Chinese FDI in Europe Hits 7-Year High Despite Tensions

Chinese investment in Europe reached a seven-year high of €16.8 billion (US$19.5 billion) in 2025, surging 67% year-on-year despite escalating trade tensions between Beijing and Brussels, according to a new report by Rhodium Group and the Mercator Institute for China Studies (MERICS). The annual study, published on May 20, reveals that Chinese companies continue to see strategic value in European markets, particularly in the electric vehicle (EV) supply chain, even as regulatory barriers tighten.

The Numbers Behind the Surge

Both mergers and acquisitions (M&A) and greenfield investment drove the rebound. M&A activity rose 89% year-on-year to €7.9 billion, fueled by three large transactions: Hongshan’s €1.2 billion acquisition of Marshall Group in Sweden, and Tencent’s €1.1 billion acquisition of Easybrain in Cyprus alongside its €1.1 billion purchase of a 25% stake in Ubisoft’s Vantage Studios in France. Greenfield investment hit a record €8.9 billion, up 51% from 2024, driven by construction starts for battery manufacturing facilities by CATL, CALB, and Gotion across Hungary, Spain, Portugal, and Slovakia.

Europe’s share of China’s total global foreign direct investment (FDI) jumped from 17% in 2024 to nearly a quarter (25%) in 2025, underscoring the region’s growing importance as a destination for Chinese capital.

Shifting Geographic Patterns

Hungary retained its position as the top destination for Chinese FDI, attracting €3.9 billion in 2025. However, its share of total Chinese investment in Europe shrank from 32% to 23%, as Germany and France rapidly caught up. Completed Chinese FDI in Germany almost tripled to €2.5 billion, while investment in France nearly quadrupled to €1.9 billion. The “Big Three” economies — Germany, France, and the UK — saw their combined share leap from 23% in 2024 to 34% in 2025.

According to the report, this shift reflects both political changes in Hungary and the gravitational pull of larger European economies. Key projects in Western Europe included Red Rock’s offshore windfarm in Scotland, Luxshare’s acquisition of Leoni’s cable division in Germany, and Tencent’s investment in Ubisoft’s French studios.

EV Sector Dominance

The automotive sector attracted €7.6 billion in Chinese FDI in 2025, representing 45% of total investment, with a staggering 93% focused on the EV supply chain. This made 2025 the second strongest year on record for Chinese automotive investment in Europe, after €7.9 billion in 2015. Major projects breaking ground included CALB’s €2 billion battery factory in Portugal, CATL’s €2.1 billion battery plant in Spain, and Gotion’s €900 million battery plant in Slovakia.

However, the report warns of a significant slowdown ahead. Newly announced EV projects fell to just €4 billion in 2025, down from €5.3 billion in 2024 and a dramatic drop from the record €16.3 billion in 2023. While ongoing construction will sustain investment levels for several years, the thinning pipeline raises questions about the long-term trajectory.

Warning Signs Beneath the Surface

Despite the headline surge, the report cautions that the investment pipeline may be drying up. Newly announced greenfield projects fell sharply to just €5.2 billion in 2025, down from €5.7 billion in 2024 and a steep drop from €16.9 billion in 2023. Over the last three quarters of 2025, newly announced projects averaged just €440 million, compared to around €3 billion per quarter since 2022.

Chinese firms increasingly favor exports over local production. Chinese exports to Europe rose 9% in value in 2025, with battery exports up 43%, auto exports up 15% (29% in volume), and wind equipment exports surging 65%. A weakened yuan — down 8.4% against the euro in 2025 and estimated by the IMF to be 16% undervalued — has made exporting more competitive while making overseas investment more expensive in RMB terms.

Regulatory Headwinds Intensify

Europe is tightening its regulatory framework for Chinese investment. The EU updated its FDI screening regulation in December 2025, and the Foreign Subsidies Regulation (FSR) allows the Commission to investigate companies suspected of benefiting from foreign subsidies. In March 2025, the Financial Times reported that the EU was considering an FSR probe into BYD’s plant in Hungary. Meanwhile, a Dutch court placed chipmaker Nexperia under custodial management in October 2025, signaling heightened scrutiny of Chinese-owned assets.

Debates in Europe about “conditioning” investment and imposing “made in Europe” requirements further add to the uncertainty. As the report notes, measures such as these may have the unintended consequence of reducing the EU’s overall attractiveness to Chinese firms as an investment destination.

Outlook: Exports Over Investment

Looking ahead, the report expects Chinese firms to continue favoring exports over local production. Beijing’s focus on building domestic industrial capacity and keeping core technologies at home will weigh on outbound FDI, while persistently weak domestic demand and an undervalued yuan will encourage Chinese companies to use exports as their primary channel for European sales.

However, greenfield projects already underway will provide a floor under FDI levels for several years. The uptick in Chinese acquisitions in late 2025 could persist, and Chinese firms may continue to channel investments toward EU member states seen as more closely aligned with China, such as Hungary, Spain, and Slovakia.

The central tension remains: Chinese investment in Europe is at a seven-year high, but the forces that drove it there — EV supply chain expansion and M&A recovery — are showing signs of exhaustion. Whether the current surge proves to be a peak or a plateau will depend on how Beijing, Brussels, and the market navigate an increasingly complex geopolitical landscape.