Tuesday

26th May 2020

Opinion

Has the time finally come for 'European champions'?

  • The arrival of China has hastened the appeal of Emmanuel Macron's idea for 'European champions' (Photo: gaheilon)

The word "European champion" will likely be the new buzzword of corporate executives and politicians in the EU, as the number of inter-EU mergers and acquisitions (M&A) deals in 2017 climbed to its highest since 2008.

While the concept will surely touch some free-competition nerves, it might actually be the EU's best defence against the wave of foreign acquisitions, especially those from China.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

Ever since Emmanuel Macron took the French presidency in 2017, the concept of consolidating European industries to create continental 'champions', capable of competing on a global scale, has been revived – an idea that came to life following the creation of the single market but lost its momentum as a result of the economic crisis and misplaced priorities.

Now, the concept has regained its appeal.

The reasons behind this recent revival are manifold, but the arrival of China on the scene hastens the process.

With its ambitious agendas of Made in China 2025 and the Belt and Road Initiative (BRI), Chinese corporations are more cautiously received by some European countries as they engage in a massive scale of M&A in Europe, often targeting sectors considered strategic and consequently raising concerns about technology transfer.

The large presence of Chinese state-owned enterprises (SOE) in these deals and the unfavourable treatment received by European firms in the Chinese market also raised the issue of unfair trade practices.

To counter the perceived threat of Chinese state champions and their encroachment of European market, a few measures are being taken, including a proposed EU framework for screening foreign direct investments (FDI) while EU member states like Germany and Latvia have recently also strengthened their FDI-screening mechanisms.

Simultaneously, the EU is also counting on the negotiation with China over a bilateral investment treaty to address the problem with reciprocity.

Among these measures, of course, is the revival of the European champion idea.

The merger attempt of Alstom and Siemens' transportation arm is just one recent example of an emerging trend to build companies of a continental scale.

Middle-ranking

Indeed, the old days of European heavyweights has been long gone. In terms of value, European firms merely rank in the middle compared to their Chinese and American competitors.

By building scale, these medium-sized firms can potentially spare themselves from foreign takeovers, especially those in strategic sectors.

Even though the strict scrutiny of the EU's antitrust regulations poses as an obstacle to mergers of scale, as in the Siemens-Alstom case, the creation of European champions seems to be the best option the EU has so far if we consider two factors.

First of all, it is undeniable that the EU is divided by its altitudes toward Chinese investment.

Back in June 2017 at the European Council, president Macron, backed by Germany and Italy, called for the creation of an EU-level mechanism to vet and block foreign investments.

However, the proposal was watered down at the closure of the summit as it was resisted or doubted by most of the EU member states, from the Nordic and Benelux free traders to those once severely hit by the euro crisis and now perceive Chinese investments as a welcome gesture.

Even though Macron's proposal was eventually adopted by the European commission in September 2017, it remains unclear if it will be approved by the European Parliament and EU member states.

Moreover, the proposal has several pitfalls, among them the limited decision-making power placed on the commission, ill-defined criteria for screening, and above all the failure to put in place a screening mechanism in all EU member states.

Screening China's 'Belt and Road'

Currently, 16 member states do not have an investment-screening mechanism, while some of them have a relatively higher concentration of Chinese FDI in the past 20 years, especially the Netherlands, Sweden, Ireland and Hungary.

Secondly, it remains uncertain if the bilateral investment treaty under negotiation between the EU and China would reach a definitive conclusion anytime soon.

Even though the trade war between the US and China is pushing the latter closer to the EU, and China has committed to improve market access and other issues concerned by the EU on the latest EU-China summit, it remains to be seen if these commitments will actually be implemented, since China's protected market is crucial to the development of its domestic firms.

Indeed, China has recently reduced the number of sectors restricted to foreign investors on its negative list, but it still discriminates against non-Chinese companies and many areas remain off-limited.

Additionally, China has also planned to tighten its regulations on foreign acquisitions. In other words, it is far from certain that the EU would be granted the level of market access that it seeks.

With these two factors in mind, the creation of corporate giants seems to be the best choice the EU has so far against malicious acquisitions and those massive global competitors with their home markets restricted to foreign investors.

Yi-Chen Lu is a graduate researcher on EU-China relations and the Belt and Road initiative at the University of Leuven

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

Europe's tech race - trying to keep pace with US and China

There is not a single European company among the world's top 10 computer hardware companies. Within the EU, Germany and Sweden rank among world leaders, but Bulgaria and Slovakia among the worst-performing developed nations.

How coronavirus might hit EU defence spending

Among the casualties of coronavirus - worldwide and in the EU - is the defence sector. However, the Covid-19 pandemic has not made the world a less dangerous place and there is no alternative to having a functioning defence system.

Column

That German court ruling hurts EU rule-of-law fightback

The short-term damage to financial markets may be smaller than feared. The damage to democracy is considerable because it weakened the ECJ - the most effective institution to stop attacks against democracy and rule of law in EU member states.

Column

Saving Europe from corona's nasty geopolitics

Four months into the corona crisis and one month into the social and economic shutdown, it seems the big geopolitical loser of the pandemic is likely going to be Europe.

Coronavirus: A test of the West

We are experiencing the first global pandemic unfolding in the 24/7 news cycle and taking its toll, in real time, on our daily lives, our financial security and the global economy.

Stakeholders' Highlights

  1. European Sustainable Energy WeekThis year’s EU Sustainable Energy Week (EUSEW) will be held digitally!
  2. Nordic Council of MinistersNordic states are fighting to protect gender equality during corona crisis
  3. UNESDACircularity works, let’s all give it a chance
  4. Nordic Council of MinistersNordic ministers call for post-corona synergies between economic recovery and green transition
  5. Nordic Council of MinistersNordic co-operation on COVID-19
  6. Nordic Council of MinistersNordic research collaboration on pandemics

Latest News

  1. Recovery plans unveiled This WEEK
  2. EU and UK stumbling into Irish border crisis
  3. Malta patrol boat 'intimidates' capsized migrants
  4. How coronavirus might hit EU defence spending
  5. Herman Van Rompuy on power and influence in the EU
  6. EU links access to recovery fund to economic advice
  7. EU wants to halve use of pesticides by 2030
  8. Top editors alarmed by media cuts in EU and beyond

Stakeholders' Highlights

  1. UNESDAMaking Europe’s Economy Circular – the time is now
  2. Nordic Council of MinistersScottish parliament seeks closer collaboration with the Nordic Council
  3. UNESDAFrom Linear to Circular – check out UNESDA's new blog
  4. Nordic Council of Ministers40 years of experience have proven its point: Sustainable financing actually works
  5. Nordic Council of MinistersNordic and Baltic ministers paving the way for 5G in the region
  6. Nordic Council of MinistersEarmarked paternity leave – an effective way to change norms

Join EUobserver

Support quality EU news

Join us