The European Court of Auditors (ECA) examined the risks and opportunities that China’s state-driven investment strategy poses to the EU. The Auditors recommended improving the setting, implementing, monitoring, reporting, and evaluation of the EU-China strategy and promoting information exchange and cooperation among EU institutions as a Union.

The report titled, ‘The EU’s Response to China’s State-driven Investment Strategy,’ finds that there are incomplete data on Chinese investments in the EU, making it difficult to “gain an overview of investments.” The ECA finds that EU member States cooperate with China bilaterally, according to their own national interests and without informing or coordinating with the European Commission, despite requirements to do so. The report states that this fragmented approach results in the EU failing to act collectively and promote the EU as an economic power. As an illustration, Belgium and Germany continued to work with the Chinese company Huawei to roll out 5G networks but the Czech Republic halted cooperation with Chinese 5G technology providers after a warning by their National Cyber Security Center. The report identifies 5G technology as an area where a concerted EU approach could have advantages, especially related to cybersecurity concerns.

The report reviews China’s state-driven investments strategy over the last two decades. China’s share in global gross domestic product (GDP) has increased from less than 3% in 1980 to 16% in 2018. China’s two main pillars of investment are the Belt and Road Initiative (BRI) on connectivity, economic growth, and trade facilitation, and the ‘Made in China 2025’ strategy on industry, both of which aim to secure China’s economic growth and influence. The ECA finds that there “is no publicly available inventory of official BRI projects,” nor on member States’ contributions to financial institutions involved in the BRI, such as the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB). The report reflects that the complex, constantly evolving nature of the BRI makes it “a moving target for EU policy makers,” with risks that environmental, social, and governance (ESG) standards are “not sufficiently upheld.”

As part of the review, the ECA compiled a list of risks and opportunities of China’s state-driven investment strategy. Half of the risks are economic or political in nature, and include risks such as that Chinese investments in sensitive/strategic assets in Europe may affect security or public order and that BRI projects may weaken member States’ strategic national infrastructure ownership, with geopolitical implications. An environmental concern is that Chinese companies do not comply with EU/international environmental or governance standards fostering sustainability. Legal challenges include the possibility that infrastructure projects in the EU are irregularly awarded to Chinese bids that are artificially low or that Chinese investments do not comply with EU financial regulations. Examples of opportunities include improved connectivity and freight flows and cooperation on higher education, cultural industries, and research. 

The report concludes that three risks are not addressed in EU strategic documents: the lack of coordination between infrastructure programmes of the EU and China, which may result in competing or duplicate connectivity, infrastructure, or investment projects; the risk that the EU economy is negatively impacted from shocks to its supply chains with key Chinese suppliers; and the risk that public health is affected by increased interconnectedness such as the Chinese transport routes along the BRI, expediting disease transmission. In the future, the report identifies a need for: a plan to address the above-mentioned risks; more complete and timely data and statistics on investments that are part of the Chinese investment strategy in the EU to help better inform the EU’s policy making on China; a formalized, comprehensive, and up-to-date analysis of risks and opportunities to help the EU address the full range of challenges posed by China’s investment strategy; and an assessment of the EU financing needed to implement the EU-China strategy and better track it moving forward. The report also identifies a need to address future challenges related to performance measurement, monitoring, reporting, and evaluation of the EU-China strategy and to better coordinate responses of EU institutions and member States, including through information exchange on EU-China cooperation.

The ECA conducted the review prior to the outbreak of COVID-19; therefore, the report does not take into account policy developments or changes that occurred in response to the pandemic. [Publication: The EU’s Response to China’s State-driven Investment Strategy] [European Court of Auditors Report Webpage] [ECA News Story]