After the investment frenzy in European electric vehicle (EV) battery factories following the COVID-19 pandemic, Chinese companies are now facing a cold wave of investment in the European Union. The export restrictions on rare earths implemented by Beijing have added to the challenges faced by the Chinese companies investing in the EU.
Despite China’s dominance in “greenfield investments” (new projects) in Europe in recent years, a combination of factors such as escalating geopolitical tensions, the EU’s anti-subsidy measures, and a slowdown in demand in the European electric vehicle market has led the industry to anticipate 2025 as a “pause year” for Chinese investment in Europe.
One of the most significant events is Beijing’s recent wide-ranging export control measures on rare earths and key minerals. This move is seen as the latest signal of geopolitical competition affecting global supply chains and has made the EU more vigilant and cautious towards Chinese investments.
A report released by the Rhodium Group and the Mercator Institute for China Studies (Merics) in May revealed that in 2024, the value of new projects in the European electric vehicle sector announced by Chinese companies had seen a “sharp decline”.
Beijing’s recent rare earth move has acted as a core catalyst for resistance faced by Chinese capital in the EU. Rare earths, as essential strategic resources for electric vehicles and high-tech products, have heightened Europe’s concerns about supply chain security.
Beijing’s latest rare earth export control is viewed as an economic coercion tool used by the Chinese Communist Party in geopolitical games. Officials such as the US Treasury Secretary have issued stern warnings that if China continues to implement such controls, Western countries may be forced to “decouple from China”. This stance from across the Atlantic has also influenced EU member countries’ willingness to accept Chinese capital.
The support from Chinese leader Xi Jinping to Russian President Putin has already created a more hostile political atmosphere towards Chinese investment within the EU. EU countries are worried that deep economic ties with Beijing could bring political risks, and even countries like Hungary, which maintain close relations with Beijing, struggle to fully dispel these concerns.
According to the Financial Times, Grzegorz Kołodko, former Polish Finance Minister, stated that the hardline stance of the Trump administration towards Beijing would make EU member nations more cautious when considering investments from Chinese companies, knowing that these investments would not be “welcomed by Americans”.
Representing EU member countries like Poland, there is a call for a more balanced and equitable investment relationship with Beijing. They emphasize that Chinese investment must bring equal technology and knowledge transfers, just as China has benefited from investments in Europe in the past, rather than merely setting up assembly lines in Europe.
To protect its emerging electric vehicle and battery industry from “unfair competition”, the EU is actively deploying various policy tools directly targeting Chinese export and investment strategies.
The European Commission has imposed tariffs as high as 35% on Chinese electric vehicle imports, citing that Chinese businesses receive “unfair subsidies” which pose an economic threat to local automobile manufacturers. While Chinese companies can bypass these tariffs by setting up factories within the EU, the EU’s next line of defense is already in motion.
The EU warns of strengthening scrutiny of Chinese investments and utilizing the Foreign Subsidies Regulation to review or prevent companies deemed to be unfairly supported by foreign governments. This uncertainty, particularly concerning large greenfield projects, significantly increases operational risks for Chinese investments.
In critical sectors where Europe struggles to cultivate leading domestic companies like batteries, countries such as France and Germany suggest that Chinese investments should be linked to technology transfers. However, Chinese companies appear reluctant to share knowledge, such as when CATL dispatched thousands of Chinese workers to build and assemble a factory in Spain, raising questions about intellectual property spill-over effects.
Independent automotive analyst Matthias Schmidt told the Financial Times, “I don’t expect much knowledge sharing or technology transfer to occur.” He pointed out the irony that Western car companies were compelled to sign technology transfer agreements when investing in China over the past few decades.
He metaphorically stated, “EU manufacturers were forced to establish local joint ventures in China, which gave them (Chinese companies) the skills to produce cars. Now, this ‘apprentice’ has opened his own restaurant across the street.”
These reviews and regulations have led to structural changes: Chinese mergers and acquisitions investment in Europe has sharply declined by 58%, although total greenfield investments remain high, the concentration of investment is higher, and the risks are greater.
The geopolitical resistance combined with market demand falling short of expectations is prompting Chinese manufacturers to adjust their expansion plans in Europe.
Chinese battery giant CATL in Debrecen, Hungary, with a battery factory valued at 7.3 billion Euros, has decided to rethink the scale and technological direction of the next two stages after completing the first phase of expansion. The company stated that it would consider producing technologies beyond lithium-ion batteries based on the actual demand in the European electric vehicle market.
Chinese automakers like BYD are also reportedly delaying the production timeline of their new factory in Hungary and planning to operate at levels below capacity initially. This reflects a slowdown in demand growth for electric vehicles in Europe, directly pressuring capital-intensive factory construction.
According to data from the Rhodium Group, Hungary was one of the major recipients of Chinese automotive investments in Europe post-pandemic. However, forward-looking data from the Financial Times database fDi Markets shows that the total number of new projects announced by Hungary decreased from 15 in 2023 to 7 last year.
Within Europe, apart from the electric vehicle industry, Chinese greenfield investments in other sectors like information and communication technology (ICT) are extremely limited. This highlights that Chinese capital engages in predatory investments only in its own advantageous areas, lacking a commitment to the diversified development of the European economy.