Chinese FDI Favours Europe Over the US: Yukon Huang

Europe is drawing more foreign direct investment from China than the United States due to political sensitivities and security concerns.

Writing for The Financial TimesCarnegie Endowment senior fellow Yukon Huang points out that America accounted for only 2 – 3% of China’s FDI over the past decade, despite the general perception that the US is the chief destination for outbound Chinese capital.

According to Huang Europe has attracted far more foreign direct investment from China than the United States over the same time frame, to a large extent because the composite nature of the EU makes it easier for Chinese capital to gain access to the market.

“For China, the EU is a much easier market to penetrate because it offers a greater choice of partners,” writes Huang. “If one EU country restricts access, a Chinese company could access the bloc’s market through a different member country.”

In sharp contrast individual US states are subject to unified federal policies that govern the dealings of all American companies, irrespective of their location and whatever deals they may strike individually with Chinese investors.

US security concerns have also proven to be a major impediment to Chinese foreign direct investment, as exemplified by recent rumblings over the proposed acquisition of payments giant MoneyGram by Jack Ma’s fintech platform Ant Financial.

Stateside political concerns over Chinese investment are exemplified by the prominence of Chinese cases brought for review before the Committee on Foreign Investments (Cfius), which determines whether foreign deals have anti-trust or national security implications.

While China represents only several per cent of US foreign direct investment, it accounts for almost a quarter of cases brought before the Committee.

The varying fortunes of telecommunications giant Huawei in the EU and US attest to differences in their respective levels of receptivity towards Chinese foreign direct investment.

The US House intelligence committee recommended that Cfius block Huawei’s bids to acquire stateside companies due to security concerns in late 2012. Huawei has struggled to expand its market share in North America, which currently stands at under 3%.

In sharp contrast Huawei now accounts for almost 22% of mobile network infrastructure spending in Europe, the Middle East and Africa, after the UK established a special centre for ensuring that the company’s technology met security demands.

Huang notes that the successes of China’s FDI in Europe could soon reach an impasse, given increasing concerns in France, Germany and the UK, as well as complaints about China refusing access to its own domestic market.

Prime Minister Theresa May expressed wariness over a Sino-French nuclear program in the UK, while the Chinese acquisition of engineering firm Kuka caused much consternation in Germany.

Newly elected French President Emmanuel Macron has also expressed his concerns over the security implications of Chinese foreign direct investment.

Huang advocates the use of bilateral investment treaties to smooth out any issues or impediments to increased reciprocal investment between China and the rest of the world.

“For Europe and the US, more foreign investment from China and the opening up of restricted sectors in China would create obvious benefits for both sides,” writes Huang. “These treaties should be high on everyone’s agenda even if right now it does not seem politically expedient.”

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