Chinese fi rms must prepare for rising tide of protectionism in Western markets

Much attention has been focused on the EU summit this week, which will not only see Emmanuel Macron’s fi rst appearance since being elected president of France, but will also witness a proposal for more scrutiny over foreign takeovers of European companies. While it remains unclear what measures would be taken under the proposal, it is part of a clear trend in which Western governments are stepping up eff orts to block Chinese buyouts in strategically important sectors.

According to Germany’s Handelsblatt newspaper on Sunday, the EU plans to submit draft legislation in September in an aim to strengthen regu- latory scrutiny over foreign acquisitions, particularly by Chinese State- owned companies. “Foreign investors that are state controlled or are backed by state guarantees would face particular scrutiny,” it said.

The news came not long before Macron’s proposal for a protective European mechanism that would allow the EU to curb foreign takeovers in some key sectors, according to a Financial Times report on Thursday.

Apparently, Macron’s proposal is poised to restrict takeovers mainly by Chinese companies of local cutting- edge companies on grounds of na- tional security. Some EU member states have been upset by the imbalanced foreign investment between China and the EU. In 2016, China’s outward foreign direct investment in the EU hit 35.1 billion euros ($ 39.3 billion), while the EU investment in China reached just 7.7 billion euros, according to a January report from research fi rm Rhodium Group and the Mercator Institute for China Studies.

Meanwhile, the national security concern is also shared by the US. A Reuters report recently said that the US is also thinking about tightening scrutiny of Chinese investment so as to prevent access to sensitive technologies such as artifi cial intelligence and machine learn- ing, which are considered vital to the country’s national security.

Although China’s Foreign Ministry Spokesperson Lu Kang said at a press conference on Wednesday that “there should not be undue political dimensions imposed on commercial takeovers, let alone political intervention,” it is an undeniable fact that Chinese buyouts in developed countries will enter a diffi cult stage and face more headwinds.

Chinese companies should be prepared for the rising protectionism in developed markets, where ideological problems will become more prominent, thus directly aff ecting local views toward Chinese companies, especially Stateowned ones.

After all, it may take a relatively long period of time for Chinese companies to be treated the same as their Western counterparts in developed markets.

Such a process will require eff orts not just from companies, but also at the government level. For instance, the Chinese authorities need to further facilitate reform and opening up, especially in terms of off ering more investment opportunities in the Chinese market for foreign investors.