The potential effects of the new FDI screening mechanism on Chinese FDI in Sweden

Abstract: Background: Regulation (EU) 2019/452 provides a European Union framework for the screening of direct investments from non-EU countries on the grounds of security or public order. It has taken effect for three years; however, Sweden is at a stage of preparatory to enact such a mechanism. This is targeted at foreign direct investments from third-world countries, Chinese companies being one of the main investors in Sweden. However, there are conflicting views on this new regulation and an overall lack of research regarding how the Regulation (EU) 2019/452 may potentially impact Chinese outbound foreign direct investment in Sweden due to the highly dynamic legal and business environment that exists in the EU and China, respectively. Sweden is one of the EU member states that has been attracting Chinese FDI in the past decade – for example, many famous Swedish companies have been acquired partially or wholly, such as Volvo Cars, Volvo AB, Polestar, Oatly, Spotify, Nevs and Acne. Purpose: Our research focus of the relationship between the new EU FDI screening regulation and China outward FDI to EU. As China as a rising player in EU, it is interesting to assess whether Chinese investors are potentially affected by the EU FDI Screening from Sweden point of view.  Method: We are mainly conducting quantitative and qualitative analysis based on the historical 65 M&A cases happened from 2002 to 2019, including 51 Chinese majority acquisitions of Swedish parent companies and 14 minority acquisitions, which these mino­rity holdings are included, as many are large investments and may lead to an investor’s becoming the single largest owner in a company. The identified M&A cases are analysed and categorized according to the Regulation Article 4’s specific requirement. We analyse various aspects to get insights of the potential impacts of the Regulation to China FDI in Sweden. Conclusion:  In Sweden, we believe that the Regulation and the upcoming screening mechanism may not affect Chinese FDI in Sweden drastically due to the changes in Chinese FDI strategy and motivations from cross-border M&A to greenfield investment, and change in the role of Chinese SOEs acquiring from strategic assets to industrial and consumer advance technology. And other inferred likelihood may include, the possibility of circumventing FDI screening through portfolio investment and direct ownership and transfer of technology and assets.