Brussels Has Floated a €100bn Tech Fund in a Bid to Compete with US, Chinese Rivals
The European Commission is reportedly considering plans to launch a €100bn sovereign wealth fund to be used to finance Europe’s own technology “unicorns” and curb competition from larger Chinese and US-based rivals like Alibaba and Google.
The initiative is just one of a collection of proposals forwarded to the incoming president of the European Commission, Ursula von der Leyen, ahead of her entry to office on 1 November.
“The emergence and leadership of private non-EU competitors, with unprecedented financial means, has the potential to obliterate the existing innovation dynamics and industrial position of EU industry in certain sectors,” reads the fund planning document.
Any move to create such a fund would be the boldest response yet to calls from France and Germany for EU policymakers to develop the policy tools needed to protect European firms from unfair competition, including Chinese government-backed giants.
According to the document, US “Gafa” technology companies (Google, Apple, Facebook and Amazon) and China’s parallel “Bat” group (Baidu, Alibaba and Tencent) have been thus far unimpeded in their mission to buy out potential rivals. At this stage, the document warns, US and Chinese technology giants “manage the global digital agenda.”
“Europe has no such companies,” the Brussels’ document continues, “this presents a risk to growth, jobs, and to Europe’s influence in key strategic sectors.”
Von der Leyen has promised that her commission will “invest in innovation and research, redesign our economy and update our industrial policy”. Accordingly, the draft plan says the fund should be focused on buying long-term shareholdings in “EU-based corporates in strategically important sectors”, prioritising investment in “developing strategic sectors.”
Reports of Brussels’ plans come at a critical time for the European private sector, amid evidence that the once generous stream of Chinese cash being channeled to European investments has slowed to little more than a trickle. Chinese companies invested €2.1 billion in Europe in the first half of this year, a whopping 84% drop on the same period of 2018.
According to a new study by consultancy EY, Chinese firms bought out or into 81 European businesses from January to June 2019, but even these transactions were lower-volume ones. Accordingly, investments shrank by €13.8 billion compared to the first half of 2018, amounting to barely more than €2 billion.
While the drop is largely due to the dragging-on of the US-China trade war, Chinese investors are also reporting increasing mistrust on the continent.
Late last year, the German government vetoed the acquisition of a minority stake in 50Hertz, one of Germany’s four providers of high-voltage transmission systems, by Chinese government-backed utility giant State Grid Corporation of China (SGCC) late last year. At the same time, German authorities blocked the acquisition of a German specialist in high-strength metal by a French-Chinese consortium. Both transactions were blocked on the basis of concerns of risk to public order and national security.
Whether or not plans for a European Future Fund will firm up by November remains to be seen. Even so, moves by Brussels to take on rising tech giants from both the west and east are sure to be ambitious from the outset.