Geoeconomic contestation has spurred the convergence of economic and security competition. In recent years, economic security has permeated mainstream international economic discourse with unprecedented intensity, leading to a proliferation of national security-driven investment screening measures. Investment screening regimes have consequently become pivotal instruments in the emerging economic security framework.
By definition, investment screening regimes encompass two characteristics: inbound and outbound screening. The former, inbound investment screening regime, has achieved significant institutional maturity globally, particularly among developed economies, while outbound screening lags behind. Through the lens of international political economy, the proliferation of foreign investment inward screening mechanisms have become central for a rising China and the tide of weaponised interdependence.
Since FDI underpins economic globalisation, China's surge in transnational investment poses particular challenges. A distinctive feature of the Chinese case is that many Western actors perceive China as fundamentally distinct from, if not incompatible with, liberal market economies. This draws hegemonic countries to fight each other in the increasingly networked structure of the global economy, which is called weaponised interdependence. It arises as a strategy to gain bargaining advantages, gather economic and market intelligence, or disrupt adversaries without resorting to direct military conflict.
CFIUS in the US
The US and EU exemplify why developed countries, driven by China's influence and the weaponised interdependence logic, possess an outsized role in inward investment screening measures. In the US, inward investment screening measures include homeland security within their scope without defining national security, thereby ensuring flexibility and responsiveness to evolving threats. Since 1975, the US has used the Committee on Foreign Investment in the United States (CFIUS) to expand its regulatory footprint, culminating recently with the 2018 Foreign Investment Risk Review Modernisation Act (FIRRMA). This addressed growing national security concerns over foreign exploitation of investment structures previously outside CFIUS' jurisdiction. In particular, FIRRMA modernises CFIUS’s processes to better enable timely and effective reviews of covered transactions.
Between 2013 and 2022, CFIUS filings rose from 97 to 286. Of these 286 notices, 162 (57%) triggered in-depth investigations, with mitigation measures imposed in 52 cases (18% of total filings). In 2018, the proposed takeover of American chipmaker Qualcomm by Singapore-based firm Broadcom was blocked after CFIUS review. The U.S. government feared the transaction would weaken Qualcomm's leadership in 5G technology, potentially allowing Chinese companies like Huawei to gain a dominant advantage.
The European Example
Over the past few years, the EU has progressively introduced FDI inflow screening, including the European Chips Act, a new Anti-Coercion Instrument. Under the EU's Inward Screening Regulation, authorities consider factors such as investments in critical infrastructure/technologies, critical raw materials supply, sensitive information access, and direct/indirect foreign government control of investor as key determinants of European security. Moreover, recent amendments by the EU Commission modified the screening mechanism would by expanding its jurisdictional reach to include intra-EU transactions where the EU-based investor is ultimately controlled by individuals or businesses from a non-EU country.
This follows the EU Court of Justice's Xella decision, which struck down Hungary's attempt to review such indirect investments. The change ensures foreign investors using EU subsidiaries cannot evade national FDI screening. In the end, the commission welcomed this as a major strengthening of the EU's economic security framework. By subjecting intra-EU capital flows to security reviews based on ultimate ownership, the EU prioritised geoeconomic security over internal market liberalisation.
A New Resource Curse
While advanced capitalist economies are driven by great power rivalry with China and weaponised interdependence logic, emerging and middle-income economies follow different interest pathways for inward investment screening. Under this reality, emerging markets’ investment screening predominantly takes into account market logics and commercial concerns, with decisions to block or submit inward investment is motivated primarily by market-based considerations.
Emerging markets chiefly maintain inward investment screening because they either host capital-intensive firms (second-tier industrial structures) or possess strategic natural resources (food, hydrocarbons, and critical transition minerals). Such economic geographies reinforce unequal political power distributions between states, facilitating dominant economies' ability to restructure global economic governance.
Consequently, the rise of investment screening is not simply a US or European development, but effects economies across the globe. The mateirality of modern economics, evidenced by a rising focus on energy, critical minerals, and supply chains, means that stronger control over economic ties will remain a vital node of modern geoeconomics.
