M&A

Berlin blockage

Why Germany is criticising China over M&A deals

Sigmar-Gabriel-w

Bashing Beijing: Sigmar Gabriel

Last week the AKP conference saw almost a thousand German business executives gathered in Hong Kong. The event – organised by a host of German chambers of commerce – is held once every two years in an Asian city, but on this occasion the timing and location meant the usually harmonious Sino-Teutonic tone was lacking.

One of the speakers was German Economy Minister Sigmar Gabriel, who only the previous week had complained about China’s inbound M&A: “It’s not on that Germany sacrifices its companies on the altar of free markets, while at the same time our own companies have huge problems investing in China.”

In a sign that this was anything but a throwaway statement, Germany’s ambassador to China had penned a lengthy article in the South China Morning Post last week in which he also critiqued the Chinese government. “An unprecedented wave of complaints reaching our embassy and consulates indicates a clear trend that doing business in China has become more difficult,” wrote Michael Clauss. He complained that new regulations in areas like electric vehicles and rail transport favoured local firms, and described an “insurmountable protective wall favouring state-owned enterprises” – which made it increasingly hard for German firms to win government contracts.

Nor were the German complaints just empty threats. Late last month the Chinese government was taken aback when Gabriel’s economics ministry withdrew its clearance for a takeover of a German chip-equipment manufacturer at the eleventh hour. Fujian Grand Chip’s €670 million ($730 million) acquisition of Aixtron SE was stymied when Berlin reopened its review of the deal. The Wall Street Journal called the decision “the latest sign of government alarm about a wave of Chinese takeovers”.

According to Deutsche Welle, Chinese firms snapped up 40 German firms in the first half of the year, along with six minority stake investments. The concern in Germany is the M&A flow is not reciprocal. There is a particular concern too that Chinese state-owned firms are acquiring valuable German technology in their M&A drive.

“From a German point of view, China has moved from partner to competitor, and the German government will have to find a way to come to terms with that fact,” commented Deutsche Welle. China, in turn, is already “accusing Germany of protectionism” the newspaper said, and ahead of Gabriel’s Beijing trip last week “the Chinese foreign ministry summoned the German envoy in Beijing and handed him an official note of protest. Criticism can hardly be more blatant.”

Bai Ming, Deputy Director of the Ministry of Commerce International Market Research Institute told the 21CN Business Herald that blocking China’s high-tech acquisitions was “Cold War thinking”.

But the backlash is not restricted to Germany. China Review News notes that since mid-2015 around $40 billion of Chinese overseas acquisitions have been blocked, often on security concerns (for perspective: China’s outbound M&A reached $99 billion in the first half of the year, according to EY, the professional services group).

Another deal that might face trouble: conglomerate Wanda’s $1 billion acquisition of Dick Clark Productions, which produces the Golden Globes. Since news of the deal broke two months ago 16 members of the US House of Representatives have called for expanding the scope of the nation’s Committee on Foreign Investment in the US so it can review Chinese acquisitions of American media companies under national security rules.

Wanda, of course, is no stranger to difficult M&A transactions. Last week it filed an announcement with the Hong Kong stock exchange that it had finally sold the Edificio España building in Madrid for €272 million. The Chinese firm had bought the iconic – albeit empty – building in the hope of converting it into a hotel and residential complex. It then ran into planning problems with a newly elected mayor.

Wanda’s boss Wang Jianlin said the Edificio España debacle had demonstrated the difficulties of dealing with democracies – “It’s a perfect example of what Western freedom can lead to” – though he later denied he’d said the local government in Madrid had “treated him like a dog”.


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