The Interactions of Competition Law and Investment Law: The Case of Chinese State-Owned Enterprises and EU Merger Control Regime

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With the unveiling of the Belt and Road Initiative and the industrial policy “Made in China 2025,” the outward investments of the Chinese state-owned enterprises (SOEs) have been on the rise with the strong political backing and financial support from the state-owned banks. The acquisitions of the Chinese SOEs have been scrutinized under the EU merger control regime with the EU Commission attempting to forecast their effect on competition. The EU merger cases involving Chinese SOEs demonstrated significant challenges in assessing the corporate governance of these enterprises, exercise of state control, and possible coordination of commercial conduct among the SOEs. The competition authorities of the EU Member States have not managed to develop a coherent methodology for competitive assessment of the SOE acquisitions either. The difficulties of applying traditional competition law tests to the mergers and commercial conduct of SOEs have prompted numerous calls for the revision of the current merger control regime to allow for the establishment of the European “national champions.” In parallel, the EU has considered application of alternative regulatory means such as trade defense measures and foreign investment screening. The present chapter analyzes the challenges posed by the SOE acquisitions for the EU merger control. It also addresses the emerging EU framework for the security screening of the foreign investments that has been partly prompted by the above mentioned challenges. The combination of the merger control rules with the foreign investment screening and other regulatory frameworks could significantly affect the future of the Chinese SOEs’ investments in the EU in light of the ongoing negotiations of the EU-China investment agreement.