Late last year, when the Chinese firm Midea bought control of Kuka, Germany’s most advanced robot maker, the sale produced shock waves in Germany over the loss of state-of-the-art technology. The government responded by adopting rules giving it a veto over sales of companies with strategic importance.
Now, a new potential sale to the Chinese is generating similar worries. The company is Cotesa, a maker of carbon-fiber components in the German state of Saxony that is a supplier to plane makers Airbus and Boeing. It is being pursued by the China Iron & Steel Research Institute, a state-owned company which makes no bones about its goal: to make Chinese aircraft maker Comac competitive with Airbus and Boeing.
While the German Ministry of Economics is conducting a review under the new regulations to see if the sale should be blocked, there is hand-wringing in Germany over alienating China and the potential loss of new investment capital. But the decision may be taken out of Germany’s hands — because Cotesa supplies Boeing, which is a strategic US company, a US government committee with a history of blocking Chinese takeovers may intervene to stop the sale.
“Very high vigilance is required in state-driven investments in the aviation industry,” says Jost Wübbeke, head of the economics and technology program at the Mercator Institute for Chinese Studies in Berlin. “The takeovers will give Chinese investors important information about clients’ applications,” he said, referring to Boeing and Airbus.
Cotesa is a former racing car manufacturer that has grown in 15 years to become a world-class supplier of carbon-fiber components to the aircraft and automobile industries, achieving revenues of €65 million ($76 million) a year.
But CEO Jörg Hüsken said the company has been trying without success to raise money in Europe to expand production. “The Chinese are the only ones who have recognized our true potential,” he said.
“The takeovers will give Chinese investors important information about clients’ applications.”
Handelsblatt has learned that Advanced technology & Materials, a subsidiary of the Chinese Iron & Steel Research Institute, had offered €100 million to €200 million to buy Cotesa when the Ministry of Economics intervened, citing the tough new rules in the Foreign Trade Ordinance. It is now conducting an inquiry into the strategic value of the company, which could take four months to complete.
Since the tightened rules were put into effect, Chinese firms have purchased 30 German companies. But none of those deals has been prohibited.
One recent deal has been blocked — China’s Fujian Gran Chip Investment Fund offered $723 million for German chip equipment maker Aixtron. But the deal was nixed not by Germany but by President Barack Obama acting on the recommendation of the Committee on Foreign Investment in the United States, because Aixtron had a US subsidiary. The COFIUS committee could also block the Cotesa sale.
In addition to Germany’s rules, the European Commission announced in September that it is also proposing regulations about the foreign purchase of strategic European companies in the infrastructure and technology field. Although no country was mentioned, it was clearly aimed at halting China’s acquisition of European companies.
Complicating Germany’s decision on Cotesa are labor issues arising out of previous sales. The Chinese owner of robot maker Kuka has announced 250 layoffs in Germany, while the former light bulb division of Osram, Ledvance, which was purchased by a Chinese consortium, just announced 1,300 job cuts in Germany.
“The image of Chinese investors in Germany could be massively clouded by the Ledvance case,” said Oliver Emons of the union-friendly Hans Böckler Foundation.
Stephen Scheuer is head of Handelsblatt’s features desk, and Klaus Stratmann writes about energy policy. Charles Wallace is an editor at Handelsblatt Global in New York. To contact the authors: email@example.com, firstname.lastname@example.org and email@example.com