The editorial for Futures of Work #20 importantly emphasizes the links between the geopolitics of interstate rivalries, technological transitions and their consequences for economic and social development, including the nature of work and its institutional regulation. In so doing it implicitly echoes aspects of Chris Freeman’s work on the relation between long waves of capitalist development, the politics and geopolitics of technological change, and, as is often ultimately the case, war. As with the global wars of the twentieth century and the subsequent hot wars that were corollaries of the first Cold War, we seem once again to confront an inherently dangerous era of critical transformation.
At the time of writing, the most immediate concern is the rivalry between the United States and Russia over the future of Ukraine, with other European countries also involved by virtue of history, geography and NATO membership. However, it is the geoeconomic and geopolitical nexus linking China, Europe (EU and non-EU) and the US that is likely to have the most significant lasting consequences for the future of Europe. This is not merely because of China’s far greater global economic ‘weight’ than Russia’s, but because, unlike Russia, it is central to global production and consumption networks and has transnational business corporations that now rank alongside those of the US and Japan as the principal sources of Foreign Direct Investment (FDI). China, in other words, is decisive for the future of the global economy in ways that Russia is not.
Chinese investment in Europe
What, then, are the key dimensions through which the geopolitics of China’s growing global presence is likely to impact the future of work in Europe? While cumulative direct investment by Chinese firms in Europe is dwarfed by that of US firms, in recent years they have been the principal sources of new investment.
Reliable estimates suggest that Chinese FDI in the EU between 2000 and 2020 amounted to over €177 billion, and was undoubtedly much more than this across Europe as a whole. In terms of sectoral distribution, Chinese investments have targeted transport infrastructure (e.g. ports in Greece, The Netherlands and Portugal, airports in Britain, railways in the Balkans), energy (e.g. wind power in Denmark, nuclear in Britain, electricity generation and distribution in Portugal) automobiles and auto components (e.g. Volvo, Daimler and Pirelli), steel (e.g. British Steel), chemicals (e.g. Syngenta, Switzerland and BorsodChem, Hungary), telecommunications (e.g. Huawei) and electronics (eg. NXP/Ampleon/Nexperia, The Netherlands), as well as non-strategic activities such as insurance (e.g. in Portugal), luxury goods (e.g. in Italy), and sports and tourism (e.g. in Britain).
These data notwithstanding, there are a number of features associated with Chinese investment in Europe that are unique relative to the two earlier waves of FDI, emanating from the US after WWII and Japan from the late 1970s and early 1980s.
Firstly, unlike earlier rounds of US and Japanese investment, and with the notable exception of Huawei, Chinese FDI is overwhelmingly focused not on greenfield production – which would create new subsidiaries – but rather on the takeover of European companies. Since the upsurge in Chinese FDI in Europe after 2008, as much as 96% of the investment has been used to this end.
Secondly, takeovers have largely targeted high-tech, innovation-intensive companies. The data for 2016 and 2017 – the years of the highest levels of Chinese FDI so far – indicate that around 34% of investment went into acquiring companies specialising in ICT, industrial machinery and similar sectors, with another 34% used to acquire infrastructure, transport and utilities companies. Given these data do not include investments in sectors where Europe has significant innovation strengths – e.g. electronics, automobiles, health/bio-tech and aviation – the balance of presumption must be that innovation-led firms have been the principal items on the shopping lists of Chinese companies.
This is consistent with the Chinese government’s ‘Made in China 2025’ industrial strategy which is designed to replace foreign technologies with Chinese ones, not merely in China, but globally. The strategy covers many of the technologies essential for advanced economy competitiveness in the 21st century, including AI, robotics, advanced transportation, e-vehicles, semiconductors and medical equipment.
Third, while most Chinese FDI has been by state-owned companies (to the tune of at least 60% of total FDI between 2000 and 2019), more recently private companies have become key investors. The problem here is that Chinese private companies are not ‘private’ in the sense that it is understood in other capitalist economies like the UK and EU. Irrespective of their equity ownership, the vast majority of Chinese ‘private’ companies (around 73% of all Chinese companies and 95% of the larger ones) have their own Communist Party branches where the Party Secretary is usually a member of the board of directors. Consequently, whether state or privately owned, Chinese companies are ultimately controlled, directly or indirectly, by the ruling Communist Party.
Regulation and rivalry
An increasing economic and geopolitical rivalry is emerging between, on the one side, the US and some of its European allies, and, on the other, China. This is associated with growing concerns about human rights abuses and internal repression in China (most recently with regard to Hong Kong and the Uyghurs in Xinjiang), as well as its belligerence towards Taiwan. In this context, some European governments and the EU itself have begun to take steps to regulate foreign, predominantly Chinese, takeovers of companies that operate in strategic industries.
The concerns behind these initiatives, however, have largely been associated with the likely ‘leaking’ of intellectual property to China and what this might mean for European security and economic competitiveness, rather than its implications for employment and skills. Furthermore, none of the European regulations are anywhere near as robust as those of the United States’ Committee on Foreign Investment (CFIUS), and the EU’s own 2020 Foreign Investment Screening Mechanism has no statutory powers, as would be expected given its limited authority vis-à-vis its member states.
Probably the most robust European legislation thus far is Britain’s National Security and Investment Act (NSIA). Even so, intervention is only triggered when the foreign company acquires over 25% of the target firm’s equity. In itself this is a very liberal barrier. Japan’s equivalent legislation, enacted in 2019, triggers intervention if foreign equity ownership of firms in strategic industries is over 1%. NSIA emerged from the fallout from the 2017 takeover of cutting-edge semiconductor producer, Imagination Technologies, by Canyon Bridge, a Chinese ‘private’ equity fund. It became clear in 2020 that behind Canyon Bridge lurked the state equity fund, China Reform Holdings. While the NSIA may have influenced the recent decision to block US company Nvidia’s proposed takeover of leading semiconductor producer, ARM, its first real test is likely to come with the takeover of Britain’s largest semiconductor company, Newport Wafer Fab, by Nexperia, the Dutch subsidiary of Wingtech, a ‘private’ contract manufacturer of phones and other devices for Huawei and other Chinese companies.
The need for trans-European industrial strategies
In spite of the dangers that some Chinese investments in Europe pose for national and regional security and for the future of European innovation, competitiveness and productivity, the various initiatives to monitor and, if necessary, block takeovers, are being pursued largely in isolation from one another. These largely national projects fail to grasp the significance of the global and regional production networks within which both Chinese and European firms are embedded. To be truly effective, the regulation of Chinese FDI requires trans-European coordination, otherwise the risks of being outsmarted by Chinese companies, playing off national and regional interests against one another, will be ever present.
Relatedly, there seems to be little recognition that these regulatory initiatives need to be positioned as part of overarching industrial strategies designed to maintain Europe’s innovative edge and thus its competitiveness vis-à-vis not only China, but the US and, in the coming decades, probably India as well. Such strategies are needed to help drive both innovation and employment creation and to continue to generate the technical and scientific personnel and skills that are central to high levels of productivity, and thus, when combined with appropriate redistributional programmes, generalised prosperity more broadly.
Among other things, future strategies would also need to regulate scientific and technological collaborations between European and Chinese universities and research institutes in order to ensure that Europe genuinely benefits from these. In the context of Chinese industrial agenda designed to render China globally dominant in many of the technologies essential to prosperity in the 21st century, co-ordinated, Europe-wide industrial strategies will be vital to the economic future of Europe.
But Europe’s (including Britain’s) economic future is dependent on far more than co-ordinated industrial strategies. European economic and social development will in large measure be predicated on its wider political and geopolitical relations with China and the US. While the flash point today is Ukraine, tomorrow it may well be Taiwan. The dangers of allowing the US – with its own distinct interests – to dominate negotiations with Russia are becoming obvious, with Ukraine and the rest of Europe seemingly relegated to bit-part players. With the US’s military commitments to Taiwan and Japan’s likely involvement, a replay of this in the Asia-Pacific would likely have even more disastrous consequences. Avoiding this requires Europe to be built as a third power between China and the US: one with the economic clout, political legitimacy and geopolitical autonomy to intervene as a mediator. Co-ordinated, trans-European industrial strategies will be important building blocks towards that goal.
Jeffrey Henderson is Professor Emeritus of International Development at the University of Bristol and Vice Chair of the EU-COST China in Europe Research Network.
This contribution draws on research and arguments presented in: Jeffrey Henderson and Nana de Graaff (eds), The Wind from the East: China and the Economic Future of Europe (special issue of Development and Change 52/5, 2021) ; and Phil Entwistle, Jeffrey Henderson, Adam Knight, Harriet Evans and Jessica Toale, China’s Place in a Progressive British Foreign Policy. London, Labour Foreign Policy Group Report, November 2021.
Image credit: helloRuby