Presidency discussion paper on the external dimension of industrial policy, in view of the meeting of the High Level Working Group on Competitiveness and Growth on 9 November 2017.
This paper is particularly focused on the Chiese market.
(Extract) The investment flows into and out of EU with a particular focus on China. The European Union has one of the world's most open investment regimes, and based on the OECD FDI Regulatory Restrictiveness index1 the EU Member States have collectively the fewest restrictions in the world for foreign direct investment. The EU is also the world’s leading source and destination of FDI. At the end of 2015, the stock of inward FDI in the EU stood at over €5.7 trillion while it reached €5.1 trillion in the USA and €1.5 trillion in China, including Hong Kong. EU investors held €6.9 trillion in FDI in third countries in the same year with inflows of €467 billion and outflows of €537 billion in 20152
Non-EU investors control only 0.4% of EU companies, but being bigger than average, they represent about 13% of total turnover, 11% of value added and 6% of total employment in the EU. The USA is at the top of the list with 26,000 controlled companies in the EU. China controlled around 4 000 companies in the EU. In 2016, there were 1869 announced FDI transactions involving an extra-EU acquisition of a stake above 10% in an EU enterprise3.
In 2016, Chinese FDI hit an all-time high at global and EU levels. According to a 2017 Merics report, the EU attracted €35 billion in completed Chinese FDI transactions in 2016, corresponding to a 77 % increase compared to 2015 levels (85% of this annual increase came from three large transactions (Supercell, KUKA and Global Switch). Chinese data for 2016 put Chinese global nonfinancial FDI at about €158 billion, and Chinese financial FDI at €9 billion (Baker McKenzie sets total Chinese FDI at €185 billion). EU FDI to China, by contrast, continued to decrease to €8 billion, down from €9.1 billion in 2015 and €11.8 billion in 2014.
The Chinese Industrial Policy: Made in China 2025 (MiC 2025)10
According to 2015 figures, China has become the biggest player in global manufacturing, ahead of the EU and USA11 though the GDP per capita of China is still clearly below leading economic regions, and with relative high shares of agriculture and industry. Drawing direct inspiration from Germany’s “Industry 4.0” plan, the Chinese long-term industrial policy MIC 2025 aims to turn China into a “manufacturing superpower” and outlines its technological development path until 2049, with 2025 representing an intermediary step. The funding of the initiative is impressive: (i) Advanced Manufacturing Fund (€2.7 billion); ii) National Integrated Circuit Fund (€19.1 billion); iii) Emerging Industries Investment Fund (€5.5 billion).
The strategy targets ten strategic technologies12 and sets market share targets for both local and global market. The domestic targets aim at substituting imports and boosting the domestic industry through subsidies and practices targeting foreign industry (e.g. technology transfers, specific domestic content requirements, etc.). Global targets could potentially lead to overcapacities and distort competition in the global market. Furthermore, the strategy directs and supports Chinese companies (notably State Owned Enterprises) to acquire – by way of increasing FDI – strategic technology abroad. China claims that MiC 2025 is available also to foreign companies, but there is little evidence to support it.
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