EU to mandate technology transfer in rule change targeting expanding Chinese firms

The European Union is preparing rules that would make businesses from China share their technical knowledge with European firms as a condition for doing business in the region, marking a major shift in how the bloc handles foreign investment.

The upcoming regulations, set to be announced in November, would target companies wanting to enter important markets such as automobiles and battery manufacturing. Under the proposed system, these businesses would need to meet several requirements.

They must use a certain amount of products or workers from EU countries, and they must create real value inside European borders. Officials are also looking at making joint business partnerships mandatory.

While the rules would technically cover all companies from outside the EU, people with knowledge of the plans told Bloomberg that the real aim is to stop China’s massive manufacturing power from crushing European industry.

EU welcomes foreign investment if demands are met

EU Trade Commissioner Maros Sefcovic stated on Tuesday, following discussions with trade ministers in Horsens, Denmark, that the European Union is open to foreign direct investment, provided it represents genuine investment.

According to Sefcovic, this requires that foreign investors establish employment opportunities within Europe, contribute economic value to the European market, and share technological expertise with Europe, similar to the approach European businesses have taken when making investments in China.

Chinese products that receive government money have flooded EU markets, and Beijing is now threatening to limit exports of rare earth minerals that European manufacturers need. But copying China’s protective trade practices could damage an important economic relationship and trigger retaliation.

European Commission spokesperson Thomas Regnier indicated that various potential actions are under review aimed at supporting a robust, competitive, and environmentally sustainable European industrial sector. He emphasized that no conclusive determinations have yet been reached concerning the specific parameters and form these actions will take.

Rising tensions between economic powers

Relations between the two economic powers are already strained. The EU recently decided to double taxes on steel coming into the region, which would hit cheap Chinese steel hard. Just days after that announcement, Beijing said it would put new controls on selling vital rare earth minerals, leading EU officials to call for reducing economic dependence on China.

For several years, the European Union has been pledging to protect its manufacturing sector from Chinese competition. These forthcoming rules are designed to accelerate this protective initiative by way of a legislative framework known as the Industrial Accelerator Act.

European Commission President Ursula von der Leyen talked about this legislation in September as a way to strengthen Europe’s future industries.

During her annual speech to the European Parliament, she declared that Europe would remain a hub for clean technology production. However, she stressed the importance of ensuring European industry has access to necessary materials within the continent itself.

She summarized her vision by stating that digital and clean technology development should be “faster, smarter and more European.”

The EU is essentially copying Beijing’s approach. China has long had strict limits on outside companies wanting to work in its market. At the same time, China has spent heavily on investments in Europe and elsewhere through its Belt and Road Initiative, gaining technical knowledge along the way.

A major part of the coming proposal will try to help Europe’s young electric-vehicle industry, according to people familiar with the plan. It will specifically target getting battery technology knowledge, since EU carmakers often depend on China for these parts in electric vehicles, putting them behind Chinese competitors like BYD Co.

The proposal would require foreign carmakers selling cars in the EU to buy a specific amount of goods and services locally. Officials are also considering making foreign-owned plants hire EU workers.

The package will also make it easier for European companies to get permits.

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