The proposals include a framework for screening by member states on grounds of "security or public order, including transparency obligations, the rule of equal treatment among foreign investment of different origin, and the obligation to ensure adequate redress possibilities with regard to decisions adopted under these review mechanisms," the Commission said.
A cooperation mechanism would be set up between EU countries and the Commission, to be activated when a specific foreign investment in one or several countries could affect the security or public order of another.
The Commission has also proposed screening on grounds of security or public order for cases in which FDI could affect projects or programmes in areas of "Union interest" including research, space, transport, energy and telecommunications.
Openness to foreign investment is enshrined in EU treaties, the Commission said.
"However, in some cases foreign investors might seek to acquire strategic assets that allow them to control or influence European firms whose activities are critical for our security and public order. This includes activities related to the operation or provision of critical technologies, infrastructure, inputs or sensitive information. Acquisitions by foreign state-owned or controlled companies in these strategic areas may allow third countries to use these assets not only to the detriment of the EU's technological edge, but also to put our security or public order at risk," it said.
Commission vice-president Jyrki Katainen said: "The EU is and will remain one of the most open investment regimes in the world. Foreign direct investment is an important source of growth, jobs and innovation. However, we cannot turn a blind eye to the fact that in certain cases foreign take-overs can be detrimental to our interests."
The EU's trade commissioner Cecilia Malmström said: "The aim of what we are proposing is to keep the EU open to foreign investment, with a non-discriminatory, transparent and predictable framework. A European framework for screening foreign direct investments will allow us to respond collectively and defend our European strategic interests when they are at risk.”
A coordination group on inward foreign direct investment will be set up to cover all issues under the scope of the proposed screening Regulation, and to offer a forum for wider discussions. The Commission will also start analysing FDI flow into the EU and set up a coordination group with member states to help identify joint concerns and solutions, it said.
German economy minister Brigitte Zypries wrote to European Commission chief Jean-Claude Juncker last month asking for proposals on how to strengthen member countries' rights to block Chinese takeovers of European companies.
Zypries said that while Chinese takeovers in Europe bring capital inflows that "prove the attractiveness of European locations and help safeguard jobs across the bloc including Germany", she thinks it is clear that China is looking to buy access to European technology while protecting its own companies from European investors.
In Germany alone there was more Chinese investment in 2016 than over the previous 10 years and 2017 looks ready to surpass that again, she said.
Zypries' letter followed a policy paper prepared by Germany, France and Italy in July calling for the Commission to protect Europe's most innovative companies. The paper proposed that the Commission should determine whether acquisitions are based on a foreign country’s political objectives rather than market forces, and called for reciprocity of investment conditions.