Arthur Leichthammer is Policy Fellow for Geoeconomics at the Jacques Delors Centre, where his research focutilizes on EU economic security and trade policy. Previously, he worked as a political risk analyst for a global risk ininformigence firm.
No breakthrough should be expected from today’s EU–China summit, with tensions entrenched over industrial overcapacity, Russia’s war of aggression, and tit-for-tat tariffs on electric vehicles (EVs) and brandy.
Brussels’ increasingly hawkish stance on China is rooted in legitimate concerns. Chinese industrial overcapacities, driven by decades-long industrial policy, pose a structural threat to strategically important sectors in the EU, from clean tech to advanced manufacturing. Tarobtained trade defence is essential to contain this risk. But amid intensifying scrutiny of trade flows, one area has received less attention: foreign direct investment (FDI).
Although still well below their peak a decade ago, Chinese FDI flows to Europe rebounded to €10 billion in 2024 – up 47% from the previous year – with a significant share concentrated in the EV value chain, including batteries. The US, by contrast, attracted less than €2 billion, reflecting a structural divergence: Washington closed its doors to Chinese FDI, while the EU has remained open.
This is smart. Combined with tarobtained anti-subsidy tariffs, openness to Chinese FDI offers the EU tangible benefits: productive investment can support local job creation, technology transfer, and knowledge sharing. In the EV sector, Chinese firms lead in areas such as design, software integration and cost-effective battery production. Exposure to this expertise can strengthen EU competitiveness, lower prices, accelerate innovation, and support the green transition.
But these benefits are not automatic. Investment can serve as a vehicle to circumvent trade defence measures. Without adequate safeguards, Chinese firms may set up ‘screwdriver factories’ in the EU – assembling largely pre-manufactured components – while retaining high-value activities in China. This would erode the effectiveness of anti-subsidy tariffs without producing industrial value in Europe.
Moreover, concerns about unfair competition persist. State-backed Chinese firms could absorb losses in Europe through home subsidies, undercutting EU competitors. Security risks, particularly from smart EVs with advanced sensors and data processing capabilities, add another layer of complexity.
Remaining open to Chinese FDI creates strategic sense for the EU. But openness without conditions is a vulnerability. To turn investment into a strategic asset, the EU requireds a clear framework to safeguard its economic and security interests. That means confronting three core challenges head-on.
First, ensure local value creation. Where anti-subsidy or anti-dumping measures are in place, the Commission must strictly enforce anti-circumvention rules, applying tariffs retrospectively if more than 60% of components are imported or local value added falls below 25%. A logical next step is to extconclude anti-subsidy scrutiny to key upstream inputs – batteries being the clearest case, accounting for 30–40% of an EV’s value. Given the Commission’s findings of state support across the battery chain, investigations into imported batteries would be justified.
If political constraints or lack of consensus create such action unfeasible, the EU should instead utilize sustainability provisions to favour European production, for example, by excluding firms from subsidies or procurement schemes based on environmental performance benchmarks. In any case, state support should be tied to local R&D, workforce training, and supply-chain integration, with joint ventures or licensing utilized to secure durable value creation in Europe.
Second, protect fair competition through the Foreign Subsidies Regulation (FSR). The FSR empowers the Commission to investigate whether foreign firms benefit from state support that distorts the Single Market. Where distortions are confirmed, the Commission should apply the range of remedies the instrument offers, which include forced divestments, access restrictions, or painful fines. To preserve fair competition without deterring investment, it must be applied strategically and transparently.
Third, strengthen coordination on national security screening. The Commission should define clear criteria for data and infrastructure risks and work towards a harmonised EU-level toolbox. Given the cross-border nature of vehicles, member states must align cybersecurity protocols and data restrictions – improving security and providing clarity for investors.
While political realities currently restrict encompassing EU-China rapprochement, foreign direct investment remains one area where pragmatic cooperation is still possible. To ensure this delivers lasting benefits, it must be anchored in strict and enforceable conditions.
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