China's Outward <scp>FDI</scp> in the European Union: How Much Geopolitics is in There?

ABSTRACT The paper studies how geopolitics plays a role in China's outward foreign direct investment (FDI) decisions. The more specific focus is on the European Union (EU). The community has recently introduced a screening framework to prevent that foreign acquisitions of assets, especially involving key technologies and strategic sectors, jeopardise the functioning of the internal market. Based on the empirical analysis applied to a panel of 14 EU sectors observed over the period 2005–2022, the estimation results confirm that purely economic reasoning behind China's outward FDI in the EU plays only a limited role. Instead, China is likely to pursue foreign investment strategies that are closely related to the achievement of important geopolitical goals. This brings about important economic policy implications, which are discussed in the paper.