The European Union (EU) is moving forward with its economic security strategy, aimed at reducing risks associated with its ties to China. However, the plan has encountered opposition from member states, leading to a modification of the most controversial elements.

The European Commission remains determined to push ahead with its strategy and denies suggestions that it has been forced to dilute its plans. It unveiled revised rules on vetting foreign investments and introduced guidelines on academic collaboration to protect European researchers from industrial espionage and foreign interference.

EU competition boss, Margrethe Vestager, highlighted that investigative journalists had discovered nearly 3,000 scientific collaborations between EU universities and Chinese military institutes since the year 2000. However, the most contentious aspects of the strategy, originally proposed in June, have been postponed until 2025 due to strong opposition from powerful EU capitals.

Rather than proposing a law for screening private companies' investments in high-tech sectors in risky markets like China, Brussels will engage in monitoring exercises, intending to propose a policy towards the end of next year. The implementation of any proposal into law could potentially take several years.

EU trade chief Valdis Dombrovskis emphasized that the EU's plans were not watered down and that all initiatives announced in June were being pursued in consultation with member states and stakeholders. The EU has also been advocating for harmonizing member states' export control regimes to mitigate the risk of technology leakage and unauthorized utilization by military intelligence.

The EU's endeavor to de-risk its ties with China has led to disagreements with influential member states such as France and Germany. Moreover, the centralization of European export control authority could encounter resistance among member states. The European Commission aims to avoid a "turf war" and hopes to collaborate with member states without necessitating a transfer of competencies.

While China has not been explicitly mentioned in the discussion on export controls, Brussels privately acknowledges its intent to prevent European technology, including quantum computing and artificial intelligence, from strengthening China's military capabilities. The EU envisions a harmonization of export controls and outbound investment screening to ensure that restrictions on exports are not undermined by factories or companies established in certain countries.

The EU also aims to address the extraterritorial use of export controls by the United States. In the past, compliance with US curbs on China compelled the Netherlands to cease selling high-end lithography machines to Chinese buyers, impacting Europe's leading tech company, ASML.

The sole legislative proposal in the new package is the tightening of existing screening mechanisms for foreign investments into the EU. It would mandate all EU members to scrutinize foreign takeovers to ensure alignment with the bloc's security interests. The EU already possesses a foreign direct investment screening mechanism, adopted by all but five member states, primarily in response to China's acquisition of strategic European tech companies.

The revised proposals focus on monitoring "risky transactions" in sectors with military connections and the ten critical technologies identified by the EU. Additionally, the screening will extend to intra-EU deals where the buyer is non-European.

As per the data provided by the commission, the majority of investments scrutinized in 2022 were from American companies (32%), while Chinese investments accounted for only 5.4%. Nevertheless, concerns regarding Chinese ownership of strategic European infrastructure have increased, leading the European Parliament to pass a non-binding resolution urging mandatory screening of European critical assets to prevent suspicious investments from China.