Chinese foreign direct investment in Europe surged last year to its highest level since 2018, driven by a wave of major acquisitions and large-scale factory projects. But analysts are warning the recovery could be temporary.
According to a report by the Berlin-based Mercator Institute for China Studies (Merics) and New York's Rhodium Group, Chinese foreign direct investment (FDI) in the European Union and the United Kingdom reached €16.8 billion in 2025.
But while completed investments hit a seven-year high, the value of newly announced factory projects fell sharply.
"Completed investments reached the highest level since 2018," said Andreas Mischer, co-author of the report. "But the value of newly announced greenfield transactions has declined very drastically," he added, leaving the durability of the recovery in doubt.
Hungary leads, France climbs
Hungary retained its position as Europe's top destination for Chinese capital in 2025, attracting roughly €3.9 billion – buoyed by flagship electric vehicle battery projects, including CATL's plant in Debrecen and BYD's facility in Szeged.
The recent electoral defeat of Viktor Orbán has introduced some uncertainty, although Mischer noted that ongoing projects were unlikely to be disrupted in the short term.
"Depending on how the new Hungarian government turns out in reality, it might have an impact on future investment decisions," he said.
France was the year's standout performer, with Chinese investment nearly quadrupling to €1.9 billion, lifting its share of total European inflows from 5 percent to 12 percent.
The main driver was Tencent's acquisition of a 25 percent stake in Ubisoft's Vantage Studios, a deal Mischer valued at "more than a billion euros".
Across the 2020-2025 period, the UK (€85 billion), Germany (€39 billion) and France (€26 billion) have attracted the largest cumulative Chinese investment in Europe.
Political backdrop
The investment uptick, however, is taking place against a backdrop of strained relations between Brussels and Beijing.
A landmark EU-China Comprehensive Agreement on Investment (CAI), agreed in principle in 2020 and intended to open markets on both sides, remains suspended following EU sanctions over China's human rights record, and shows little sign of revival.
Despite turbulence in relations between the EU and the United States under US President Donald Trump, hopes of a Beijing-Brussels rapprochement have failed to materialise.
"Last year there was a lot of talk, from the Chinese side in particular, that China and the EU should embrace this opportunity," said Mischer.
But Brussels has remained cool, he argues, because fundamental structural disagreements persist – and because China has not been willing to accommodate demands from the European side.
Tightened regulations
Meanwhile, European policymakers have moved to tighten scrutiny of incoming Chinese capital.
New FDI screening rules, the Foreign Subsidies Regulation and provisions in the draft Industrial Accelerator Act targeting strategic sectors – including AI, telecoms and microchips – reflect a broader push to "de-risk" ties with China.
Several deals have already run into resistance.
The Dutch government took control of Chinese-owned chipmaker Nexperia, State Grid withdrew a bid for German grid operator Open Grid Europe under government pressure, and French authorities are investigating JD.com's acquisition of parts of retail group Fnac Darty.
There has also been a declining Chinese appetite for building overseas. With a weak yuan making foreign investment relatively expensive and China's domestic industrial capacity running at scale, Chinese firms are increasingly choosing to export goods rather than build plants abroad.
Unless geopolitical or economic conditions shift, Mischer warned: "Europe is likely to see more Chinese goods on its markets rather than a steady flow of new factories and deep local integration."
