Seller Beware? Chinese Direct Investment and Political Cohesion in the European Union

Abstract

The European Union (EU) appears more divided than ever on how to deal with China’s growing economic and geopolitical clout. Of particular worry is the influence of Chinese foreign direct investment (FDI) in the EU, which many believe has the potential to fracture Europe’s China policy. This thesis investigates whether and how Chinese FDI may affect the political cohesion of the EU. We propose a two-part framework for modeling the effect of FDI on EU political cohesion. First, the interaction of supply-side and demand-side interests leads to the formation of national preferences toward FDI. Next, countries bargain at the intergovernmental level in the EU, translating these domestically-derived preferences into collective bloc-wide action. Using a mixed-methods approach that relies on quantitative investment data and qualitative case-studies, we use this framework to empirically test the effects of Chinese FDI on EU political cohesion. We find that the differential alignment of supply-side and demand-side interests leads to asymmetric preferences for Chinese FDI in different regions of Europe, especially between Western Europe and the rest of the EU. However, we also find that the EU is generally capable of reconciling these divergent preferences at the intergovernmental level, with some exceptions. In particular, variations in decision-making rules and preference intensity leads to disruptions in EU cohesion on symbolic issues (e.g. foreign policy statements), while preserving cohesion on substantive legislative issues (e.g. the implementation of an investment screening mechanism). Overall, our analysis suggests that despite superficial disruptions, the EU remains fundamentally unified on its China policy for the time being.