Thursday

15th Nov 2018

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 18 year's of archives. 30 days free trial.

... or join 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

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.

US steps in to clean up Cyprus

Cyprus has overlooked undertakings on bank probity made to the EU in the context of the 2013 bailout - but it might prove harder to get the US off its back.

News in Brief

  1. UK's May defends Brexit deal to MPs, after ministers resign
  2. Brexit MP calls for 'no confidence' vote on May
  3. Denmark blocks Tanzania aid over homophobic crackdown
  4. Second UK cabinet minister resigns over Brexit deal
  5. UK Brexit secretary quits morning after deal agreed
  6. Romanian MPs call for national 'Magnitsky Act'
  7. Tusk: Brexit summit on Sunday 25 November
  8. Full text of Brexit withdrawal agreement published

Why 'Spitzenkandidat' is probably here to stay

The power of the parliament to 'appoint' the president of the EU Commission is new, highly-contested - and not universally understood. In fact, even some of the lead candidates to replace Jean-Claude Juncker are against it.

Stakeholders' Highlights

  1. NORDIC COUNCIL OF MINISTERSTheresa May: “We will not be turning our backs on the Nordic region”
  2. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  3. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  4. NORDIC COUNCIL OF MINISTERSState of the Nordic Region presented in Brussels
  5. NORDIC COUNCIL OF MINISTERSThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  6. NORDIC COUNCIL OF MINISTERSThe Nordic gender effect goes international
  7. NORDIC COUNCIL OF MINISTERSPaula Lehtomaki from Finland elected as the Council's first female Secretary General
  8. NORDIC COUNCIL OF MINISTERSNordic design sets the stage at COP24, running a competition for sustainable chairs.
  9. Counter BalanceIn Kenya, a motorway funded by the European Investment Bank runs over roadside dwellers
  10. ACCACompany Law Package: Making the Best of Digital and Cross Border Mobility,
  11. International Partnership for Human RightsCivil Society Worried About Shortcomings in EU-Kyrgyzstan Human Rights Dialogue
  12. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs

Latest News

  1. No-confidence calls against May put Brexit deal in doubt
  2. Key points of the Brexit deal (if it ever comes into effect)
  3. Romania heaps scorn on 'revolting' EU criticism
  4. US steps in to clean up Cyprus
  5. 'Decisive progress' on Brexit as British cabinet backs deal
  6. Asylum for Macedonia's ex-PM puts Orban on spot
  7. How the 'EU's Bank' fails to raise the bar on accountability
  8. Knives out on all sides for draft Brexit deal

Stakeholders' Highlights

  1. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All
  2. International Partnership for Human RightsCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  3. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  4. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  5. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  6. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  7. Mission of China to the EUChina: Work Together for a Better Globalisation
  8. Nordic Council of MinistersNordics Could Be First Carbon-Negative Region in World
  9. European Federation of Allergy and AirwaysLife Is Possible for Patients with Severe Asthma
  10. PKEE - Polish Energy AssociationCommon-Sense Approach Needed for EU Energy Reform
  11. Nordic Council of MinistersNordic Region to Lead in Developing and Rolling Out 5G Network
  12. Mission of China to the EUChina-EU Economic and Trade Relations Enjoy a Bright Future

Join EUobserver

Support quality EU news

Join us