EU Targets Strategic Foreign Investment Dependencies

The European Union has unveiled a new policy framework designed to tighten oversight of foreign direct investment in key strategic industries, with measures widely viewed as aimed at reducing dependence on Chinese manufacturing capacity.

Announced on March 4, the European Commission’s proposed Industrial Accelerator Act introduces new conditions for foreign investment in sectors considered critical to the bloc’s industrial future. These include electric vehicles, battery technologies, photovoltaics and critical raw materials. The proposal applies to investment projects valued at €100 million or more if the investor originates from a country controlling more than 40 per cent of global manufacturing capacity in those sectors.

Under the proposal, foreign investors in the covered industries would face several operational requirements aimed at strengthening domestic industrial capacity. Projects would be required to employ at least half of their workforce from within the European Union. In addition, companies must meet several conditions linked to technology sharing, research investment and local supply chains. These may include licensing intellectual property to the European project, allocating one per cent of revenue to EU research and development activities, and sourcing at least 30 per cent of inputs from suppliers within the bloc.

Earlier drafts of the legislation suggested a stricter framework that would have imposed all conditions simultaneously and limited foreign ownership in strategic projects to 49 per cent. The final proposal softens that approach by requiring investors to meet only a selection of the conditions. However, limits on foreign ownership and joint venture structures remain possible depending on the type of investment involved.

Although the legislation does not explicitly mention China, analysts say the thresholds are designed in response to Beijing’s dominant position across multiple clean energy and industrial supply chains. European officials have argued that the policy is intended to strengthen strategic autonomy and prevent the bloc from becoming dependent on foreign manufacturing capacity in key technologies.

The proposal now requires approval from the European Council and European Parliament, where member states will debate the balance between attracting foreign capital and safeguarding industrial competitiveness within the European Union.