Report by MERICS and Rhodium Group: Battery investments are now the mainstay of Chinese FDI in Europe

Berlin, May 9, 2023. Battery investments are now the mainstay of Chinese investment in Europe, showing that the region has become a key part of China’s global electric vehicle (EV) expansion.

This is one of the key findings from a report published today by the Mercator Institute for China Studies (MERICS) and Rhodium Group on the latest trends in China's foreign direct investment (FDI) footprint on the EU-27 and UK.

According to the authors, there has been a substantial shift in the nature of Chinese investment in Europe: driven by EV battery factories, greenfield investment now dominates Chinese investment activities in the region, reaching EUR 4.5 billion and 57 percent of China’s total FDI in Europe in 2022.

Chinese greenfield projects, in which parent companies create subsidiaries in foreign countries and build operations from scratch, overtook mergers & acquisitions (M&A) in Europe for the first time since 2008. The latter fell to EUR 3.4 billion in 2022, the lowest level since 2011.

The increase in greenfield investment was driven mainly by a few large-scale projects, almost exclusively concentrated in the automotive sector as Chinese battery giants – including CATL, Envision AESC and SVOLT – invested in building plants in Germany, Hungary, the UK and France.

These four countries were also the main recipients of Chinese investment in Europe in the past year, accounting for 88 percent of China’s total FDI. All four not only received major greenfield investments, but also most of the year’s M&A activity.

Overall, Chinese investment in the EU and the United Kingdom continues to decline, dropping to a decade low of just EUR 7.9 billion in 2022, down 22 percent compared to the year before. This takes Chinese investment back to its 2013 level. As in 2021, consumer products and automotive remained the two top sectors, accounting for three quarters of total Chinese investment in Europe. 

Ongoing and new greenfield investments will put a floor under aggregate investment amounts, and Chinese firms are considering further expansion in Europe in segments of EV value chains, including vehicle production. Yet these will not be enough to create a long-lasting rebound in overall Chinese FDI in Europe, as the experts from MERICS and the Rhodium Group write.

Two of the authors commented on their findings:

Agatha Kratz, Director at Rhodium Group: “We are witnessing a major shift in how Chinese companies invest in Europe. After years where investment volumes were driven by acquisitions, they are now being dominated by greenfield investments, above all in battery plants. Chinese firms are ploughing billions into the electric vehicle supply chain in Europe. They have become major players in Europe's green transition", says Kratz.

Max J. Zenglein, Chief Economist at MERICS: “The changing investment patterns underline the competitiveness of Chinese companies particularly in electric vehicles. Greenfield investments also face less regulatory scrutiny as acquisitions in critical infrastructure or the tech sector are more contested. In order to become a sustainable driver for investment, greenfield investments will need to increase or risk drying up once the current small number of projects are completed.”

You can read the report “EV battery investments cushion drop to decade low: Chinese FDI in Europe – 2022 update” by Agatha Kratz, Max J. Zenglein, Mark Witzke and Gregor Sebastian online here.

Media contact:

For interview requests for MERICS experts Max J. Zenglein and Gregor Sebastian, please reach out to [email protected].

For interview requests for Rhodium Group experts Agatha Kratz and Mark Witzke, please reach out to [email protected].