Foreign investment monitor
Geopolitics, trade and investment in the year ahead
How will international trade and broader geopolitical dynamics affect cross-border investment in 2021? Will President Biden reinvigorate the Western alliance, or is the EU/China trade deal a sign that times have changed? Does the UK look East or West after Brexit? And what’s on President Xi’s priority list? We asked four of our partners for a global perspective.
Aimen Mir, Washington, DC
The Trump administration’s approach resulted in the EU becoming more independent on the global stage, and the conclusion of talks over the EU-China Comprehensive Investment Agreement was a good example of that. However, President Biden is committed to much closer collaboration with America’s traditional allies, and recent co-ordinated sanctions on China between the US, EU and UK are a sign of how things have changed. There appears to be a willingness among most EU member states to work with the US on a common approach to technology protection, governance and innovation that would curb Chinese efforts to export its standards. President Biden will be a familiar partner, for sure, but EU leaders will likely reengage with one eye on underlying political trends in the US and what might happen in four years’ time. As far as US relations with Beijing go, the fundamental economic and security concerns of the Trump era remain, and the tone of the early diplomatic engagement between the new administration and China points to the challenges that lie ahead. However, we may see more nuance to enable the two countries to work together in pursuit of progress on areas of common interest. Priorities such as climate change that require international cooperation in turn could drive more cross-border investment, at least among like-minded countries.
Heiner Braun, Frankfurt
Europe has become a much trickier destination for Chinese investors than it was in 2016 when inbound capital flows were at their peak. We're still seeing interest in European assets, although the deals aren’t particularly big or strategic in response to the constant messaging from European governments that such transactions – i.e. investments in sectors and industries where China still needs to catch up with the West – are no longer really welcome. If the EU-China investment deal is approved – and that’s by no means certain – there is nothing in it that stops member states using their existing FDI review powers to block prospective Chinese investments on national interest grounds. It will therefore be interesting to see what impact future decisions of this nature will have on trade relations between the two sides. The irony is that, at the same time, China has been relaxing its rules for foreign investment, and European industries such as automotive and machinery are ever-more reliant on the Chinese market as the pandemic has suppressed domestic demand. As Aimen says, Europe has become more independent from the US in recent years, but its positioning vis-à-vis China remains an as yet unresolved conundrum.
Michele Davis, London
The UK has traditionally been one of the most open economies to foreign investment in the world. However, since he was appointed 12 months ago, the UK government’s investment minister, Lord Grimstone, has been working hard to reassure overseas investors that this is still the case in the post-Brexit era in light of the UK’s new National Security and Investment Bill. The Bill introduces a mandatory notification regime for national security screening of deals in a number of “sensitive” sectors, and we’ve been talking to investors who are having second thoughts about investing in the UK – between the legislation and the perception that the Competition and Markets Authority has become a more aggressive and interventionist regulator, they’re worried about their ability to exit those investments. The government has a difficult job on its hands navigating the current diplomatic environment and proving that the new rules are apolitical. But the UK’s trade position post-Brexit, COVID-19 and the change of US administration means it needs foreign investment, so it has to get the balance right.
Hazel Yin, Beijing
Much like the UK, China is pursuing two policies that appear contradictory – on the one hand continuously opening its domestic industries to overseas investors while on the other increasing its screening of foreign investment on national security grounds. The national security regime has been in place for some time, but the government has only recently started to launch more investigations. However, for the time being it’s not expected to be enforced as actively as China’s merger control rules. 2021 marks the first year of the implementation of the 14th Five Year Plan (2021-2025), with the Chinese government pursuing “high-quality” rather than “high-speed” growth and “high-end, intelligent, and green production.” Foreign investment in these areas will continue to be welcomed and China’s national security rules will more likely be applied as a “defensive” measure instead of too intrusively to deter overseas capital.
Please get in touch with us or your usual Freshfields contact if you would like to discuss these or any other regulatory issues in more detail.