Germany Set to Tighten Foreign-Investment Curbs, With Eye on China Deals

December 17, 2018 Updated: December 17, 2018

Berlin is set to make foreign investments in Germany’s strategically important sectors more difficult, after mounting concerns about Chinese business deals in recent years.

The current threshold for triggering a government national-security review of an investment by an entity outside of the European Union is a 25-percent stake in a German company. The Berlin government approved a proposal to lower the threshold to 10 percent—in an amendment to a law called the Foreign Trade and Payments Ordinance (AWV), according to a Dec. 16 article by Germany’s business daily newspaper Handelsblatt.

The amendment will be adopted at Germany’s Cabinet meeting Dec. 19, according to Handelsblatt.

Examples of firms that could involve national-security risks include defense companies, IT firms, and food producers.

The German government would have the power to veto bids deemed to endanger national security.

Berlin has become increasingly worried about foreign takeovers of German companies, especially by Chinese investors.

In July 2017, Germany’s Cabinet adopted a directive to allow the government to investigate a wider range of companies with foreign bids to acquire, such as those operating in “critical infrastructure,” according to the Financial Times. Additionally, the directive allowed the government a longer investigative timetable to review any takeover.

The 2017 directive came in response to Chinese appliance manufacturer Midea’s purchase of German robotics and engineering firm Kuka in 2016, for 4.5 billion euros ($5 billion). Kuka has collaborated with U.S. defense contractor Northrop Grumman on the latter’s construction of F-35 stealth fighter jets.

The German government also was alarmed in July 2018, when China’s State Grid Corp., a state-owned electric utility supplier based in Beijing, tried to buy a 20-percent stake in Germany’s 50Hertz, one of four transmission-system operators for electricity in the country. According to Handelsblatt, Germany’s federal government couldn’t examine the acquisition because the stake involved was below the 25-percent threshold.

Eventually, Germany’s government-owned development bank KfW stepped in to buy the 20-percent stake, fending off the Chinese offer, according to Reuters.

In August 2018, Chinese firm Yantai Taihai, a metal processing and smelting service provider based in Yantai City in Shandong Province, dropped its bid to buy German toolmaker Leifeld after Berlin threatened to use its power to veto the bid over security concerns, according to Reuters.

According to data from Berlin-based think tank Mercator Institute for China Studies (MERICS), China’s foreign direct investment in the EU reached 35 billion euros (about $39.6 billion) in 2016, with Germany accounting for 11 billion euros (about $12.4 billion) or 31 percent.

In 2017, Chinese investment in the EU dropped to 30 billion euros (about $33.9 billion), but it was still the second-highest level ever recorded. Germany accounted for 1.8 billion euros (about $2 billion), or about 6 percent.

China has long wanted to transition the country from a low-wage manufacturing base to a tech-manufacturing powerhouse that can rival Western counterparts. It is a tactic under China’s economic blueprint, “Made in China 2025.”

“Chinese enterprises and the government see the technology transfer from abroad as an important way to accelerate technological progress and to achieve the ambitious political goals,” according to a 2016 assessment of “Made in China 2025” by MERICS. The policy was modeled after the German concept of “Industry 4.0” to adopt IT into manufacturing.

After the industrial policy was released in 2015, China began investing heavily in Germany’s automation, robotics, and automobile sectors in a bid to acquire technology related to advanced innovations.

 

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