Chinese investment in Europe shifts to greenfield battery projects

BERLIN -- Chinese investment in Europe is shifting from mergers and acquisitions to greenfield projects mainly in battery production for electric vehicles, according to 2022 data analyzed by independent research providers MERICS and Rhodium Group.

Greenfield investment made up 57 percent of total foreign direct investment by China in Europe in 2022, overtaking mergers and acquisitions for the first time since 2008, according to the report released on Tuesday.

Tencent's acquisition of Sumo Digital was the only transaction worth over 1 billion euros ($1.10 billion), with most other major investments in battery plants by companies such as CATL, Envision AESC, and SVOLT.

"We are witnessing a major shift in how Chinese companies invest in Europe... Chinese firms have become major players in Europe's green transition," Agatha Kratz, director of the Rhodium Group, said in the statement.

Europe has some of the most stringent regulations on electrification and the green transition but its battery industry lags behind Asian players, with much of Europe's planned battery capacity coming from Japanese, South Korean or Chinese producers with greater know-how.

Setting up operations from scratch in Europe allows Chinese players to avoid tariffs and transport costs and shield themselves from political tension that could impede exports and imports, the report said.

Max Zenglein, chief economist at MERICS, said the changing investment patterns underline the competitiveness of Chinese companies, particularly in EVs.

"Greenfield investments also face less regulatory scrutiny as acquisitions in critical infrastructure or the tech sector are more contested," Zenglein said.

While screenings of Chinese investments in Europe have increased, the region still remains more open politically to China than the United States which has cracked down on Chinese battery imports via the Inflation Reduction Act, it added.

Still, European politicians and business leaders are in the midst of a debate over the region's own relationship to China, seeking to prop up domestic industry and find new suppliers for key materials required for the green transition.

Bloomberg contributed to this report