Most of Western Europe is suffering from the worst public health crisis in its modern history, and it is safe to say that the economies of countries like Italy, Spain, and Germany have collapsed. Italy and Spain were already suffering a slowing economy and then came the Coronavirus pandemic, which brought these economies to halt.
With the fall in demand, the companies are unable to pay back the debt and are willing to sell a stake to anyone eyeing to invest. China, the country which spread the virus throughout the globe, has come back to normal, and opened up economic activities. Chinese government also announced billions of dollars as a stimulus to these companies, and therefore, coupled with a low policy rate, these companies have the leverage to spend money.
Now, Chinese companies, private as well as public, are looking to pump up investments in European companies. China already has foreign exchange reserves of more than 3 trillion dollars- equal to the GDP of India for 2019- and the government is flooding the Chinese companies with cheap capital so that they can buy foreign assets. Therefore, Chinese companies have requested investment bankers to crack a deal for investment in major European companies, at a time when Italian and Spanish companies are starving for capital.
As per a report by WION, many European countries including Italy, Spain, and Germany tightened their FDI rules to prevent a hostile takeover of their companies by Chinese firms.
European Union, the body which sets the general guidelines for FDI rules in Europe by non-EU countries- although it does not have the discretion to change FDI rules- issued new FDI guidelines keeping the damage done by Coronavirus in mind and vulnerable status of European companies, especially those of Italy, Spain, Greece, and Portugal. Investment in critical sectors such as healthcare, Energy, Finance, and defense is practically banned.
Spain, the country with the second-highest number of COVID-19 cases despite such low population, has capped the FDI limit in general companies at 10 percent. Italy has announced new rules for investment in strategic industries and completely shunned the takeover of such companies. Germany, too, has strengthened FDI laws to make foreign takeover harder.
In the last few years, many countries have economically colonized by China. Australia, the country for which China accounts for more than one-third of total trade, would be the best example. Australian PM Scott Morrison already said that he is thinking about the domestic economic sovereignty of the country amid the crisis.
Most of the Asian countries have already burnt their fingers in Belt and Road Initiative (BRI) projects already and therefore treading with caution, but the debt-ridden Europe, especially the countries on the southern part of the continent like Italy, Spain, Greece were over-enthusiastic about the project and are now paying with lives of their people. And in such a grim situation, China is selling them faulty medical equipments and trying to take over their companies.
As many countries like the United States and India, which used to be major investment destinations for China, are moving towards protectionism, the only big bloc which can absorb huge Chinese investment is Europe. And therefore, the Chinese companies are targeting debt-ridden European companies for takeover.
But with the strengthening of FDI rules, it seems, European countries have learnt their lesson, and would not trust China again. The cheap Chinese capital and its faulty products would have a buyer very soon if it keeps messing up the world like it did in the case of Coronavirus.
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