EU treads cautious line over US investment bans on Chinese tech

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The EU has signalled that it will not immediately follow the US in issuing outright bans on investment in China’s cutting-edge technology sector, saying instead that it will make its own proposal by the end of the year.

The White House issued an executive order on Wednesday that will limit some US investment in sectors deemed by President Joe Biden as posing “significant national security risks” in the hope that allies might follow its lead.

The European Commission responded that it was in “close contact” with the White House but that it would not follow suit right away.

Brussels announced in June that it was planning to put forward proposals on how to limit potential security risks to outbound investments by the end of the year. Germany, France and other member states have sought to damp that drive, pointing out that Europe’s economies are far more intertwined with China’s than the US is.

“The EU and member states . . . have a common interest in preventing the narrow set of technological advances that are assessed to be core to enhancing military and intelligence capabilities of actors who may use them to undermine international peace and security,” the commission said in June.

One EU diplomat said that many member states “have reservations and believe a proper assessment is needed before putting such an instrument in place, as it has a possible huge impact on business”.

They also pointed to differences between the US and EU economies, such as less venture capital in Europe, resulting in a need to take a different approach. 

The debate over trade controls comes amid escalating tensions over Chinese access to key technologies in the defence and digital sectors, as well as concerns over its dominance of supply chains crucial to the green transition.

But the EU has largely taken a more hesitant approach than the US towards limiting investment in China, pursuing instead a policy of “de-risking” amid fears that outright bans could prompt unintended consequences for the bloc’s financial markets. The UK has also taken a more cautious stance.

France and Germany have both sought to thread the needle between maintaining economic ties with China and taking a harsher stance on key technologies.

Responding to Biden’s executive order, the German economy ministry said on Thursday that it would “actively participate” in the EU discussion about the approach that the continent should take.

Berlin last month affirmed its “responsibility and determination” to co-ordinate with allies on preventing cutting-edge technologies from being used to further develop Beijing’s military capabilities and threaten international security. It added that measures “designed to counter risks connected with outbound investment could be important” as a supplement to existing instruments.

But the German government has struggled to find a unified approach towards China, the country’s biggest trading partner, with Scholz advocating more caution than his more hawkish Green coalition partners in charge of foreign policy and economic matters.

The Élysée Palace declined to comment on Thursday and the French finance ministry did not return a request for comment on the US plans.

French president Emmanuel Macron went on a high-profile trip to Beijing in April accompanied by dozens of French chief executives scouting deals to develop economic ties, and is also pushing to reduce French dependencies in strategic industries such as semiconductors and electric batteries.

In late July while on a trip to China, French finance minister Bruno Le Maire declined to comment on US restrictions on technology transfers to China, and added that France was “opposed to decoupling global supply chains which would have a major economic cost”.

EU trade chief Valdis Dombrovskis told the Financial Times this month that the commission was exploring ways to monitor European investments overseas but wanted to maintain good relations with Beijing and that any measures would be narrowly focused on products with specific national security concerns.

But he also hit back at restrictions announced by China on exports of gallium and germanium, metals key to the manufacture of chips and electric vehicles, saying that the policy went “beyond what is needed to protect the essential security interests”.

Foreign direct investment from the EU into China has amounted to more than €140bn over the past 20 years, according to the commission.