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On January 24, local time, the European Commission released the "European Economic Security Package" in Brussels. The policy has introduced a series of measures on the grounds of de-risking, strengthening supply chain resilience and maintaining economic security.

Sword against China?

In the report, Agence France-Presse summarized the EU's newly released "European economic security package" into five measures, including strengthening the supervision of foreign direct investment, harmonizing export controls, strengthening the export supervision of dual-use items, improving research security, and introducing new measures to control the leakage of sensitive technologies to adversaries through foreign investment.

According to Reuters and Deutsche Welle, the proposal shows that the EU has for the first time linked security and trade and raised it to a strategic level. China's dominance in green technology and key mineral production, as well as its close ties with Russia, have added to the EU's suspicion, the two media said. While the EU plan itself does not name any countries, behind the wording of "reliable partner" cooperation and "risk reduction", the point of attack seems clear. Duchartel, director of international politics at the French think tank Montian Institute, believes that the policy is aimed at China, "the change in the relationship between the EU and China is the motivation for the EU to formulate an economic security strategy."

"The EU's plan is a follow-up to last year's economic security strategy," Cui Hongjian, a professor at the Institute for Advanced Regional and Global Governance at Beijing Foreign Studies University, said in an interview with the Global Times on Tuesday. "On the surface, it claims to prevent and reduce risks, but in fact the policy is tougher and more aggressive."

The Chinese Chamber of Commerce in the EU subsequently issued a statement on the "European Economic Security Package" and expressed concern that these policy moves by the EU will affect the confidence of Chinese enterprises to develop and invest in Europe. Fang Dongwei, secretary general of the Chinese Chamber of Commerce in the European Union, said in an interview with the Global Times on the 25th that the "European economic security package" has triggered China's concerns, and the revised provisions of the foreign direct investment (FDI) review rules involved in the program have further tightened the scope of review and the degree of supervision, which are expected to have an impact on the business confidence of Chinese enterprises in Europe.

On the 25th, Chinese Foreign Ministry spokesman Wang Wenbin said in response to relevant questions at the regular press conference of the Ministry of Foreign Affairs that we hope that the EU will abide by the basic norms of free trade, fair competition, open cooperation and other market economies, abide by WTO rules, and avoid introducing anti-globalization and pan-security policies and measures, which bears on the image of the EU in the international economic and trade field. It is also about the confidence of Chinese and other companies in Europe's business environment.

Tightening foreign direct investment has had a big impact

One of the most notable elements of the "European Economic security package" is its further tightening of foreign direct investment. The European Union has proposed changes to foreign direct investment screening rules that would require all member states to examine foreign investments and block them if they are determined to pose a security risk.

In recent years, the EU has been planning to strengthen the supervision of foreign investment, and many member states have successively rejected the investment and merger plans of Chinese enterprises in Europe. The above plan is bound to further affect the investment of Chinese enterprises in Europe.

According to the data provided by Fang Dongkui to the Global Times reporter, in 2022, the amount of Chinese investment in the EU was 6.9 billion US dollars, down 12.2% from 2021. Chinese enterprises' investment in Europe has changed from acquisition and acquisition to greenfield investment, and the new energy field is a hot investment spot. Fang Dongkwai believes that the follow-up impact of the "European economic security package" involves Chinese enterprises' investment in key infrastructure in Europe such as ports, high-tech, new energy and other fields. "There is a trend to tighten foreign investment screening in the EU, including a proposed mandatory requirement for all member states to develop screening tools and 'coordinate' EU-level screening."

In addition, the EU China Chamber of Commerce in 2023 survey of 180 Chinese enterprises and institutions in Europe shows that 28% of the surveyed enterprises plan to expand their coverage in Europe in the next 1-3 years, and 26% plan to increase investment and M&A activities. However, 52% of Chinese companies surveyed expressed concern about the negative impact of the EU's FDI review, and 47% expressed concern about the possible negative impact of the "European economic security package".

Fong believes that imports and exports between China and Europe will also be affected. The EU will focus on "paying attention" to rare earths and photovoltaics that are highly dependent on China, while remaining "vigilant" to the rapid development of new industries such as new energy vehicles and batteries. In turn, the European Commission has also noted that China is very dependent on Europe's industrial equipment, aviation equipment, etc., these areas may in turn be "weaponized" by the economy and trade, just like the lithography machine.

The public will ultimately pay the price

The fact that the economies of China and Europe are highly complementary and the production and supply chains are closely integrated means that the implementation of the "European economic security package" will face great difficulties. Pushing for such measures across the EU would face significant resistance, as export and investment controls have always been an autonomous power for member states.

The reaction of member states to the revised EU strategy has also varied. Hungary's trade minister, Sjardo Peter, described it as a "political" attempt by less competitive EU countries to hinder Chinese investment in key sectors such as electric vehicles.

Cui Hongjian believes that the eurozone economy can be said to be exacerbated to a certain extent, "but it is obviously difficult and unsustainable to use closed and conservative ideas and policies to solve their own economic and livelihood problems."

Fang Dongkui pointed out that because the original intention of these policies is to "de-risk", and "de-risk" is the cost of higher costs, including business development and compliance costs, and these costs will eventually be transferred to consumers, paid by the European people.

The package of measures in Europe is still in the initial stage of legislation and needs to be approved by the European Parliament and EU member states. The process is expected to take two to three years to implement. Cui Hongjian said that if the EU does not grasp the direction and scale of the so-called "economic security", it will have a negative impact on China-Eu relations, and it will be more difficult for China and Europe to improve cooperation in economy, trade and other fields. To this end, China and the EU need to continue to promote cooperation and reduce differences through dialogue and exchanges. But at the same time, we also need to find a reasonable way to deal with the increasingly complex relationship between China and Europe, and balance attack and defense."