Studies (EUISS),
February 2017.
44
45
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40
51
The EU also uses several financial instruments from
the European Investment
Bank (EIB)
or
European Investment Fund (EIF)
outside the EU budget to engage with
the Chinese’s investment strategy (see
Box 9).
Box 9
Engagement of EU Financial Instruments with the Chinese
Investment Strategy in Europe
European Investment Bank (EIB)
The
EIB Group
finances projects in China. In May 2018, the EIB signed an
agreement for climate-related investments with China Exim Bank (€300 million).
The objective was to finance projects in the water, sewerage, energy and
transport sectors
46
.
European Investment Fund (EIF)
To develop synergies between China’s BRI and the "Juncker Plan", in 2017 the
EIF
and the Silk Road Fund (Chinese state-owned investment fund for countries along
the BRI) signed an MoU to create the China-EU Co-investment Fund, which was
expected to provide €500 million support investments
47
for companies with
potential to expand internationally. Targeted sectors include those with high
cross-border synergies between China and the West
48
.
Monitoring, reporting and evaluation of the strategy
52
The way in which actions have been set makes it difficult to monitor the progress
of their implementation.
54 % (40 actions)
are specific and foresee the achievement of
defined results (“specific
actions”).
There are
no performance metrics (e.g. indicators)
associated with these actions. The remaining
46 % (34 actions)
are generally defined,
with no
targeted objectives
and do not include any deliverables to be provided
(“general
actions”).
46
European Investment Bank, “China Climate Eximbank Framework Loan”,
EIB,
21 September
2017.
European Investment Fund, “EIB Group cooperation with China to be strengthened with
new EUR 500 million
Silk Road Fund equity investment initiative”, EIF,
2 June 2017.
European Investment Fund, “First EU-China investment platform backed by the Juncker
Plan”,
EIF,
6 August 2018.
47
48
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53
According to the Commission services and the EEAS, the monitoring of the
74 actions is regularly carried out by their respective DGs.
We found documentation of
this for only the ten actions of the 2019 EU-China strategic outlook.
54
As regards the reporting, our review showed that except for some references in
the management reports issued by the Commission services and the EEAS, i.e. the
Annual Management Plans (AMPs) and the Annual Activity Reports (AARs),
there is no
specific reporting for external or internal purposes on the three key strategic
documents.
55
We found some information in the Commission’s Annual Management
Performance Reports (AMPRs) about the implementation and evaluation of the EU-
China strategy, and noted that the formulation of the 2019 EU-China strategic outlook
was based on a review of the existing 2016 EU-China strategy communication.
However,
there is no specific evaluation of the three strategies planned.
56
This approach to monitoring, reporting and evaluation of the 74 actions makes it
difficult to ascertain whether the risks are being sufficiently mitigated or the
opportunities are being fully explored with regards to the challenges posed by the
Chinese investment strategy (see paragraphs
29
to
32).
Member States’ response
57
Member States may cooperate with China on a bilateral basis, some of which are
described below.
58
China established a framework for
cooperation with 17 Central and Eastern
European Countries (CEEC)
(see
Figure 10)
- commonly called the “17+1” (formerly the
“16+1”) - in order
to promote business and investment relations.
It was founded in
Budapest in 2012 as a cooperation between China and the 16 members of the CEEC,
which includes countries with legacies of communist regimes.
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42
Figure 10 – EU Member States and countries of CEEC
Source:
ECA based on Commission’s information, Map background ©OpenStreetMap contributors
licensed under the Creative Commons Attribution-ShareAlike 2.0 license (CC BY-SA).
59
There are 12 Member States within the 17+1 cooperation framework. They
engage with China bilaterally within this framework
49
, which creates a
risk to cohesion
of EU action.
In addition,
the 17+1 framework may also affect the implementation of
the EU policies in the Western Balkans
as five countries in the 17+1 framework are
Western Balkan states with candidate or potential candidate status.
49
European Council on Foreign Relations (ECFR),
“China’s Investment in Influence: the Future
of 16+1 Cooperation”, December 2016.
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60
The Eurostat database shows that the 17+1 countries have not attracted high
levels of Chinese FDI (see
Figure 11).
Investments have been concentrated in five
Member States (Czech Republic, Greece, Hungary, Lithuania and Poland). Of the 17+1,
the Czech Republic received the largest investment from China with a reported
€686 million in stock, which accounts for 0.3 % of total Chinese FDIs (stocks) in the EU.
Figure 11 – Chinese FDIs (stocks) in the CEEC at the end of 2017
Source:
Eurostat’s FDI statistics.
61
The relations between Member States and China, and their cooperation in certain
areas are formalised by means of MoUs. These MoUs express a common
intention for
joint action,
without any
legal commitment.
To date,
15 Member States have signed a
MoU with China on the BRI related investment and projects
(see
Table 6).
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Table 6 – MoUs on the BRI concluded between Member States and China
EU’s Member State
Bulgaria
Czech Republic
Hungary
Poland
Romania
Slovakia
Latvia
Croatia
Estonia
Greece
Lithuania
Slovenia
Malta
Italy
Luxembourg
Source:
ECA, based on publicly available information.
Year when MoU on BRI was signed
2015
2015
2015
2015
2015
2015
2016
2017
2017
2017
2017
2017
2018
2019
2019
62
Member States have also other MoUs concluded
in a wide array of topics from
nuclear cooperation (French New Areva – China National Nuclear Corporation 2018)
50
to the establishment of a ‘Sister Airport Relationship’ (China-Finland 2016)
51
.
50
World Nuclear News, “France and China enhance nuclear energy cooperation”,
World
Nuclear News,
10 January 2018.
Ministry for Foreign Affairs of Finland, “Joint Action Plan between China and Finland on
Promoting the Future-oriented New-type Cooperative Partnership 2019-2023”,
UMFI,
April 2017, p. 27.
51
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45
63
As set out in a Council Decision
52
, Member States are obliged to inform the
Commission of agreements relating to economic and industrial cooperation with non-
EU countries, to ensure consistency of national and EU commercial policy. According to
the Commission,
they have not been informed about any such MoUs signed by
Member States
by the date of this review.
64
A Bilateral investment Treaty (BiT) is an agreement between two countries on the
promotion and protection of investments made by investors
from the respective
countries in each other’s territory.
All Member States, except Ireland, concluded BiTs
with China.
Most of the BiTs were signed before 2000, with the oldest BiT in force
being signed between Sweden and China in 1982
53
. The EU is aiming to replace these
BiTs with a single EU-China CAI (see
Box 7).
65
Within the recently adopted common EU framework for screening FDIs on
grounds of security and public order
54
Member States apply their
own national
screening mechanisms
55
. These mechanisms vary significantly in
scope
(review of intra
or extra-EU FDI; differing screening thresholds, breadth of sectors covered beyond
defence) and in
design
(pre-authorisation vs. ex-post screening of FDI)
56
. As of
December 2019, 14 Member States have an established FDI screening mechanism.
These Member States are: Denmark, Germany, Spain, France, Italy, Latvia, Lithuania,
Hungary, the Netherlands, Austria, Poland, Portugal, Romania, and Finland.
52
Council Decision 74/393/EEC of 22 July 1974 establishing a consultation procedure for
cooperation agreements between Member States and third countries.
United Nations Conference on Trade and Development, “International Investment
Agreements Navigator (China)”,
Investment Policy Hub,
2019.
Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019
establishing a framework for screening of foreign direct investments into the European
Union adopted on 19 March 2019 but applicable from 11 October 2020.
“List of screening mechanisms notified by Member States”,
Screening of foreign direct
investment,
European Commission News Archive, 10 April 2019.
“EU framework for FDI screening”, EPRS Briefing, January 2018.
53
54
55
56
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66
Several Member States have published policy papers
regarding their relations
with China, for example:
o
The Swedish governments communication “Approach to matters relating to
China” (September 2019),
The paper “The Netherlands and China: a new balance” (May 2019),
The Joint Action Plan between China and Finland on Promoting the Future-
oriented New-type Cooperative Partnership 2019-2023 (January 2019),
The China-Denmark Joint Work Programme (2017-2020) (May 2017).
o
o
o
67
Responding to most of the challenges from China’s investment strategy falls
under the competences exercised by both EU institutions and Member States (see
paragraphs
33
and
34).
Different sources indicate that Member States often act
bilaterally with China according to their
own national interests
and
without always
informing or coordinating with the Commission
where necessary
57
. As a result, it is
difficult for the EU institutions and Member States to have a coordinated response.
57
E.g. European Parliamentary Research Service (EPRS) (2019) Briefing:
‘State of play of EU-
China relations’
for the European Parliament, and Poggetti, L.,
ʺEurope’s search for a China 
strategyˮ, Mercator
Institute for China Studies,
MERICS, 7 June 2019.
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6. Closing remarks and challenges
68
This section presents closing remarks on our review. It also highlights some
challenges in the management of the EU’s response to China’s state-driven investment
strategy, which we have noted in the course of our review work. We discussed these
with the Commission services and the EEAS and, where necessary, have included
references to their views.
69
Since the 1980s, China has been implementing a “state-driven investment
strategy” to enable a strong export-driven economy. Two main pillars of this long-term
strategy are the BRI launched in 2013, and the industrial strategy MIC 2025 launched in
2015. The BRI is the most significant Chinese investment strategy for economic growth.
It aims to increase China’s influence abroad, including on the EU. There is no
consensus among experts on the definition of the size and scope of this initiative.
The
BRI is a complex initiative that is constantly evolving, which makes it a “moving
target” for EU policy-makers.
70
The EU is committed to ensuring that there is a
level playing field and reciprocity
between the EU and China.
However, SOEs form part of the Chinese investment
strategy and benefit from Chinese public financing. Under EU rules such subsidies, if
granted by a Member States, would be treated as state aid. This difference in
treatment can distort competition in the EU’s internal market. In addition, when it
comes to foreign investment, China is less open when compared to the EU.
71
It is not possible to provide an accurate overall picture of Chinese investments in
the EU pertaining to the Chinese investment strategy (i.e. BRI and MIC 2025) due to
the limited availability of public information. We therefore used publically available
data on overall Chinese foreign investment in the EU to provide a high-level analysis.
Our review of this data indicates that China’s investment in the EU has increased, but
remains relatively low, from 0.3 % of the FDIs in 1995 to 3 % in 2018. It also shows that
Chinese investments in the EU from 2000 to 2019 include strategically important
sectors, and that over half of the Chinese investments in the EU during this period
were made by SOEs.
However, it was difficult to obtain complete and timely
data and
thus to gain an overview.
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Future Challenge 1:
How to provide more complete and timely data and statistics on investments, which
are part of the Chinese investment strategy in the EU, to help better inform EU
policy-making on China.
72
When designing, setting and implementing policy documents addressing EU-
China relations, the Commission services and the EEAS identify and assess relevant
risks and opportunities. However, we found no
formalised comprehensive analysis of
the risks and opportunities for the EU of China’s investment strategy.
As part of our
review we carried out an exercise to compile our own list of 18 risks and 13
opportunities of China’s investment strategy.
Future Challenge 2:
How to carry out a formalised, comprehensive and up-to-date analysis of risks and
opportunities for the EU, to help address the full range of challenges posed by
Chinese investment strategy. Such an analysis would involve the systematic
collection and tracking of relevant data and information, necessary to ascertain the
likelihood of such risks or opportunities from occurring and their potential impact.
73
The EU and Member States both exercise competences in policy areas related to
the EU’s response to China’s investment strategy. Where a concerted EU approach
could be an advantage, the fact that
both the EU and Member States exercise
competences
means that there are multiple decision-makers (e.g. EU institutions and
national governments) with possible diverging opinions and approaches. This
can
make it difficult to address the challenges faced by the EU as a whole
in a timely and
coordinated manner.
74
Policy measures for the EU-China strategy are proposed in “Communications”
jointly published by the Commission and the HR. These are implemented either by EU
internal legal acts (Regulations or Directives), which need to be adopted by the Council
and the European Parliament, or by foreign policy positions taken by the Council.
The
drawback of this consensual decision-making process is that it creates the risk of not
reacting to challenges faced by the EU in a timely manner.
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75
The Commission services and EEAS have published three key strategic documents
for the EU-China relations, including the EU’s response to China’s investment strategy:
the 2016 EU strategy towards China, the 2018 strategy on Connecting Europe and Asia,
and the 2019 EU-China strategic outlook. While the 2018 strategic document is not
China-specific, it addresses the sustainable connectivity strategy between Europe and
Asia, and thus China. Our review showed that the vast majority of these risks are being
covered by the Commission services and the EEAS through their various policy
initiatives and measures
with the exception of three risks:
o
The risk that there is a
lack of coordination between infrastructure programmes
of the EU and China,
which may generate gaps in connectivity infrastructure, or
investment projects which compete with or duplicate others. The Commission
services and the EEAS do not consider this risk to be relevant due to the political
reality;
The risk that the
EU economy is negatively impacted from shocks to its supply
chains
with key Chinese suppliers;
The risk that
public health is affected by increased interconnectedness in a
globalised world
(including Chinese transport routes along the BRI) expediting the
transmission of disease.
o
o
Future Challenge 3:
How to improve the implementation of the 74 actions set out in EU-China strategy,
in particular those promoting reciprocity and preventing the distortive effects on the
EU internal market, and how to address the following risks: generating gaps in
connectivity infrastructure or investment projects which compete or duplicate
others, shocks to supply chains and transmission of disease.
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76
The EU-China strategy was implemented without any prior assessment of the
EU financing
required to implement the actions of this strategy, and
without
earmarking any EU financing.
Our review shows that while
such spending exists, it is
difficult to obtain an overview
of the EU funds being spent or the various financial
instruments involved. Furthermore, there has been EU financing which financed
projects falling under the Chinese investment strategy in Europe and may undermine
the current EU-China strategy.
Future Challenge 4:
How to allow EU decision-makers to better set and track the EU-China strategy, by
making a prior assessment of the EU financing required to implement the actions of
this strategy going forward, earmarking this financing and compiling an overview of
related spending.
77
The way in which the 74 actions have been set
makes it difficult to monitor the
progress of their implementation.
Clearer objectives i.e. knowing for each action what
needs to be achieved by whom and by when, and measurement of progress against
these objectives, would make it easier to monitor the implementation of the actions.
78
According to the Commission services and the EEAS, the monitoring of these
actions is regularly carried out by their respective DGs. We found documentation of
this for only the ten actions of the 2019 EU-China strategic outlook. Furthermore,
there is no specific reporting on the three key strategic documents and no specific
evaluation of the three strategies planned.
79
This approach to monitoring, reporting and evaluation of these actions makes it
difficult to ascertain whether the risks are being sufficiently mitigated or the
opportunities are being fully explored with regards to the challenges posed by the
Chinese investment strategy.
Future Challenge 5:
How to ascertain that the challenges posed by the Chinese investment strategy are
addressed by reinforcing the performance measurement, monitoring, reporting and
evaluation arrangements for the EU-China strategy.
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80
The EU’s response to China’s investment strategy does not only consist of the
initiatives undertaken by the EU institutions, but also by the individual actions of
Member States vis-à-vis China. The Member States’ individual response to China’s
investment strategy can be seen in four areas:
o
o
o
o
MoUs,
BiTs,
National FDI screening, and
Member State policy papers on China.
81
In addition, China has established a framework for cooperation with a group of
17 CEEC (commonly called the “17+1”), of which 12 are EU Member States and five
candidate or potential candidate countries from the Western Balkans.
As these
countries engage with China bilaterally
within this framework,
the 17+1 cooperation
framework may affect the effective implementation of the EU accession strategy for
countries in the Western Balkans.
82
Different sources indicate that Member States often act bilaterally with China
according to their
own national interests
and
without always informing or
coordinating with the Commission
where necessary. For example, while 15 Member
States have signed an MoU with China on the BRI, the Commission has not been
informed about any such MoU by the date of this review. As a result, it is difficult for
the EU and Member States to have a coordinated response. Such an approach does
not promote the economic power of the EU acting collectively when it comes to
engaging with China, as opposed to acting individually as Member States.
83
The 2019 EU-China strategic outlook marked a shift in tone in EU-China relations,
with China being referred to simultaneously as a partner and systemic rival. An
effective response to this geopolitical shift would require
Member States to act,
together with the EU institutions, as a Union.
Future Challenge 6:
How to better coordinate the response of the EU institutions and Member States, by
promoting the exchange of information between them on EU-China cooperation.
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Annexes
Annex I – Panel of Experts
Name
Position
Organisation
Dr. Matt Ferchen
Head of Global China
Research
MERICS
Ms. Kristine Berzina
Senior Fellow
Alliance for Securing
Democracy, German
Marshall Fund (GMF)
Professor Jing Men
Baillet Latour
Professor of EU-China
Relations, Director of
the EU-China Research
Centre
College of Europe
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Annex II – Definition, objectives, investments and financing of
the BRI
Definition
The BRI forms an integral pillar of the
Going Global strategy
and hence supports the
Made in China 2025 strategy.
It aims to boost connectivity in five different areas:
policy, infrastructure, trade, currency and people. The infrastructure of connectivity
has been given the greatest priority, focussing on transport, energy and IT.
By investing in infrastructure projects, connectivity is enhanced between different
provinces, countries and regions, ultimately facilitating trade. The beneficiaries are
mostly low-income economies, which have greater potential to grow rapidly, and to
become new destinations for both Chinese investments and exports.
The main underlying assumption of the BRI is that a better trade infrastructure lowers
transportation costs. This will have a positive impact on international trade. According
to a study, a potential reduction of these costs by 50 % would increase trade by up to
3 % and 6 % in Asia and Europe respectively
58
.
Objectives
o
To allow China to use its excessive production capacity and invest its foreign
currency reserves in the projects on connectivity.
To facilitate the internationalisation of the Yuan/Renminbi, which will make it
more competitive with the other global currencies.
To better secure China’s supply of energy, through the diversification of its energy
suppliers.
o
o
58
Garcia-Herrero, Al. & Xu, J., “China’s Belt and Road Initiative: Can Europe Expect Trade
Gains?”,
Bruegel Working Paper,
Issue 5, 2016, p. 7.
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54
o
To upgrade the Chinese industry using high technology transferred from countries
receiving Chinese investments, while – at the same time – exporting Chinese
standards. Through increased exports, the BRI aims to “encourage the acceptance
of Chinese standards”
59
. An example of these standards are the mobile phones
manufactured by
Huawei,
a leader in 5G technology.
To supports China in increasing its political and strategic power, while aiming to
maintain friendly and peaceful relations with its neighbours.
o
Investments and financing
The BRI is mainly financed by the Chinese state. By the end of 2018, the funding was
calculated to be more than US$750 billion. This amount comes from various sources
(see
Figure 12).
Most of these instruments are state-owned or nationally funded.
These sources give out concessional loans, which are one of the riskier parts of the BRI,
because the funding goes to countries with lower sovereign credit ratings. Hence, this
could give rise to cases where the infrastructure built under the investment,
sometimes of national or strategic importance, is given to Chinese creditors in the case
of a default, notably for the emerging or developing countries.
59
Cai, P., “Understanding China’s Belt and Road Initiative”,
Lowy Institute for International
Policy,
March 2017, p. 9.
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55
Figure 12 – The sources of funding to support BRI projects
Two policy banks
(CDB and Exim
Bank of China)
45 %
State-owned
commercial
banks
36 %
Silk Road Fund
2%
Multilateral financial institutions
2%
Bonds
4%
Equity financing of
enterprises
9%
Chinese government-sponsored
bilateral funds
2%
Source:
He, A., “The Belt and Road Initiative: Motivations, Financing, Expansion and Challenges of Xi’s
Ever-expanding Strategy”
CIGI Papers,
No. 225, Centre for International Governance Innovation,
September 2019.
Most of these loans are executed by the SOEs. This method of execution means that
there is no need to take the ownership of the infrastructure, and is more effective and
efficient to keep the existing management and operation of the companies abroad.
Therefore, the Chinese investments within the BRI are mainly made by mergers and
acquisitions of companies instead of through greenfield investments.
Studies show estimates for increases in overall trade growth (2.8 % and 9.7 % for BRI
corridor economies)
60
, in foreign investments (4.97 % in total FDIs for BRI corridor
economies)
61
and for global GDP growth (0.7 % to 2.9 %)
62
.
60
World Bank, “Belt and Road Economics: Opportunities and Risks of Transport Corridors”,
Main Report (English),
The World Bank Group,
Washington DC 2019, p. 5.
ibid, p. 55.
ibid, p. 5.
61
62
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56
Annex III – Limitations of FDI Statistics
FDI statistics compiled by Eurostat have the following limitations:
(1) They do not include foreign investments if the investor owns less than 10 % of the
voting power in an enterprise. Such investments are classified as portfolio
investments (PIs) and it is not possible to identify the residence (or the
nationality) of these investors.
(2) The data does not show other forms of influence exercised on the management
and operation of the companies, such as representation in the board of directors
or in the policy-making process, other contractual reasons or provisions of
essential technology.
(3) The use of SPEs neither shows the origin of the ultimate owner, nor that there are
asymmetries in the declarations of inward and outward flows of investment. DG
TRADE has reported that, for the aggregated level in 2016, 64 % of inward FDI was
channelled via SPEs, and that this poses a number of concerns when using FDI
statistics for tracking foreign investments.
(4) DG TRADE further assessed that, when using bilateral FDIs to analyse the quality
of data on foreign investments, there are the EU’s national declarations of the
domestic assets held by foreigners and the foreign countries declarations on the
assets held in Europe. These two declarations usually do not coincide
63
.
Eurostat facilitates a platform to exchange confidential company data between EU
Member States in order to improve the quality of FDI statistics. In collaboration with
the European Central Bank (ECB), Eurostat also organises quarterly meetings where
Member States with significant bilateral asymmetries participate in order to improve
the data.
Eurostat is exploring possibilities to develop FDI data showing the resident country of
the ultimate investor, as well as the resident country of the enterprise finally receiving
an investment (ultimate host country).
63
Commission Staff Working Document, SWD(2019) 108 final, supra note 29, pp. 68 and 71.
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57
Annex IV – Overview of Chinese Investments in the EU: FDI
(stocks)
Figure 13 – Chinese FDIs (stocks) to the EU according to Eurostat data
Note:
The figure includes Hong Kong.
Source:
Eurostat database, latest available data is end of 2018.
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58
Annex V – Overview of Chinese Investments in the EU: Foreign
Ownership
Figure 14 – Assets of companies in the EU controlled by Chinese
investors according to the EC-JRC Foreign Ownership Database
Note 1:
’20 Other EU Countries’: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark,
Estonia, Finland, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia,
Slovenia, Spain.
Note 2:
Figure 14
illustrates the total assets of companies in the EU controlled by Chinese investors,
which may be different from the participations owned by Chinese investors (measured by the
percentage of shares owned multiplied by total assets). As described by DG TRADE, the control of a
company is defined as the ownership of at least 50.01 % of its shares, therefore ‘control’ does not imply
ownership of 100 % of the capital. This data is compiled using both unconsolidated and consolidated
accounts of the companies (depending on data availability). For additional information, please refer to
Gregori W., Nardo M., Ndacyayisenga N., Rancan M., Foreign Investment in the EU, The FOWN dataset,
EUR 29885 EN, Publications Office of the European Union.
Source:
EC-JRC Foreign Ownership Database, latest available data is end of 2017.
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59
Annex VI – ECA compilation of the risks and opportunities for the EU of China’s investment strategy
RISKS
Number R
+
Type of Risk
Overview of External Risks
Data and information needed to capture / assess
the Risk
Examples of sources for the compilation of the
Risks
Minghao, Z., “The Belt and Road Initiative and its
Implications for China-Europe Relations”, The
International Spectator, the International Spectator,
p. 114, October 2016; Conrad, B. & Kostka, G.,
‘Chinese investments in Europe's energy sector:
Risks and opportunities?’, p. 647, February 2017
Casarini, N., “When All Roads Lead to Beijing.
Assessing China’s New Silk Road and its Implications
for Europe”, The International Spectator, p. 105,
November 2016
R.1
Political
Risk that Chinese investments made in the EU
concerning sensitive / strategic assets may affect
security and public order
Risk that individual Member States conclude
Memoranda of Understanding (MoU) with China
concerning cooperation on the Belt and Road Initiative
(BRI) potentially contributing to EU unity being
undermined
Risk that the Belt and Road Initiative (BRI) projects may
contribute to the weakening of Member States'
ownership/control in critical infrastructure of national or
strategic importance, which may have geopolitical
implications for the EU’s economic ties with other
partner countries
Risk that Chinese investments expand cross-border
connectivity infrastructure which is exploited by
transnational organized crime/trafficking
Data and information on Member States' sensitive /
strategic assets
R.2
Political
Data and information on Member States' MoUs on
the BRI concluded with China
R.3
Political
See R.1 and R.2, as well as data and information on
investment ownership of critical infrastructure
Conrad, B. & Kostka, G., “Chinese investments in
Europe's energy sector: Risks and opportunities?”,
Energy Policy, pp. 646-647, February 2017
The Global Initiative Against Transnational
Organized Crime, “Dialogue on Organized Crime and
Development – Conference Report”, pp. 2-3,
February 2019
European Parliament DG for Internal Policies,
Research for TRAN Committee: The new Silk Route -
opportunities and challenges for EU transport
pp. 71 & 79, January 2018; Conrad, B. & Kostka, G.,
“Chinese investments in Europe's energy sector:
Risks and opportunities?”, Energy Policy, p. 646,
February 2017
R.4
Political
Studies on the effectiveness, security and crimes
concerning connectivity mechanisms
R.5
Economic
Risk of lack of reciprocity and unfair economic
advantage for Chinese companies compared to EU
companies due to unequal playing field and/or WTO
rules.
Studies on the economic advantage of Chinese
companies (as compared to EU companies) for the
competition in the EU and international markets
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60
Number R
+
Type of Risk
R.6
Economic
Overview of External Risks
Lack of coordination between infrastructure
programmes of the EU and China, which may generate
gaps in connectivity infrastructure, or investment
projects which compete with or duplicate others
Risk that Chinese investments or loans in Europe result
in bankruptcy, due to ill-conceived projects funded by
Chinese state-owned banks, or Chinese SOEs financing
unmanageable debts in the EU and in developing
countries. If Chinese funding sources take over projects
originally negotiated with international or EU lending
institutions (who had offered more favourable
conditions), this could give rise to cases where
infrastructure of national or strategic importance is
given to Chinese creditors in the case of a default.
Risk that EU long-term competitiveness and
competition-driven global innovation dynamics is
affected due to forced technology transferred to China
through foreign investment
Data and information needed to capture / assess
the Risk
Data and information, or studies on the
coordination, overlaps and synergies between the
BRI and EU's programmes in the area of
connectivity, e.g. the use of transport infrastructure
on the EU corridors from Chinese users
Examples of sources for the compilation of the
Risks
European Parliament DG for Internal Policies,
“Research for TRAN Committee: The new Silk Route
- opportunities and challenges for EU transport”,
pp. 64-72, 84-85, January 2018
R.7
Economic
Data and information, or studies on failure of
projects and/or companies financed by Chinese
investments in the EU and/or in developing
countries
OECD, “China's Belt and Road Initiative in the Global
Trade, Investment and Finance Landscape”, pp. 21
& 29, OECD Business and Finance Outlook 2018
R.8
Economic
Data and information, or studies on the transfer of
EU technology to China
R.9
Economic
R.10
Economic
R.11
Social
Risk of EU importing goods from China priced below
production costs
EU economy impacted by negative shocks to its supply
chains with key Chinese suppliers
Workers labour/social rights not respected by Chinese
companies engaged in foreign investments outside the
EU
Data and information on EU trade deficit vis-à-vis
China
Data on European dependence and substitutability
on Chinese suppliers in supply chains outside of
Europe, including research papers from ECB
Studies on the laws and respect thereof of the social
rights and benefits of local workers for foreign
investments made outside the EU by Chinese
companies
Minghao, Z., “The Belt and Road Initiative and its
Implications for China-Europe Relations”, The
International Spectator, the International Spectator,
p. 114, October 2016; Conrad, B. & Kostka, G.,
“Chinese investments in Europe's energy sector:
Risks and opportunities?”, Energy Policy, p. 646,
February 2017
Casarini, N., “Is Europe to benefit from China's Belt
and Road Initiative?”, p. 10, Istituto Affari
Internazionali (IAI), October 2015
ECB Economic Bulletin, “Transmission of output
shocks – the role of cross-border production
chains”, pp. 10-11, Issue 2 / 2016
Minghao, Z., “The Belt and Road Initiative and its
Implications for China-Europe Relations”, The
International Spectator, the International Spectator,
p. 115, October 2016
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Number R
+
Type of Risk
Overview of External Risks
Data and information needed to capture / assess
the Risk
Examples of sources for the compilation of the
Risks
Hanemann, T., Huotari, M. & Kratz, A., “Chinese FDI
in Europe: 2018 Trends and Impact of New
Screening Policies”, p. 20, MERICS and Rhodium
Group (RHG), March 2019; Conrad, B. & Kostka, G.,
“Chinese investments in Europe's energy sector:
Risks and opportunities?”, Energy Policy p. 647,
February 2017
R.12
Technological
Risk that the BRI is not sufficiently compliant with data
security rules to EU standards, leaving the EU vulnerable
to cyber-attacks (cyber-crimes or espionage)
Studies on compliance with EU data security rules,
and on cyber-attacks (or cyber-crimes or espionage)
in general
R.13
Technological
Risk that Chinese investment does not adhere to
European / international standards (i.e.ie applying
‘lower’ domestic or "Global Default" standards), e.g.
with regard to the building of cross-border transport
connections. Such an unsustainable approach may result
in a loss of positive effects of EU standards in areas such
as trade and innovation
Risk that Chinese investments do not comply with EU
money laundering and other financial regulations, with a
lack of information on the ultimate investor
Risk that large Chinese-led infrastructure projects in the
EU are irregularly awarded due to Chinese bids that are
artificially low (or propped up by state financing)
Risk that imports of Chinese goods in the EU are
affected by fraud of customs duties and VAT affecting
the calculation of own resources
Risk that regulatory EU or international standards
(including environmental requirements) are not
complied with by the Chinese companies when engaging
in procurement in the EU or accession countries (e.g.
the impact of Chinese investment projects on the
European Green Deal).
Public health being affected by increased
interconnectedness in a globalised world (including
Chinese transport routes along the BRI) expediting the
transmission of disease
Studies on the application of, and discrepancies
between EU / international standards and Chinese
domestic/’Global Default’ standards in transport
connections
OECD, “China's Belt and Road Initiative in the Global
Trade, Investment and Finance Landscape”, p. 27,
OECD Business and Finance Outlook 2018
R.14
Legal
R.15
Legal
R.16
Legal
Data and information, or studies on the compliance
of the Chinese investments with EU money
laundering and other financial regulations
Data and information, or studies on the corruption
of infrastructure project awards (in the EU), and
where appropriate from Chinese companies
Data and information, or studies on the evasion of
customs duties and VAT from imports in the EU
from China affecting the calculation of own
resources
Studies on the respect of regulatory EU or
international standards (including environmental
requirements and procurement regulations) by
Chinese companies in the EU or accession countries
Studies from the World Health Organisation (WHO)
on Public Health Emergency of International
Concerns (PHEIC)
Hanemann, T., Huotari, M. & Kratz, A., “Chinese FDI
in Europe: 2018 Trends and Impact of New
Screening Policies”, p. 20, MERICS and Rhodium
Group (RHG), March 2019
Conrad, B. & Kostka, G., ‘Chinese investments in
Europe's energy sector: Risks and opportunities?’,
Energy Policy pp. 646-647, February 2017
ECA Annual Report 2016-2018
R.17
Environmental
“Belt and Road Economics – Opportunities and Risks
of Transport Corridors”, World Bank Group,
pp. 111-112
Tatem, A.J., Rogers, D.J. & Hay, S.I., “Global
Transport Networks and Infectious Disease Spread”,
Advances in Parasitology, Elsevier Public Health
Emergency Collection, vol 62, 2006
R.18
Environmental
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62
OPPORTUNITIES
Number O
+
Type of
Opportunity
O.1
Political
Overview of External Opportunities
Opportunity that Chinese investments in the EU can
foster common interests, creating a strong
foundation for the EU-China bilateral relationship
and long-term partnership
Opportunity that Chinese investments and activities
contribute to peace and security (including the
global public health) in the EU's neighbourhood and
developing countries.
Opportunity for EU of the engagement with China
(including international multilateral development
banks), to potentially increase international lending
capacities in several sectors and facilitating
economic growth for Member States
Opportunity given by Chinese investments in
neighbourhood and development countries to
contribute to the related EU objectives, notably by
improving their economic growth
Opportunity for the EU to allow "euro" to become a
stronger currency due to significant share of China's
foreign currencies reserves being converted in euro
Opportunity that the BRI can expand trade, by
improving connectivity and lowering trade costs in
the EU and other countries
Opportunity given by the BRI for the further
development in the EU of the (commercial) rail as
an alternative for both sea and air
Opportunity given by the BRI to rebalance freight
flows going to / coming from the EU
Data and information needed to capture / assess
the Opportunity
Studies on the impact of Chinese investments on
creating a strong foundation for the EU-China
bilateral relationship and long-term partnership
Studies on the impact of Chinese investments on
the stability of EU's neighbourhood and developing
countries
Studies on the cross-sectoral international lending
capacities and impacts of Chinese investments on
creating financial sources (including also
international banks) and economic growth for
Member States
Studies on the impact of Chinese investments on
the EU objectives on neighbourhood and
development countries, in particular by improving
their economic growth
Studies on the impact of Chinese investments on
the re/de valuation of "euro"
Studies on the impact of Chinese investments on
the trade costs, and on the trade balance of the EU
and other countries
Studies on the impact of the further development
resulting from the BRI in the EU of the (commercial)
rail as an alternative for both sea and air
Studies on the impact of the BRI on freight flows
going to / coming from the EU
Examples of sources for the compilation of the
Opportunities
Conrad, B. & Kostka, G., “Chinese investments in
Europe's energy sector: Risks and opportunities?”,
Energy Policy, p. 646, February 2017
Casarini, N., “Is Europe to benefit from China's Belt
and Road Initiative?”, p. 10, Istituto Affari
Internazionali (IAI), October 2015
Kamal, R. & Gallagher, K., “China Goes Global With
Development Banks”, Bretton Woods Project,
April 2016
European Commission and HR/VP contribution to
the European Council, “EU-China – A strategic
outlook”, p. 4, JOIN(2019) 5 final, 12 March 2019.
Casarini, N., “Is Europe to benefit from China's Belt
and Road Initiative?”, p. 10, Istituto Affari
Internazionali (IAI), October 2015
“Belt and Road Economics – Opportunities and Risks
of Transport Corridors”, p. 5, World Bank Group
European Parliament DG for Internal Policies,
Research for TRAN Committee: “The new Silk Route
- opportunities and challenges for EU transport”,
pp. 65-66, January 2018
European Parliament DG for Internal Policies,
Research for TRAN Committee: “The new Silk Route
- opportunities and challenges for EU transport”,
pp. 66-67, January 2018
O.2
Political
O.3
Economic
O.4
Economic
O.5
Economic
O.6
Economic
O.7
Economic
O.8
Economic
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Number O
+
Type of
Opportunity
O.9
Economic
Overview of External Opportunities
Data and information needed to capture / assess
the Opportunity
Studies on the impact of the BRI on incentivizing
improvement and streamlining of customs
arrangements
Studies on the impact of Chinese investments in
transport connectivity infrastructure in Central Asia
and sharing skills between the EU and China
Examples of sources for the compilation of the
Opportunities
European Parliament DG for Internal Policies,
Research for TRAN Committee: “The new Silk Route
- opportunities and challenges for EU transport”,
p. 67, January 2018
European Parliament DG for Internal Policies,
Research for TRAN Committee: “The new Silk Route
- opportunities and challenges for EU transport”,
p. 68, January 2018
European Commission, “Connecting Europe and
Asia – Building blocks for an EU Strategy”, Joint
Communication to the European Parliament, the
Council, The European Economic and Social
Committee, The Committee of the Regions and the
European Investment Bank, JOIN(2018) 31 final,
Brussels, 19 September 2018
Conrad, B. & Kostka, G., “Chinese investments in
Europe's energy sector: Risks and opportunities?”,
Energy Policy, p. 646, February 2017
Hellkötter, K. &, Ayoub, L., “Mapping the EU-China
Cultural and Creative Landscape – Summarizing
Report”, LSE March 2014 for EU-China Policy
Dialogues Support Facility II
Dialogue Partners: European Commission DG EAC,
Ministry of Culture of the PRC
Opportunity given by the BRI as an incentive to
streamline customs arrangements with a view to
improve connectivity
Opportunity for EU companies to build railways,
roads and infrastructure in Central Asia with
possible sharing of skills between the EU and China
Opportunity via EU exposure to the latest
technologies to promote its standards and capacity
in technologies in deploying the
Digital4Development Strategy, as outlined in the
‘Connecting Europe and Asia: the EU Strategy’
Opportunity for the EU to diversify the risks of
(foreign) investment ownership, reducing any
potential dependency on any individual country
EU sectors such as higher education, research,
creative/cultural industries benefit from
cooperation and exchanges with China
O.10
Economic
O.11
Economic
Studies on the impact of exposure to Asian
technologies on the EU commercial and security
activities related to strategic digital development
O.12
Economic
Studies on the impact for the EU of the
diversification of, and dependencies on, (foreign)
investment ownership
O.13
Economic
Reports on Horizon 2020 and Erasmus+
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64
Annex VII – Actions resulting from the EU strategy towards
China
2016 Elements for a new EU strategy on China
#
16.1
Action
The fundamental principle of the EU's relationship with China is that it should be based on
reciprocal benefit in both political and economic terms.
EU's engagement with China should be principled, practical and pragmatic, staying true to
its interests and values. It will continue to be based on a positive agenda of partnership
coupled with the constructive management of differences.
EU Member States' engagement with China must comply with EU laws, rules and policies.
The EU expects China to assume responsibilities in line with the benefits it draws from the
rules-based international order.
The promotion of human rights will continue to be a core part of the EU's engagement with
China, with the well-being of citizens respect for international obligations at the centre of
its approach. The EU will hold China to account for its human rights record.
The EU confirms its "One China" policy.
The EU should continue to develop its relations with Taiwan and to support the
constructive development of cross-Strait relations.
The EU should support the continued implementation of "One Country, Two Systems" in
Hong Kong and Macao.
EU policy-making on China should take full account of the EU's close relationships with the
US and other partners.
The EU should continue actively to support and encourage economic, environmental and
social reforms in China towards a more open, sustainable and inclusive growth model.
The EU aims to ensure reciprocity and a level playing field in all aspects of its trade and
investment. To that end, it will step up its monitoring of access to Chinese markets and to
China's R&D support schemes by European companies.
The Comprehensive Agreement on Investment is the EU's immediate priority towards the
objective of deepening and rebalancing our economic relationship with China.
The EU puts a high priority on the rapid conclusion of an agreement with China on
Geographical Indications for the protection of food names, based on the highest
international standards.
The EU is developing a new generation of modern, high standard trade agreements, and
could consider broader ambitions such as a deep and comprehensive FTA with China, when
the conditions - including implementation of the necessary economic reforms in China - are
right.
The EU expects China to make significant and verifiable cuts in industrial over-capacity
based on a clear timeline of commitments and an independent monitoring mechanism.
The EU welcomes productive Chinese investment in Europe provided it is in line with EU
law and regulations. In return, the EU expects improved market access for foreign
companies in China and a level playing field for business and investment. China should
reduce the number of protected sectors and minimise national security reviews.
Cooperation on the rule of law, competition enforcement, as well as standards, rules and
regulations in key sectors, should be reinforced.
Mutually beneficial cooperation on research and innovation should be strengthened, while
ensuring a level playing field.
Cooperation on the digital economy can bring benefits to both the EU and China. It should
harness growth through common standards and joint research on the basis of reciprocity.
EU should intensify cooperation with China on the protection and enforcement of
intellectual property rights. The EU should reinforce measures to counter cyber-enabled
theft of intellectual property and trade secrets.
The EU should use the EU-China Connectivity Platform as its main vehicle for working with
China to connect the Eurasian continent via a physical and digital network through which
trade, investment and people-to-people contacts can flow.
Cooperation with China on its "One Belt, One Road" initiative should be dependent on
China fulfilling its declared aim of making it an open platform which adheres to market
rules and international norms in order to deliver benefits for all.
Issue
C
Type 1
G/S*
G
Type 2
U/B/C**
B
16.2
16.3
16.4
A
B
E
G
S
G
U
U
C
16.5
16.6
16.7
16.8
16.9
16.10
A
J
J
J
J
E
S
S
S
S
S
G
U
U
U
U
U
U
16.11
C
G
U
16.12
C
S
B
16.13
C
S
B
16.14
C
G
U
16.15
D
S
C
16.16
C
G
B
16.17
16.18
16.19
C
I
C
G
G
G
B
B
B
16.20
C
S
B
16.21
E
S
B
16.22
E
G
B
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16.23
16.24
16.25
16.26
16.27
16.28
16.29
16.30
16.31
16.32
16.33
16.34
16.35
16.36
16.37
16.38
16.39
16.40
16.41
16.42
16.43
16.44
16.45
16.46
16.47
People-to-people dialogue should be broadened in scope, and new initiatives identified to
encourage a greater pluralism in contacts. People-to-people contacts should be
mainstreamed throughout EU-China relations and the dialogue on mobility and migration
should be strengthened.
Recognition of China's greater role in international relations and governance should be
linked to greater adherence by China to international rules and standards.
The EU encourages China to mobilise its diplomatic and other resources towards providing
security as a global public good, including engagement on Afghanistan and Syria.
The EU has a stake in Asian security and will continue to reinforce its positive contribution
in that regard. Similarly the EU encourages China to contribute actively to peace and
security in the EU's neighbourhood in line with international law.
The EU wants to see freedom of navigation and overflight upheld in the East and South
China Seas. Disputes should be settled peacefully based on the rule of law and unilateral
provocations avoided.
EU dialogue with China to seek more common ground on disarmament, non-proliferation,
counter-terrorism and cyberspace.
The EU should ensure that it has a clear understanding of China's defence and security
policies in order to inform its engagement with China.
Africa offers the best opportunity for EU-China security cooperation, both at sea and on
land. Anti-Piracy cooperation off the Horn of Africa should continue.
The EU should seek opportunities for practical cooperation and coordination with China on
issues such as capacity-building and supporting African peacekeeping efforts, making full
use of both sides' diplomatic and security assets on the ground.
The EU and China share a common interest in supporting multilateralism. The EU should
work with China towards consolidating rules-based global governance.
The EU should seek a common platform with China on key G20 priorities.
The EU should encourage China to play a more active and engaged role in the WTO and in
multilateral and plurilateral trade and investment initiatives, assuming responsibilities in
line with the benefits it draws from an open trading system and strengthening the
ambition of these initiatives. The EU expects China to submit a GPA accession offer which
matches the importance of the Chinese market.
The EU should work more closely with China on disaster management, humanitarian crises
and migration.
The EU should continue to insist that China complies with its international legal and human
rights obligations, both within China and abroad, and should work with China to this end.
An enhanced EU-China development dialogue should be launched.
The EU should capitalise on China's commitment to tackling climate change by reinforcing
partnership in this field at both bilateral and multilateral level;
The environment is now a top Chinese policy priority, as recognised by the latest Five Year
Plan. The EU should build on this to create a positive common agenda in areas such as
tackling air, water and soil pollution, the circular economy, sustainable management of
ocean resources, and fighting threats to habitats and biodiversity;
The EU should seek to work more closely with China on fighting antimicrobial resistance.
Dealing with China requires a comprehensive (by the EU) approach to ensure maximum
impact.
Member States should reinforce agreed EU positions in their bilateral relations with China,
while the Commission services and EEAS should ensure that Member States are made
aware when EU interests need to be safeguarded.
Annual EU-China summits and high-level dialogues will set the objectives and priorities to
implement the common strategic agenda.
Yearly implementation reviews of the EU-China 2020 Agenda should take place at senior
officials' level, with a reporting link to the EU-China summit.
The EU will work with China to assess the effectiveness of the many joint dialogues and
seek to streamline them where necessary in line with EU priorities.
The EU should continue to improve its analytical capacity on China and to reach out to
future generations of Chinese leaders in all fields.
Active use should be made [by the EU] of the available EU coordination mechanisms in
order to promote EU unity.
The implementation of the EU's strategy on China should be reviewed at regular intervals
in the appropriate formations of the Council. The EU should be prepared to update its
approach as and when the underlying assumptions change.
I
S
B
E
H
G
G
B
B
H
G
B
E
S
B
H
H
H
G
G
G
B
B
B
H
G
B
E
J
G
G
B
B
C
S
B
H
A
J
F
G
G
S
G
B
B
B
B
F
S
B
G
B
S
G
B
U
B
G
U
A
S
U
A
I
B
G
G
G
B
B
U
J
S
U
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66
2018 Connecting Europe and Asia - Building blocks for an EU Strategy
#
18.1
18.2
Action
The Commission will develop a methodology to assess the levels of sustainable connectivity
in Europe and Asia and its economic impact within the EU and its regions.
The Commission will promote the exchange of data for customs and digital transport
corridors and assess risks.
The Commission will pursue Air Transport Agreement negotiations with the Association of
Southeast Asian Nations (ASEAN), Azerbaijan, Turkey and Qatar, and sign Bilateral Air Safety
Agreements with [the] People's Republic of China (China) and Japan.
The Commission will promote agreements on the decarbonisation of transport in
international fora, in particular in aviation and maritime sectors.
The Commission will promote the digitalisation and the administrative simplification of
maritime transport in Asia and the Black Sea countries as well as the adoption of the
Rotterdam Rules.
The Commission will explore the possibility of the extending the mandate of the EU TEN-T
corridor coordinator(s) to the Enlargement and Neighbourhood region within the envisaged
review of the TEN-T regulation which needs to be completed by 2023.
The Commission will work on standards for ethical use of forward looking technologies such
as Artificial Intelligence and promote full compliance with responsible state behaviour
online.
The Commission will further promote Erasmus and the Marie Sklodowska Curie actions in
Asia and related reciprocity arrangements to increase opportunities for exchange and
mobility.
The Commission will step up cooperation with relevant third countries, including in EU-
China Connectivity Platform, to promote the digital economy, efficient transport
connectivity and smart, sustainable, safe and secure mobility, based on the extension of the
TEN-T network, and promote a level playing field in investment.
The Commission will support sustainable connectivity in policy and development dialogues
with third countries.
The Commission will deepen cooperation with relevant regional organisations in Asia and
pilot regional connectivity approaches for Asia.
The Commission will cooperate with European and International Standardisation
Organisations and their national members in view of efficient and joint development of the
necessary technical standards, including through targeted technical assistance and technical
cooperation.
The Commission will work with United Nations Economic Commission for Europe (UNECE)
to unify the legal regime for the carriage of goods by rail across the Eurasian continent, and
with the Intergovernmental Organisation for International Carriage by Rail (OTIF) and the
Organisation for Cooperation of Railways (OSJD) to extend the application of the EU's
technical specifications and safety management frameworks.
The Commission (and where appropriate the High Representative) will facilitate investment
for Euro-Asian connectivity through the investment facilities and guarantees, involving
European public banks (EIB, EBRD and Member States' national banks and institutions), and
IFIs, in line with international standards and level-playing field.
The Commission (and where appropriate the High Representative) will step up the EU's
cooperation on investment with the Asian Development Bank and the Asian Infrastructure
Investment Bank.
The Commission (and where appropriate the High Representative) will establish a Business
Advisory Group for Euro-Asian Connectivity.
The Commission (and where appropriate the High Representative) will press for enhanced
transparency of public procurement in Euro-Asian infrastructure, including through wider
accession to the WTO Government Procurement Agreement and the adoption of GPA
standards and support to the establishment of dedicated public procurement websites.
Issue
E
H
Type 1
G/S*
S
S
Type 2
U/B**
U
U
18.3
C
S
B
18.4
F
S
U
18.5
E
S
U
18.6
E
S
U
18.7
A
S
U
18.8
I
S
U
18.9
C
S
B
18.10
18.11
E
E
G
G
U
U
18.12
E
G
U
18.13
E
S
U
18.14
C
G
U
18.15
E
S
U
18.16
J
S
U
18.17
C
S
U
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67
2019 EU-China – A Strategic Outlook
#
19.1
19.2
19.3
Action
The EU will strengthen cooperation with China to meet common responsibilities across all
three pillars of the United Nations - Human Rights, Peace and Security, and Development.
In order to fight climate change more effectively, the EU calls on China to peak its
emissions before 2030, in line with the goals of the Paris Agreement.
The EU will deepen engagement with China on peace and security, building on the
positive cooperation on the Joint Comprehensive Plan of Action for Iran.
To preserve its interest in stability, sustainable economic development and good
governance in partner countries, the EU will apply more robustly the existing bilateral
agreements and financial instruments, and work with China to follow the same principles
through the implementation of the EU Strategy on Connecting Europe and Asia.
In order to achieve a more balanced and reciprocal economic relationship, the EU calls on
China to deliver on existing joint EU-China commitments. This includes reforming the
World Trade Organisation, in particular on subsidies and forced technology transfers, and
concluding bilateral agreements on investment by 2020, on geographical indications
swiftly and on aviation safety in the coming weeks.
To promote reciprocity and open up procurement opportunities in China, the European
Parliament and the Council should adopt the International Procurement Instrument
before the end of 2019.
To ensure that not only price but also high levels of labour and environmental standards
are taken into account, the Commission will publish guidance by mid-2019 on the
participation of foreign bidders and goods in the EU procurement market. The
Commission, together with Member States, will conduct an overview of the
implementation of the current framework to identify shortcomings before the end of
2019.
To fully address the distortive effects of foreign state ownership and state financing in the
internal market, the Commission will identify before the end of 2019 how to fill existing
gaps in EU law.
To safeguard against potential serious security implications for critical digital
infrastructure, a common EU approach to the security of 5G networks is needed. To
kickstart this, the European Commission will issue a Recommendation following the
European Council.
To detect and raise awareness of security risks posed by foreign investment in critical
assets, technologies and infrastructure, Member States should ensure the swift, full and
effective implementation of the Regulation on screening of foreign direct investment.
Issue
A
F
H
Type 1
G/S*
G
S
G
Type 2
U/B**
B
B
B
19.4
E
S
B
19.5
C
S
B
19.6
C
S
B
19.7
C
S
U
19.8
D
S
U
19.9
B
S
U
19.10
H
S
U
Legend:
For the reference to the colours of the actions and issues, please refer to
Annex VIII.
Issues:
A) Promote EU Values along with 3 United Nations (UN) pillars, B) Preserving EU unity, C) Reciprocity to
balance the relationship and level playing field, D) Preserving distortive effects on the EU internal
market, E) Sustainable Economic Development and Good Governance, F) Tackling climate change and
protecting the environment, G) Global public health concerns, H) Deepening the engagement on peace
and security, I) Fostering cross-cultural understanding and cooperation on innovation and J) Wider
foreign policy approach
Type 1(*): G: General, S: Specific,
Type 2(**): U: Unilateral, B: Bilateral, C: China.
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68
Annex VIII – Areas of EU’s response to China’s investment
strategy and alignment to China’s risks and opportunities
Figure 15 – ECA mapping compilation of EU-China strategy actions
Issues
Actions
Uni lateral
Bi l ateral
R.11
External Risks
Opportunities
A
B
C
Promote EU Values
Preserve EU Unity
R.2
R.5
R.8
R.13
R.7
R.9
Risks not
covered:
•
R.6
•
R.10
•
R.18
O.5
O.10
Reciprocity to Level
Playing Field
Prevent Distortive
Effects on Internal
Market
Sustainable Dev &
Good Governance
D
E
R.14
R.15
R.16
O.2
O.3
O.4
O.6
O.7
O.8
O.9
O.11
F
Tackle Climate
Change & Protect
Environment
Global Public Health
Concerns
R.17
G
O.2
R.1
R.4
R.12
O.1
O.13
R.3
O.12
H
Deepen Engagement
on Peace & Security
Cross-Cultural
Understanding &
Cooperation
Wider Foreign Policy
Approach
I
J
KEY:
2016 =
2018 =
2019 =
Specific Action=
Note:
Each risk is represented by a coloured dot. Only external risks covered by mapping analysis. All of
the Opportunities are addressed in this mapping analysis.
Source:
ECA Mapping Analysis.
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2246216_0069.png
 
 
ISSUES
ACTIONS
U ilateral EU/Chi a 
A tio s
EU‐Chi a Bilateral 
A tio s
.
.
.
Risks
Opportu ities
A) Pro ote EU Values alo g  ith  UN 
Pillars
.
.
.
.
.
R.
.
R.
B) Preser e EU U ity
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
R.
R.
R.
O.
O.
C) Re ipro ity to Bala e 
Relatio ship & Le el Playi g Field
D) Pre e t Distorti e Effe ts o  
I ter al EU Market
. *
.
R.
R.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
R.
R.
R.
O.
O.
O.
O.
O.
O.
O.
O.
E) Sustai a le E o o i  
De elop e t a d Good Go er a e
F) Ta kle Cli ate Cha ge a d Prote t 
the E iro e t
G) Glo al Pu li  Health Co
er s
.
.
.
.
.
R.
O.
.
R.
R.
R.
.
.
.
.
.
.
.
.
.
H) Deepe  E gage e t o  Pea e 
& Se urity
I) Foster Cross‐Cultural U dersta di g 
& Cooperatio
.
.
.
.
O.
O.
.
.
.
.
.
R.
O.
J) Wider Foreig  Poli y Approa h
.
.
.
LEGEND:
General:
XX.X
Specific:
XX.X
Deadlines:
XX.X
China Unilateral:
Specific:
XX.X
XX.X*
 
 
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Acronyms and abbreviations
AAR:
Annual Activity Report
ADB:
Asian Development Bank
AIIB:
Asian Infrastructure Investment Bank
AMP:
Annual Management Plan
AMPR:
Annual Management and Performance Report
BiT:
Bilateral Investment Treaty
BRI:
Belt and Road Initiative
CAI:
Comprehensive Agreement on Investment
CEEC:
Central and Eastern European Countries
COVID-19:
Coronavirus disease 2019
CWP:
Commission Work Programme
COSO:
Committee of Sponsoring Organizations of the Treadway Commission
DG:
Directorate-General
EBRD:
European Bank for Reconstruction and Development
EC:
European Commission
ECB:
European Central Bank
EEAS:
European External Action Service
EIF:
European Investment Fund
EPRS:
European Parliamentary Research Service
EU:
European Union
FDI:
Foreign Direct Investment
FTA:
Free Trade Agreement
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71
G20:
International forum for the governments and central banks from 19 countries and
the EU
GDP:
Gross Domestic Product
GMF:
German Marshall Fund
GPA:
Agreement on Government Procurement
HR/VP:
High Representative of the Union for Foreign Affairs and Security Policy (and
Vice-President of the European Commission)
ICT:
Information and Communications Technologies
IFI:
International Financial Institution
IMF:
International Monetary Fund
IP:
Intellectual Property
JRC:
Joint Research Centre
MERICS:
Mercator Institute for China Studies
MFF:
Multiannual Financial Framework
MIC 2025:
Made in China 2025 (strategy)
MoU:
Memorandum of Understanding
OECD:
Organisation for Economic Cooperation and Development
OSID:
Organization for Cooperation of Railways
OTIF:
(Inter-governmental) Organization for Internal Carriage by Rail
PHEIC:
Public Health Emergency of International Concerns
PI:
Portfolio Investment
SOE:
State-Owned Enterprise
SPE:
Special Purpose Entity
TEN-T:
Trans-European Networks
UN:
United Nations
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UNECE:
United Nations Economic Commission for Europe
US:
United States
VAT:
Value Added Tax
WHO:
World Health Organization
WTO:
World Trade Organization
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Glossary
Agreement on Government Procurement (GPA):
Agreement between 19 WTO
members, including the EU, to open up their government procurement markets to one
another.
Belt and Road Initiative (BRI):
Chinese investment strategy focussing on connectivity
infrastructure launched in 2013, with the aim of increasing the country’s influence
abroad.
China’s state-driven investment strategy:
Current Chinese policies supporting and
financially encouraging private companies and State-Owned Enterprises (SOEs) to
invest abroad.
Collateral:
An asset taken as insurance or security when providing a loan, which is
forfeited in the case of a default.
EC-JRC Foreign Ownership Database:
A Commission database of assets of companies
controlled by foreign ownership and investments in key sectors by entities outside the
EU.
Economic corridor:
Connected networks of infrastructure across international borders
to facilitate trade and stimulate economic development.
5G equipment:
Fifth generation technology standard for mobile networks.
Financial instrument:
Financial support in the form of equity or quasi-equity
investments, loans or guarantees, or other risk-sharing instruments.
Foreign direct investment (FDI):
The direct or indirect ownership, by an investor based
in one economy, of 10 % or more of the voting power in an enterprise in another
economy.
FDI Regulatory Restrictiveness Index:
An OECD indicator measuring restrictions
applied by OECD and G20 countries on foreign direct investments.
Gross domestic product (GDP):
A standard measure of a country's wealth, based on
the total value of goods and services produced there (usually during one year).
Joint venture:
Two or more businesses combining resources to achieve specific
commercial objectives, while retaining their distinct identities.
Made in China 2025 (MIC 2025):
Chinese industrial strategy launched in 2015,
focussed on high-added value goods for both export and domestic consumption.
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Memorandum of understanding (MoU):
Agreement between two or more parties to
cooperate on a specific issue, without entering into a legal commitment.
FDI screening:
Evaluation of whether a direct investment is likely to adversely affect
the country in which the investment is made.
17+1 cooperation framework:
Forum of cooperation between China and 17 central
and eastern European countries (CEEC). This includes 12 EU’s Member States.
State-owned enterprises (SOEs):
A body undertaking business activities, over which
the government has significant control through full or significant ownership.
Special purpose entity (SPE):
Legal entity created for specific and / or temporary
objectives.
Supply chain:
The system of organisations, people, activities, information and
resources involved in producing a product or service and supplying it to the customer.
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ECA team
This ECA’s Review “The EU’s response to China’s state-driven investment strategy”
provides an overview of China’s investment strategy and compiles challenges that this
strategy presents for the EU institutions and Member States.
This report was adopted by Chamber V Financing and administration of the EU, headed
by ECA Member Tony Murphy (Dean).The task was led by ECA Member
Annemie Turtelboom, supported by Florence Fornaroli, Head of Private Office and
Celil Ishik, Private Office Attaché; Alberto Gasperoni, Principal Manager and Head of
Task; Jussi Bright, Thomas af Hällström, Manja Ernst and Lara Connaughton, Auditors.
As a consequence of the COVID-19 pandemic and the strict confinement conditions,
no picture of the audit team could be provided.
 EUU, Alm.del - 2019-20 - Bilag 973: Pressemeddelelse og rapport fra Revisionsretten om risiko og muligheder ved Kinas statsdrevne investeringsstrategi i EU
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