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Covid-19 affect: European countries tighten FDI rules to prevent hostile takeover by Chinese firms


West European countries including Italy, Spain, and Germany have tightened their Foreign Direct Investment (FDI) rules to prevent Chinese firms from taking over the domestic economies which are already suffering a slump because of coronavirus pandemic, according to online journal

At a time when the rapid spreading contagion has brought on the worst public health crisis in modern history and making European economies suffer a devastating slowdown, China -- where the virus is believed to have originated from, has returned to normal and opened up economic activities, wrote Amit Agrahari in an article published in Delhi-based

In a bid to revive its economy, Beijing has also announced billions of dollars as stimulus to its companies, and therefore, coupled with a low policy rate, these companies have the leverage to spend money, the article said.

With the fall in demand, European companies are unable to pay back the debt and are willing to sell a stake to anyone eyeing to invest. "China, seeking opportunity when countries are struggling, are looking forward to pump up investments in the West," Agrahari added.

He said that 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," the article read.

The European Union, the body which usually sets the FDI cap in Europe by non-EU countries, issued new FDI guidelines keeping the damage done by coronavirus and vulnerable status of European companies, especially those of Italy, Spain, Greece and Portugal.

Investment in critical sectors such as healthcare, energy, finance, and defence is practically banned.

Spain, the country with as many as 1.7 lakh cases, the second highest number globally despite a low population has capped the FDI limit in general companies at 10 per cent.

Italy with nearly 1.6 lakh cases 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 recent years, China has economically colonised many countries by its hostile activities. Australia, the country for which China accounts for more than one-third of total trade, is the best example, according to Agrahari's article.

Media reports have shown Australian Prime Minister Scott Morrison repeating 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 the Belt and Road Initiative (BRI) projects already and therefore treading with caution. But debt-ridden Europe, especially the countries on the southern part of 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 equipment 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 in 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 learned 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 as it did in the case of coronavirus," the report said.

Confirmed cases of the novel coronavirus around the world have surpassed 2 million, according to the US-based Johns Hopkins University.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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First Published: Tue, April 14 2020. 10:25 IST