China and the World

Nein, nein, nein

Germany pushes back on Chinese investment


Angela Merkel may choose her words a lot more carefully than Donald Trump but she has sent a similarly cautious message on the desirability of Chinese investment – after blocking two bids for German companies from Chinese suitors.

At the end of July her administration ordered a state-owned bank to trump an offer from State Grid for a 20% stake in the Berlin power grid. And at the start of this month it intervened again to stop the sale of Leifield, a mechanical engineering firm, to Chinese investors.

Although relatively small in revenue terms, Leifeld makes machine tools used in the automotive, aerospace and nuclear sectors, allowing Berlin to make a case for stopping the takeover on national security grounds. Tellingly this is the first instance that the government employed legislation framed for this purpose to block an investment.

The refusal comes after the Germans took steps last year to also make it easier for ministers to block bids from non-EU countries. At least 80 deals have been probed, with more than a third of those involving Chinese investors. In fact, Berlin seems prepared to be more interventionist than the legislation allows: local media reckons that the bid for the power grid may have been approved under the tighter rules, but the government opted to match the Chinese offer in an effort to snub it.

German policymakers are also more than aware of Chinese ambitions to boost the industrial sectors prioritised in Beijing’s Made in China 2025 programme. Many of these mirror areas of manufacturing excellence from Germany’s Mittelstand economy.

Takeovers of other German firms have made headlines in the past, including Putzmeister, a global leader in concrete pumps, which was purchased by Sany in 2012, and Kuka, a pioneer in industrial robots, which was acquired by appliance maker Midea two years ago (see WiC326)

Earlier this year German automotive icon Daimler suffered the indignity of a dawn raid from Geely, the Zhejiang-based carmaker, which grabbed almost 10% of its shares in a move that surprised regulators.

It’s not just the Germans who are uneasy about interest from China. The French took one of their shipbuilders under temporary state control last year on concerns that proprietary technology could leak to Chinese interests linked to a bid from a third party. The Italians also set conditions limiting the transfer of military know-how as part of the sale of an aerospace business to a Chinese-backed consortium this year.

Even the British – generally the most laissez-faire in their attitude to ring-fencing ‘national’ assets – are growing cautious, with legislative preparations underway for a review process in cases that trigger concerns about foreign intelligence activity and the risks of disruption to key infrastructure.

Back on the continent the European Commission has plans to provide a screening mechanism that affords more protection from foreign raiders, but policymakers have struggled to reach a consensus because some member nations are reluctant to accept a common review process. While Germany, Italy and France might have more concerns about losing crown jewels to China, eastern and southern European countries want more Chinese investment.

The reaction in the Chinese press to Berlin’s two interventions was muted, possibly because Beijing doesn’t want to wage another war of words at a time when it is trying to take the heat out of the trade row with Donald Trump (and has been trying to woo Germany; see WiC418).

There is also some recognition that the championing of Made in China 2025 may have backfired by drawing attention to the state-backed directives in the plan. Like other governments around the world, Berlin is disgruntled too by what it sees as a lack of reciprocity in investment rules – a common feature in German press coverage is that the China forbids European firms from making comparable investments in its home market.

“While Beijing may not be thrilled, it must understand Germany’s position. China also protects its key companies from foreign takeovers,” argued an editorial in Deutsche Welle. “In addition China’s state-owned companies, and also its private companies, are not known for their transparency. If takeovers are financed through government subsidies and loans, this simply distorts competition. To stand by and watch strategically important companies – and vital employers – being taken over under these conditions was bordering on stupidity.”

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