According to a report by U.S.-based think tank Rhodium Group on September 14, European investment in China has grown increasingly concentrated over the past few years with only several large corporations and most of them coming from Germany.

The authors of the report wrote, “European investment has grown much more concentrated, both in terms of the companies that are investing there, the countries they come from, and the sectors in which they operate,”

From 2018 through 2021, four countries—Germany, the Netherlands, the UK, and France, made up 87% of the investment. Germany accounted for 43%.

In addition, nearly 80%, on average, of total European investment in China over the past four years came from the continent’s top 10 companies.

Among them, four German firms accounted for 34% of the total. They include three big German carmakers Volkswagen, BMW, and Daimler, as well as chemicals group BASF.  

The report noted that nearly 70% of all foreign direct investment came from 5 major sectors: auto, food processing and distribution, pharmaceuticals and biotechnology, chemicals, and consumer products manufacturing.

According to Reuters, the Rhodium study comes amid the communist regime trying to tighten its grip on Chinese society and the economy. As a result, Germany’s new government has already decided to reduce its dependence on China. 

Rhodium wrote, “Our findings point to a widening gap in how European firms perceive the balance of risks and opportunities in the Chinese market. As policymakers in Berlin and other European capitals consider measures to reduce economic dependence on China, they would be wise to take the growing concentration of corporate risks into account.”

The study pointed out that since the Ukrainian war exposed Europe’s relationship with Russia, the continent’s business with China has received more global attention this year.

Additionally, the COVID-19 pandemic has slowed the overall pace of investment in China. Foreign investors have no motivation to do business there due to its draconian “zero-COVID” policy and challenging market conditions.

As reported by Rhodium, virtually no new European companies have made direct investments in China since the outbreak of the COVID-19 pandemic started in early 2020.The report authors said, “This may be a temporary phenomenon, related to the pandemic and China’s zero-COVID response. However, conversations with stakeholders suggest that a longer-term dynamic may be at work, with smaller European companies reluctant to accept the growing risks of investing in China.”

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