China’s Investment in Europe Drops to Lowest Level Since 2010: Report

China’s investment in Europe has plummeted to its lowest level in 13 years, according to an annual report published on June 6 by the Rhodium Group and the German think tank Mercator Institute for China Studies. This significant drop reflects the broader economic and geopolitical challenges China is facing.

In 2023, China’s direct investment in Europe amounted to only 6.8 billion euros ($7.35 billion), a reduction of 300 million euros ($3.24 billion) from the previous year. This figure marks a stark contrast to the peak investment of 47.5 billion euros ($51.3 billion) in 2016. The decline highlights the ongoing economic difficulties in China, which are impacting its capacity for foreign investment.

Economic Struggles and Strategic Shifts

Chung Chih-tung, assistant research fellow at Taiwan’s Institute for National Defense and Security Research, emphasized the deteriorating economic situation in China. “Since 2023, China’s economy has taken a turn for the worse. Despite an official GDP growth rate of about 5 percent, the real situation is grim, with declining exports and overall foreign investment,” he told The Epoch Times on June 8.

Wang Guo-chen, an assistant researcher at the Chung-Hua Institution for Economic Research in Taiwan, echoed this sentiment. He noted that China’s tight finances and substantial government deficits have led to the repatriation of funds from overseas state-owned enterprises back to mainland China, limiting China’s ability to expand its foreign investments.

Sector-Specific Investments and Trade Disputes

The report highlighted that in 2023, 69 percent of China’s investment in Europe was concentrated in the electric vehicle (EV) sector, a significant increase from 41 percent in 2022. This focus comes amid escalating trade tensions between the EU and China over the influx of cheap Chinese EVs into the European market. The EU launched an investigation in October 2023 into Chinese EVs subsidized by the Chinese government, considering the imposition of tariffs.

“The automobile industry is crucial for Europe. China’s subsidies and massive dumping of electric vehicles are bound to cause trade disputes,” Wang explained, indicating that Europe is unlikely to retreat from its firm stance.

Hungary: A Preferred Investment Destination

In 2023, Hungary emerged as the top destination for Chinese foreign direct investment (FDI) in Europe, capturing 44 percent of the total, up from 21.3 percent in 2022. This surge was driven by significant investments in EV battery plants by companies like CATL and Huayou Cobalt, totaling 8.7 billion euros ($9.4 billion).

China’s EV giant BYD has also announced plans to establish a factory in Hungary by 2026. Consequently, Hungary attracted more Chinese FDI in 2023 than France, Germany, and the UK combined, which together accounted for 35 percent of the total.

“China is focusing its investments on more ‘friendly countries’ due to its financial constraints,” Wang said, noting the pro-Russian and pro-China stance of the Orbán government in Hungary.

Geopolitical and Security Concerns

The decline in China’s investment in Europe is also attributed to heightened geopolitical tensions. Europe and the United States have increased national security reviews of foreign investments, a trend that has become more stringent in recent years. This scrutiny has significantly impacted Chinese investments since the European Parliament froze the EU-China Comprehensive Agreement on Investment in May 2021.

“The economic issues between China and the West are now intertwined with national security concerns, leading to more economic and trade disputes,” Wang explained.

Chung highlighted that the EU’s growing opposition to China is partly due to China’s support for Russia following its invasion of Ukraine in 2022. “From 2023 onwards, Europe has increasingly aligned with the United States, whether through decoupling or de-risking,” he said.

Outlook for the Future

Looking ahead, the report suggests that the downward trend in China’s investment in Europe is likely to continue. The economic and geopolitical challenges are expected to persist, further diminishing China’s investment presence in Europe.

As geopolitical tensions remain high and China’s economic difficulties continue, the landscape of international investments is set to undergo significant changes, with far-reaching implications for global trade and economic relations.