Fighting back

Berlin risks reputation to block sellout to China

Germany China
Tech grab? What tech grab? Source: AP

Just a few weeks ago, Chancellor Angela Merkel and Chinese Prime Minister Li Keqiang gave a show of harmony at a meeting in Berlin. Both were keen to stress the importance of free trade and open markets in the face of mounting US protectionism.

There was little evidence of that spirit on Wednesday. Meeting in Berlin, Ms. Merkel’s cabinet decided to block the planned takeover of German engineering firm Leifeld Metal Spinning by French group Manoir Industries, a unit of China’s Yantai Taihai Group. The move came just days after ministers thwarted the purchase of a 20 percent stake in German power network operator 50Hertz by a Chinese investor.

Sources close to the economics ministry cited “security reasons” for the Leifeld veto, which Yantai Taihai had pre-empted by abandoning the takeover plan.

The government’s decision was historic because it was the first time it has blocked a takeover under a 2004 law. This enables it to forbid the purchase of more than 25 percent of a company by foreign investors if the deal is seen as threatening the public order or Germany’s security interests.

“It was just a matter of time before such a situation arose,” said Wei Duan, the director of the Chinese chamber of commerce in Germany. He believes the German government is taking the wrong path and that while Chinese companies remain willing to invest in Germany, the country’s reputation would suffer.

Chinese takeaways

That said, Leifeld is a complex case. The medium-sized company, based in the northwestern town of Ahlen, produces special machine tools that can be used to make components for the aerospace as well as nuclear industries.

Yantai is involved in the nuclear sector and the German government was likely concerned that a takeover would benefit China’s military nuclear sector as well as its civilian industry, said Georg Kofler, Leifeld’s owner.

China wants to catch up with the US, which is modernizing its nuclear arsenal, and it’s also trying to establish an aviation industry capable of competing with Airbus and Boeing. It’s no secret that China’s economy is closely connected with the government and serves Beijing’s strategic interests. That’s why German politicians and business leaders voiced support for the veto decision, although there were also appeals not to drive away Chinese investors.

“It’s right that state-motivated takeovers of German high-tech companies and state-guided investments in critical infrastructure should be closely watched and checked,” the economics minister of the state of North Rhine-Westphalia, Andreas Pinkwart, told Handelsblatt.

But the president of the BGA foreign trade association, Holger Bingmann, said forbidding the sale of a company had to be a last resort. “We are fundamentally committed to supporting open trade and open markets. That includes an owners’s fundamental right to sell.”

Taboo

Market economists have in the past regarded such government intervention as taboo, said the head of the DVFA German association of investment professionals, Stefan Bielmeier. “But the tide is turning,” he added. Investors were growing increasingly concerned that takeovers may be leading to a sellout of German know-how.

The government’s move reflects mounting concern in Europe over China’s increasing power and its aggressive pursuit of economic and geopolitical goals. The country has started targeting Europe with state-sponsored corporate takeovers in strategic sectors that are accelerating the technology transfer.

02 p05 Chinese takovers in Germany-01

Chinese foreign investment in the last 10 years has amounted to some €38 billion ($44.3 billion), a third of which has gone to Germany. That’s far more than China’s investment in the US.

European companies, on the other hand, have been complaining for years that they’re being discriminated against in China. While Chinese firms have been able to buy European infrastructure such as airports, including Frankfurt Hahn, and big businesses such as automaker Volvo, such investments in China are largely off limits to European firms.

Meanwhile, Mr. Kofler, Leifeld’s owner, told Handelsblatt he was disappointed by the veto but will launch a takeover drive of his own, funded by an IPO this year.

02 p05 Chinese investments in Germany-01

Several Handelsblatt editors contributed to this article. To contact the authors: scheuer@handelsblatt.com

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