China, China, China

Uptick in Chinese investment has German authorities inspecting deals

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Take note: This is how one inspects. Source: Jörg Gläscher for Handelsblatt

In Chemnitz, a German Soviet-style city located three hours south of Berlin, a debate about the German industry’s future is taking place.

Chemnitz’ flagship company Cotesa, which produces fiber-reinforced components for use in long-haul aircraft, found the investment they desperately needed. But unlike their light-weight products which are “made in Germany” mostly by hand, their investor comes from China, not their homeland.

On the face of it, it’s good news. “The Chinese understand us,” said Cotesa’s Managing Director Jörg Hüsken. “This is the first time that we are getting a strategic investor in the company who thinks long-term.” After reaching an agreement with the Chinese, money was scheduled to be transferred.

Then Berlin’s economics ministry stepped in to announce the start of a four-month long inspection of the investment, bringing the deal to a halt.

This inspection, and many others, is the result of Germany tightening the Foreign Trade Ordinance last July, clearing the way for Germany’s economics ministry to take a closer look at foreign investors acquiring stakes in German companies. The initiative came in response to growing concerns that foreign companies, especially Chinese companies, are buying up too much of Germany’s cutting-edge defense technology.

However, the rules only take effect when an investor wants to acquire at least 25 percent of the shares in a company.

While tightening the rules may be well-intentioned, it might be a hindrance to businesses.

But not everyone is happy about it and most critics, including the Association of German Chambers of Commerce and Industry (DIHK), say the review period is too long and isn’t transparent enough. The lengthy investigation procedure can translate into sales losses, even if the ministry ultimately approves the deal – simply because the procedures take too long, Mr. Hüsken said.

Companies are often left in the dark about when the review period begins, as the ministry only starts once it has all the necessary documents. And theoretically, an examination period can start from the beginning again if the ministry requests additional documents during its review, explains Volker Treier, a manager at the Association of German chambers of commerce. This is problematic as companies are not notified when this happens.

According to the economics ministry, “no acquisition has been prohibited, since the introduction of the investment review in Germany in 2004.”

Early last year, the German government also joined Italy and France in launching an initiative aimed at expanding the scope for government intervention in foreign investments at the European level.

The German government, the driving force behind the project, plans to use the initiative to determine whether a foreign investor is acting with the support of his or her native country and, if so, is expected to help it achieve strategic goals.

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While the tightening of the rules may be well-intentioned, it might be a hindrance to businesses. Thiol Brodtmann, managing director of the German Engineering Federation (VDMA), said that the range of applications has been expanded considerably and the corresponding definitions are highly elastic. “This makes it difficult for companies to predict the effects.”

Apparently, the owner’s willingness to bring an investor on board or to sell the company altogether is no longer enough. Who the investor is, and where they come from, matters more.

Klaus Stratmann works in the Handelsblatt Berlin office, and focuses on energy policy. Stephan Scheuer is the head of Handelsblatt’s features desk. To contact the authors: and

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