The European Union is considering strengthening restrictions on investment from China, including potentially requiring Chinese companies operating in Europe to transfer technology, similar to the long-standing “threshold” rules that the Communist Party of China has set for foreign companies wanting to enter the Chinese market. Analysts see this move as the EU’s use of the “principle of reciprocity” as a counterattack against the Chinese Communist Party.
According to a report by Reuters on October 15, the EU is expected to introduce rules regarding mandatory technology transfers, which will apply to non-EU companies seeking access to key manufacturing markets in Europe, such as automotive and battery industries, with the main target being Chinese companies. Mandatory joint ventures will be another option under these rules.
The practice mentioned above has long been a requirement imposed by the Chinese government on foreign companies seeking to enter the Chinese market. However, when China invests in Europe and other regions through the Belt and Road Initiative, it has not been subjected to “reciprocal requirements.”
On October 14, a meeting of EU trade ministers was held in Denmark. Danish Foreign Minister Lars Lokke Rasmussen stated after the meeting that the EU “should be inspired by these actions” taken by China against foreign companies.
“If we invite Chinese investment in Europe, it must be on the precondition that we also receive some form of technology transfer,” he said.
American economist Huang David told Dajiyuan that the EU’s move is actually a response in a game of symmetry. For the past 20 years, European companies have been forced to exchange technology for access to the Chinese market. Now, the EU hopes to balance technological sovereignty with the same logic.
He believes that this indicates that the EU has begun “linking technology with national security and industrial independence” and aims to “control the value chain of technology” to reduce reliance on “Made in China” manufacturing and market size.
The European industry has been calling on the European Commission to consider taking strict measures to link foreign investment with technology transfer and skills enhancement of European workers, especially in the battery and electric vehicle sectors, to protect their business models and market positions.
Professor Ye Yaoyuan from the University of St. Thomas in the USA told Dajiyuan that for the EU, this is on the surface a “reciprocity” at a “technical level,” but behind it, there may be EU countermeasures against China because the EU has been dissatisfied with China’s past practice of forcibly transferring technology through this means.
“The EU is also displeased with China over using this method to force technology transfer (to bully European companies),” he said. “Many countries may not speak out much due to the Chinese market, but in reality, they all have a deep-rooted aversion to the Chinese Communist Party.”
EU Trade Commissioner Maros Sefcovic said at a press conference after the EU trade ministers meeting on October 14, “We welcome foreign direct investment, but the precondition is that these investments are ‘real investments’.”
He added that “real investments” mean creating job opportunities in Europe, adding value to Europe, and transferring technology to Europe, “just like European companies do when investing in China.”
Ye Yaoyuan commented that “real investment needs to be mutually beneficial,” but China’s outward investments often have strong strategic intentions.
“(Chinese companies) want to suppress the development of local enterprises through their own strength,” he said. “Or through acquiring industries with more core technologies, so that the economic lifeline or technological lifeline of that country is controlled by the Chinese (Communist Party),” therefore, the EU believes that “these are not ‘real investments.'”
Currently, European car manufacturers often need to rely on China to provide electric vehicle components, and their development has fallen behind Chinese manufacturers such as BYD. BYD electric vehicles are seeing growth in sales in major European countries due to their competitive pricing, outperforming Tesla in some months.
BYD is investing in Hungary to build a plant and has promised to increase electric vehicle battery production for Europe. Contemporary Amperex Technology Co. Ltd. (CATL), one of China’s leading battery manufacturers, plans to establish a 4 billion Euro (approximately 4.6 billion USD) joint venture battery plant in Spain with Stellantis and is sending 2,000 Chinese workers for this purpose.
Huang David said that the EU has realized that “some Chinese-funded companies, under the guise of investment, are actually absorbing technology, controlling data, or spreading political influence,” and the EU does not want this kind of “infiltrative capital.”
According to the upcoming new EU regulations, foreign car manufacturers seeking to sell cars in the EU must locally source a certain quantity of goods and services and must employ a certain number of EU workers.
As the EU introduces rules on mandatory technology transfers, the economic and trade relations between China and the EU are facing a serious test.
On October 7, the EU announced that it will raise tariffs on all steel imports exceeding quotas from 25% to 50%, aligning with the US’s 50% tariffs on most foreign steel and aluminum to resist China’s steel dumping and protect the local steel industry.
On October 9, China’s Ministry of Commerce issued several notices stating that even if products are not manufactured in China, as long as they involve Chinese rare earths or related technologies in their raw materials or processes, their exports must be controlled by China.
China’s move immediately prompted countermeasures from the US, with Trump announcing an additional 100% tariff on Chinese products. The EU also called for further reducing economic dependence on China.
On October 15, a spokesperson for China’s Ministry of Foreign Affairs opposed the EU’s proposal for mandatory technology transfers, criticizing it as “protectionist discriminatory practices.”
Ye Yaoyuan responded, saying, “The most interesting thing about the Chinese Communist Party government is that it always wants to do whatever it wants to do, and when others do something similar to what they do, it is usually not accepted, as if they want to have everything their way.”
He said, “That’s why the Chinese Communist Party government is now being shunned by many countries around the world,” and “The methods it has used to forcibly take and seize, who can you blame? By adopting a more aggressive attitude, it’s just making themselves a laughing stock.”
Ye Yaoyuan believes that the EU’s latest policy “points out a blind spot in cooperation with the Chinese economy in the past,” but in reality, as the Chinese economy has now deteriorated significantly, state-owned Chinese enterprises have “not much capital left to invest in the EU,” so “the economic ties between China and the EU will gradually disconnect.”
Huang David also indicated that in the long run, the EU will push for “reversal and diversification of supply chains, as well as self-sufficiency in technology and markets,” leading to further fragmentation of the global manufacturing system.