The Politics of Hosting Chinese Investment in Europe

This paper explores the political challenges posed by the recent influx of Chinese Outward Foreign Direct Investment (OFDI) into the EU. In spite of the media hype, Chinese direct investment is still minute in the EU, accounting for about 1% of the total stock of FDI, but it is growing fast and the strong upward trajectory is likely to continue in the years to come. This surge represents challenges and opportunities for EU countries, not without historical precedent, but with novel threats as well. In the current context of economic and debt crisis in Europe, whether China is seen as a savior or a predator, the question of a Faustian bargain made by European countries by courting and hosting Chinese investment needs to be asked. On one hand, the benefits of FDI for the host economy are well known. On the other, Chinese OFDI may come with implicit strings attached and could potentially act as a Trojan Horse affecting European norms and policies, from human rights to labor laws. The surge of Chinese investment could also potentially affect European institutional processes, exerting both centrifugal and centripetal pressures on European integration. Finally, the influx of Chinese OFDI, which has risen faster in the EU than it has in the U.S., can create an unhealthy transatlantic competition with security ramifications, which should therefore be addressed. The difficulty is in finding the right balance between ensuring the benefits from Chinese FDI, from job creation to productivity gains, while protecting from its harmful effects.