In December 2024, the China Chamber of Commerce to the European Union (CCCEU) released a report, outlining a number of areas in which Chinese companies face growing difficulties when doing business in the world’s largest economic bloc. But the EU is a massive economy with immense depth, and a degree of accessibility for Chinese companies that is still largely unmatched anywhere else in the world.

At a time when Chinese firms are going global in ever larger numbers to avoid fierce domestic competition or to explore new avenues of expansion, obstacles in the EU, now China’s largest trading partner, don’t augur well for their ambitions. Tighter investment screening, potential exclusion of Chinese firms from certain industries, investigations into deals for alleged violations of foreign subsidies regulation (FSR), and higher tariffs on imports are all present amid rising geopolitical tensions.

Despite these challenges, many European observers still see the market as still open to Chinese businesses, particularly when compared to the US.

“Every European capital, as well as Brussels, emphasise that we welcome Chinese investment and that we don’t want to close off Europe to such investments,” says Ferdinand Schaff, Senior Manager Greater China at the Federation of German Industry (BDI). “It’s a very different tone compared to what you hear in the US, where the general openness is more and more called into question. We [in Europe] want to stay open—just on our own terms, taking economic and national security risks into account.”

Peaks and troughs

Fifteen years ago, China and Europe enjoyed an unprecedented economic honeymoon, with huge flows of Chinese goods and capital entering the bloc. Chinese investment even helped bail out some struggling sectors and businesses during the economic turmoil of the Global Financial Crisis.

Chinese firms have been on a spending spree, buying European assets ranging from ports to industrial companies, with some even setting up shop in Europe and starting to produce for the local markets, solidifying their presence there.

By the end of 2023, China’s FDI in the EU reached $102.4 billion, accounting for 33% of China’s investment in developed economies, official statistics show. Today, according to the CCCEU reports, there are more than 2,800 Chinese businesses in the EU, employing 270,000 people.

“Overall, Chinese FDI in Europe accelerated after 2012, peaked in 2016, and then began to slide,” says Ding Chun, Director of Centre for European Studies, Fudan University. “Of course, this decline is tied to factors such as the pandemic, Russia’s invasion of Ukraine, and Sino-Russian relations.”

Initially, mergers and acquisitions were the preferred method of entering Europe. But increased scrutiny of FDI into Europe, alongside China’s strict capital controls, mean that the value of Chinese M&A activities in the EU tumbled 58% to just €1.5 billion ($1.57 billion) in 2023, according to a Rhodium Group report.

In recent years, greenfield investment has begun to take center stage. The Rhodium report found that in 2023, the share of Chinese greenfield investment reached 78%, up from 51% a year earlier.

With EU policymakers putting a greater emphasis on viewing China as a strategic competitor and systemic rival, “this undoubtedly has had a significant impact on the overall investment environment,” says Ding.

Despite facing increasing barriers, Chinese firms still enjoy a relatively higher degree of market access in Europe when compared to the US. BDI’s Schaff says that Europe and the US differ in the way of applying restrictions against China. While the US imposes more or less a blanket ban on Chinese firms’ access to strategically important industries, the EU has focused on designing restrictions in a more targeted manner.

That said, Chinese firms, particularly state-owned enterprises, are often viewed as an extension of the country’s economic statecraft, which causes concerns. Private-sector entrepreneurs can also suffer setbacks due to a perceived connection with China Inc. For example, in 2011, real estate developer Huang Nubo had his bid to purchase 300 square kilometers of land in Iceland for $8.9 million rejected by the Icelandic government on national security grounds.

While investment remains, the once hopeful optimism that surrounded landmark deals in Europe such as Geely Holdings’ 2010 acquisition of Volvo and Midea’s 2017 purchase of Kuka has now given way to mounting skepticism.

Run the whole gamut

From the early exports of textiles and toys, to more sophisticated merchandise like consumer electronics and even automobiles, Chinese businesses in Europe span a wide variety of industries. According to Varg Folkman, a policy analyst at the European Policy Centre in Brussels, China’s expanding business influence is now more evident in high-value segments, such as electric vehicles (EV), power batteries, clean technology and shipbuilding.

But he also pointed out several areas in which Chinese firms are surprisingly competitive and visible. “Chinese companies won a lot of tenders to do dredging work in Europe,” Folkman remarks. “Chinese businesses in Europe really run the whole gamut.”

Leveraging their cutting-edge technologies and supply chain strengths, China’s EV makers, solar panel producers and wind turbine manufacturers are at the forefront of a charm offensive in Europe. Other Chinese firms also continue to plough funds into Europe’s infrastructure, healthcare, consumer, entertainment and information and communication technology sectors.

China’s Belt and Road Initiative (BRI) has been a major driver for Chinese firms’ expansion, particularly into Eastern Europe, with Hungary, a close ally and key partner in this initiative, emerging as a favoured destination. EV and battery companies like CATL, Eve Energy, and Nio have invested a total of €19 billion ($19.87 billion) there as of June 2023.

The limits of a charm offensive

China’s perception in the world today clearly hinders its companies’ expansion ambitions. A 2023 Pew Research Center poll found that only 18% of Germans, 22% of the French and 27% of the British view China favourably. But despite the odds stacked against them, Chinese firms have resolved to prioritise Europe for their global expansion efforts.

These efforts trace back to the 2010s when export-driven China sought port ownership in some European countries. In 2008, Greece’s Piraeus port partnered with Chinese conglomerate Cosco, becoming a key Mediterranean hub for Chinese goods entering the EU. In 2023, following prolonged negotiation, Germany allowed Cosco to acquire a 24.99% stake in Hamburg’s port terminal.

EVs are another pillar of China’s campaign to showcase its innovations in Europe. Pioneers like BYD, Nio and Xpeng have established dealerships to sell in countries such as Norway, the Netherlands and Spain. And Chinese companies are even more dominant in the renewable energy sector. The European Commission highlighted in a clean energy report dated October 2023 that the region has high levels of dependency on China for solar panels and related components.

While Chinese telecom giants like Huawei and ZTE are excluded from participating in 5G projects in Europe under the EU’s de-risking strategy, data from EJL Wireless Research shows that only nine out of 38 European countries have avoided using Huawei’s equipment.

“I think a lot of [European] leaders are skeptical, not necessarily because they are inherently hostile to China, but because they are wary of having a huge dependency on one country,” says Volkman. “A lot of them are reluctant to maintain the status quo as it is.”

Another sign of Chinese firms’ newfound confidence is a cluster of R&D centers that cropped up over the past few years across Europe. Leading this charge are, again, the EV companies. Legacy automakers like Geely and Chery, with their R&D centers near Frankfurt, were joined early this year by EV upstart Li Auto, which unveiled its own center in Munich.

In addition to conducting their own R&D, automakers have formed joint ventures with local players to align their interests. In what is jokingly described as a “reverse joint venture,” Chery partnered with Spanish company EV Motors in Barcelona to produce cars under the Ebro brand.

European concerns

Over the past two decades, the European market has become more aware of the outsized impact of Chinese firms and exports on its own economies. This has prompted some to actively resist China’s expanding economic influence, or use the European market as a tool to gain leverage in their dealings with China.

“Some people are afraid that Europe will just become a dumping ground for a lot of excess capacity from China,” Folkman says. “And some hope that since Europe is one of the largest markets that is still left open, with the American market closing to China, maybe that will give us leverage in negotiating with our Chinese counterparts.”

In 2023, the EU ran a trade deficit of €292 billion ($305 billion) with China, leading to renewed calls to address issues such as counterfeit products, intellectual property theft, currency manipulation and unfair trade and labor practices.

But trade woes pale in comparison to the threat Chinese EVs pose to the European car industry. European carmakers are alarmed by the prospect of Chinese-made vehicles, produced at considerably lower costs, flooding their market under Europe’s open-door free-market policy.

This scenario could compound the woes for German automakers that are already suffering a rout in the Chinese market. Volkswagen, until recently heavily reliant on China for profits, has decided to cut 35,000 jobs in Germany by 2030 to stem losses. The fallout is also expected to ripple through the German automotive supply chain.

China’s reputation as a “shoddy project” expert certainly doesn’t help either. In one of the most iconic BRI failures, the highway connecting the port city of Bar in Montenegro to Serbia was left in limbo when funding dried up. Of the 163 kilometers originally planned for completion by 2019, only about 41 kilometers are operational to date. And lingering perceptions of Chinese products as inferior persist in Europe. New marketplaces like Shein and Temu, known for their cheap goods with a short life cycle, have only exacerbated these stereotypes.

Managing Risks

About 78% of the Chinese businesses surveyed for the CCCEU report cite “heightened uncertainties” that overshadow the business outlook. As the EU adopts a de-risking policy, primarily aimed at China, Chinese firms in Europe are increasingly feeling unwelcome and unfairly targeted, and concerned that their operations will be subject to more stringent reviews and investigations. And it is hard to predict when, or if, China and Europe will reach a consensus on navigating the EV tariffs issue.

Some analysts are more upbeat. Schaff believes the EU’s tariffs on Chinese EVs are meant to elicit a “desired outcome.” “From a European perspective, these tariffs should have the effect of making it more attractive for Chinese companies to actually invest in Europe itself,” he says.

Others are more pessimistic about the future of the China-EU relationship down the road, especially with Donald Trump in the White House. This might leave Europe with little wriggle room between Beijing and Washington.

“There is a very real possibility that the relationship between Europe and China will get much worse because of the pressure coming from the US,” says Folkman.

China and the EU are going to have issues, but it is a relationship that is not going to disappear, and EU countries are overall interested in Chinese investment.

“Although there are disputes between China and Europe, Chinese investments in Europe are largely continuing as usual,” says Ding. “These investments create employment, tax revenue, and, to some extent, technology transfer.”