EU plans tightening foreign investment, with eye on China

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European Commission Vice Presidents Margrethe Vestager, right, and Valdis Dombrovskis participate in a media conference on the proposal for a Regulation to address distortions caused by foreign subsidies in the Single Market and on the European Industrial Strategy Update at EU headquarters in Brussels, Wednesday, May 5, 2021. (Yves Herman, Pool via AP)

BRUSSELS – The European Union is planning to tighten rules on foreign investment in its 27 members and boost production autonomy for sensitive strategic goods, two measures bound to hit China — amid already precarious relations between the two massive trading powers.

The moves comes at a time when the ratification of a business investment deal with Beijing hangs in the balance because of a rapidly deteriorating political climate over accusations that China abuses an ethnic minority.

Brussels has long been unhappy about Chinese subsidy-driven imports driving European producers out of business, and on Wednesday promised rules to make sure that EU industries would no longer be undercut by foreign investors that have faced slacker rules up to now.

Internal Market Commissioner Thierry Breton said that with the proposal, the EU is “closing a gap in our rule book to make sure that all companies compete on an equal footing.”

Battered by the COVID-19 pandemic, the EU economy has taken an unprecedented hit. The virus also laid bare dependencies on strategic products in sensitive sectors, from energy to heath, in which the EU wants to become far more autonomous. That also would come at a cost to Beijing.

EU officials drew up a list of 137 products of high dependency in such sectors as raw materials, active pharmaceutical ingredients and products essential to move the bloc closer to its climate change goals.

“About half of imports of these dependent products originate in China,” said EU Vice President Valdis Dombrovskis. He called on industry to push through a “diversification of suppliers.”

The planned EU measures on clamping down on trade distortions through foreign subsidies would also affect China. Under the current system in the 27-nation bloc, a massive market of 450 million consumers, subsidies granted by non-EU governments like China do not face the same vetting as those from EU nations.