No yin yang

A Great Wall against German investment

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One way street. Source: Aixtron

Champagne corks are sure to be popping in Beijing today, at least on first glance. German Chancellor Angela Merkel is on her 11th official visit to China, with corporate bosses in tow. They include happy execs from German automakers BMW, Daimler and VW whose shares gained €6 billion ($7 billion) on Tuesday when China announced it will cut tariffs for all imported cars to 15 percent from 25 percent.

The olive branch intended for America is a late Christmas present for German industry. VW alone will save some €600 million this year on Porsches assembled in Germany and exported to China, according to an auto analyst.

In fact Germany’s top 30 DAX-listed companies generate an average of 15 percent of their revenues in China and have almost 700 subsidiaries there, according to Handelsblatt calculations. That’s almost €200 billion — more than ever before.

“Companies with foreign investors aren’t treated like local companies in China.”

Ulrich Ackermann, German engineering industry association

Given the dependence of German firms on the vast Chinese market, it’s not surprising that they refrain from criticism of the chronic discrimination of foreign companies in the country.

One of few outspoken critics is Kurt Bock, who stepped down as head of chemicals giant BASF this month. He said it was time foreign chemical companies active in China were treated equally. BASF employs some 7,000 people in China who generated 11 percent of group revenues last year, yet the chemical maker is largely shut out of acquiring Chinese firms.

In China’s auto and chemicals industries, foreign companies can only purchase stakes through joint ventures. Rare exceptions include the 2015 acquisition by Germany’s Schuler, the world’s biggest manufacturer of presses, of Chinese engineering company Yadon, and the 2013 acquisition of Chinese machine tool company Jiangsu Jinfangyuan by Germany’s Trumpf.

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Ulrich Ackermann, a foreign trade expert at German engineering industry association VDMA, said foreign firms find it virtually impossible to buy Chinese companies unless they are helped by personal intervention from government officials — even though Chinese law in theory allows unrestricted investment.

“If you want to buy a firm in China, you have to overcome many hurdles and go through numerous approval procedures that are non-transparent,” Mr. Ackermann told Handelsblatt. “Companies with foreign investors aren’t treated like local companies in China. But that’s precisely what’s needed, and it’s standard practice in the West.”

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By contrast, non-German companies last year bought 870 German firms worth some €100 billion, almost twice as much as the year before. The German economy ministry investigated 50 of these bids and in a third of those cases, the buyer was Chinese. In the 14 years since the German government launched the system of reviewing investments, it hasn’t blocked a single one.

That’s despite mounting concern here that China is buying German companies because it wants to get technological know-how. When Chinese group Midea bought Bavarian robot maker Kuka in 2016, the German government promised to scrutinize takeovers more closely.

But China is on a buying spree. Last year Chinese investors bought €12 billion worth of German industrial companies with deals including the €6 billion takeover of energy services group Ista by Cheung Kong Holding.

It’s part of the country’s “Made in China 2025” drive to transform the economy from a low-cost mass producer to a leading high-tech player in internet technology, medical engineering, aerospace, railways and renewable energy.

A study by the Bertelsmann foundation reveals that almost two-thirds of Chinese corporate stake purchases of 10 percent and higher between 2014 and 2017 were in key sectors of “Made in China 2025” identified by the Chinese government.

Ulf Sommer reports for Handelsblatt on companies and financial markets. To contact the author: sommer@handelsblatt.com

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