European Commission President Jean-Claude Juncker wants a radical new rulebook to strengthen the EU's hand against Chinese takeovers of its most strategic companies.

China's buyouts of critical European infrastructure and high-tech businesses are one of the Continent's most contentious political issues, particularly in France and Germany. In Berlin, the topic leapt to the top of the political agenda last year, when the prized robotics-maker Kuka was bought by Midea, a Chinese manufacturer of washing machines and rice cookers.

According to five senior diplomats who spoke on condition of anonymity, Commission officials are drafting a regulation on screening investment and the goal is for Juncker to propose the new line of defense against China in his State of the European Union speech September 13. A first draft is expected to be ready in early August, and a senior EU official said the plan would "probably" be ready to announce in September.

Trade diplomats in Brussels said there is still heated debate over the legal scope of the plan: how much should be mandatory and what roles should be given to the Commission rather than member countries.

EU guidelines that would steer member countries to use existing legal tools in a harmonized front against Chinese investment have been under consideration for several weeks, but officials have now also confirmed that Brussels is drafting a harder, full legislative proposal.

A survey by the consultancy EY said the Chinese invested €75 billion in European acquisitions and investments in 2016.

Matthias Machnig, Germany's secretary of state for the economy, is one of Europe's most outspoken officials pressing for action over Chinese acquisitions. He told POLITICO he believed the EU legislation should create a framework for national capitals to block deals if the Chinese buyer is bankrolled by subsidies, or if it is making the acquisition based on Beijing's political goals, rather than market forces.

He mentioned Beijing's "Made in China 2025" program as an example of a politically driven plan to acquire technology for national development.

"Look at Kuka and other recent cases in Germany. For cases like that, we want to have the right and legal base for deeper investment probes and want to be able to reject an investment, for example, if it's not market-driven but state-driven," Machnig said last week, shortly before Germany was due to submit its own draft regulation to Brussels.

Feeding into the Commission plan, Berlin is expected to team up with Paris and Rome to submit its own draft this week.

A survey by the consultancy EY said the Chinese invested €75 billion in European acquisitions and investments in 2016, which Machnig said was as much as in all the previous 10 years combined.

China has made no secret of his opposition to EU action against mergers and acquisitions (M&As). On July 14, Reuters quoted Geng Shuang, the foreign ministry spokesman, saying: "We are concerned about the relevant moves of Germany and Europe."

Making it mandatory?

Trade diplomats from two other EU member countries, however, said some aspects of the plan would have to go further than Machnig described and would have to do more than free countries to take action if they wanted to.

They said the Commission is weighing mandatory screening of certain mergers and acquisitions and member countries would need to establish departments for investment screening if they did not already have them.

The diplomats added the regulation should monitor investments of more than 25 percent into certain strategic companies, based on principles laid down in the World Trade Organization's General Agreement on Trade in Services, which allows investments to be blocked for reasons of “national security” and “public order.”

They argued that a common legal framework is necessary across the EU to ensure that Chinese buyers could not slip through the net by establishing themselves in an EU country where they had not been screened. A Chinese company should not, for example, be able to avoid the screening process and buy a German company through an entity it has created or bought in Portugal.

A senior EU official said the European Commission is studying two paths. The first would simply be to ensure countries use the current legal toolbox available in a coordinated front against China. The second option is the full legislative proposal of rules.

The official also said the final decision on whether to block a buyout could fall to a national capital or the Commission, depending on the nature of the objection. Competition policy, for example, is a core Brussels competence.

“We need to differentiate between national interests, where I would see member states in the lead, and competition law issues, where I could see competences leaning towards the EU level,” the official said.

Hans von der Burchard contributed reporting.

This article is part of an occasional series: China looks West.