Eyeing China, France mulls foreign investment screenings in raw materials sector

By Théo Bourgery-Gonse | EURACTIV.com

24-08-2023 (updated: 25-08-2023 )

News Based on facts, either observed and verified directly by the reporter, or reported and verified from knowledgeable sources.

epa10774809 Minister of Economy of France, Bruno Le Maire, arrives for the 9th China-France High Level Economic and Financial Dialogue at the Diaoyutai State Guest House in Beijing, China, 29 July 2023. The Dialogue is co-chaired by Chinese Vice Premier He Lifeng and Minister of Economy of France, Bruno Le Maire. EPA-EFE/MARK R. CRISTINO [MARK R. CRISTINO/EPA-EFE]

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The scope of French foreign investment control will be broadened to critical raw materials’ extraction and transformation, Economy Minister Bruno Le Maire announced on Thursday (24 August), in an apparent reference to China’s near-monopoly in the sector.

The move fits within the minister’s broader intentions to reinforce industrial sovereignty and independence in France and become the EU’s leading “green economy by 2040,” he said in a speech laying out the year’s economic priorities.

“We will broaden the sectors that fall into the scope of controls, especially critical raw materials’ extraction and transformation activities,” Le Maire announced.

The country’s “greatest scandal of the past thirty years” was that deindustrialisation, he claimed, committing to bringing industry back to 15% of French GDP in the next 15 years.

One way to do that is to “protect strategic interests” and ultimately ramp up scrutiny over foreign investments in economic sectors deemed “decisive for our country’s sovereignty and industrial sector,” the minister added.

France’s nickel production is significantly lagging behind its Indonesian and Chinese counterparts, and must be both refinanced and restructured to meet EU critical raw materials independence goals, a new government report reveals.

Le Maire announced he would look into widening the scope of the existing legislation over foreign investment controls to include third-country companies specialised in the extraction and transformation of critical raw materials (CRM).

As the French branches of foreign companies have at times been found to be used to bypass notifications obligations, they will also fall under the scope of the legislation.

France adopted a law in 2019 to more effectively screen foreign investments in economic sectors deemed critical to public order, national security and defence. Where restrictions apply, investment flows must first be approved by the Ministry of Economy.

Sectors under highest scrutiny include AI, renewable energy storage (including batteries), biotechnologies and semiconductors.

In the pandemic, the threshold over which a foreign investor’s purchase of shares of French listed companies needs to be approved by the ministry was reduced by decree from 25% of total shares to 10%.

This rule is to remain in force, Le Maire confirmed on Thursday.

The EU’s discussions with Australia over “double pricing” of raw materials during the negotiations for a free trade agreement (FTA) point to a conflict of goals in the EU’s approach to ensuring its supply of critical raw materials.

He may not have said it explicitly in his speech, but the minister’s decision to target CRMs mining companies aligns with the EU’s efforts to secure home supply and production of raw materials and ensure some kind of independence in a sector largely dominated by China.

According to a report by the German Institute for Economic Research (DIW), the EU is currently 100% dependent on foreign suppliers in 14 out of 27 critical raw materials and 95% dependent on three additional critical raw materials.

Most of the imports are from China, which holds a quasi-monopoly when it comes to mining and processing many critical raw materials. For instance, the EU imports 93% of its magnesium and 86% of its rare earth metals from China.

China is even dominant in processing many of these raw materials, even if it is not mining them. For example, while only 9% of the world’s lithium is mined in China, approximately 60% is refined there.

In July, China’s announcement to place export restrictions on gallium and germanium, two materials needed in high-speed computer chips and electric vehicles, had yet again pointed to the EU’s vulnerabilities and dependence on third countries for materials necessary for any meaningful green transition.

China already invests in various sectors in France, though mining isn’t one of them. In May, Chinese XTC, specialised in battery manufacturing, announced it would invest €1.5 billion in a joint venture with French nuclear mogul Orano for a battery production site in Dunkirk.

Companies caught out by China’s decision to restrict exports of two metals widely used in semiconductors and electric vehicles were racing to secure supplies on 4 July as some industry suppliers worried that curbs on rare earth exports could follow.

In March, the European Commission unveiled its Critical Raw Materials Act (CRMA), setting targets for the EU production, refining, and recycling of key raw materials and looking to decouple from Chinese counterparts.

“Excessive dependencies on single suppliers could disrupt entire supply chains, particularly as export restrictions and other trade-restrictive measures are increasingly used amid intensifying global competition,” the legislation reads.

China is also at the heart of the European Economic Security Strategy, published in June, which sets out “a comprehensive and strategic approach to economic security, de-risking and promoting technological edge in strategic sectors”.

EURACTIV reported over the summer that EU mining sector experts acknowledged it would be very difficult to achieve the EU’s CRMA objectives in time, warning that the Commission may be too optimistic about the speed at which new EU industrial solutions can be deployed.

Even if new mines were to be opened in the European Union today, experts in the French mining sector say it would be very difficult to achieve the EU objectives for extracting critical and strategic raw materials by 2030.

[Edited by János Allenbach-Ammann]

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