The weakness in Chinese FDI in Europe in recent years stemmed from a dearth of Chinese M&A activity. Tight outbound investment controls and lesser financial capacity at Chinese firms put a cap on dealmaking, all while more tech and IP transfers started happening directly within China (rather than by buying European assets). Greater European scrutiny of Chinese investments might also have discouraged transactions in more sensitive sectors. While we do not expect a return to historic heights, 2024 data shows that a few large acquisitions can, at low current levels, create spikes in Chinese investment. We expect Chinese M&A investment in Europe to remain stable or rise modestly in 2025.
What’s more, ongoing projects will put a floor on greenfield FDI value for the next two-three years. While three multibillion EV battery plants were abandoned in 2024, two projects were confirmed and will start showing in our data from 2025. Current projects could also attract additional investment by Chinese suppliers looking to follow their Chinese clients overseas, especially as member states start demanding more local content from Chinese investors.26 In addition, Europe attracted a new wave of greenfield investment in clean tech sectors in 2024, including manufacturing and power generation, though these projects tend to be less capital intensive than the earlier surge in EV battery investments, in what would constitute a new emerging pattern, Chinese firms could finally seek to take over European plants from distressed owners.27
Against that backdrop, a few more factors will determine the trajectory of Chinese FDI in Europe this year:
China’s economic weakness and continued deflationary pressures will incentivize Chinese firms to look abroad. Europe faces low growth too, especially in its auto sector, but higher margins in the EU and UK will have a strong appeal to Chinese firms. Europe has one of the most open investment environments among developed economies and is a great sectoral fit with China’s overcapacities and priorities.
Whether Chinese companies internationalize through exports or FDI will depend on policies in China and Europe. New European policy documents that raise market barriers, including the Competitiveness Compass,28 the Clean Industrial Deal,29 and the Industrial Action Plan for the European automotive sector,30 could incentivize Chinese firms to take the FDI route. However, these trade barriers will need to be high enough to drive investment (otherwise the export route will remain preferable), yet not so burdensome (in raising input prices or requiring local content) as to negate the business case of manufacturing in Europe.31 If barriers go too high, certain Chinese firms might also start doubling down on alternative pathways, including licensing agreements and strategic partnerships—approaches that are not captured in traditional FDI statistics. Notable existing examples include Leapmotor’s collaboration with Stellantis in the automotive sector and the Huasun–Bee Solar partnership in photovoltaics.
European policymakers must walk this tightrope carefully. Many countries are seeking to attract FDI and Chinese firms confront hard choices between destinations. In the auto sector, for example, Chinese OEMs will be pressed to weigh the advantages of producing in Europe against those of Turkey or Thailand, including for re-export to the EU market.
US tariffs and attempts at dealmaking will complicate this picture, potentially pushing Chinese firms to favor the export route. If new US tariffs cause a large enough shock to China’s export sector, firms may choose to maximize usage of China-based production capacity, even if margins fall. China’s reaction to US measures, including allowing the CNY depreciate, will besides make outbound investment more expensive.
Security concerns will continue rising over connected technologies, from connected vehicles to wind equipment to medical devices. All are undergoing risk reviews under the EU’s NIS 2 directive. These concerns could especially put the brakes on Chinese firms’ expansion into renewable energy, a popular sector over for greenfield investment the past couple of years in southern Europe.
Finally, Chinese investment will be affected by the trajectory of EU-China relations. EU-China ties could improve momentarily amid the United States’ new trade war.32 With growing economic and geopolitical uncertainty, a more conciliatory approach towards Beijing may emerge. Some member states will urge Brussels to avoid a two-pronged trade war— and could be rewarded with further promises of Chinese FDI (EUR 4.2 billion in investment has been committed in Spain in 2024, more than in any EU country). Yet Brussels is also likely to response to structural and systemic production overcapacities in China with more defensive actions. By increasing the cost of imported goods, these measures could draw in Chinese FDI. Yet they will also increase the level of uncertainty for Chinese investors, especially if paired with reviews of Chinese FDI on competitive grounds. If Brussels’ investigation into BYD’s Hungary factory is confirmed, it could have a chilling effect on Chinese companies’ willingness to invest in Europe. So could the EU’s revision of its FDI screening regulation if it ends up conditioning Chinese inbound investment in strategic sectors. Finally, these measures could trigger strong counter-reactions from Beijing, including direct guidance to Chinese firms not to invest into certain European economies.