Strategic Investments

Germany’s China Syndrome

APP China getty nikolas Janitzki HB
China is gobbling up companies in Europe. Getty/Nikolas Janitzki HB
  • Why it matters

    Why it matters

    Many Western companies fundamentally fear doing business with China, citing intellectual property theft and workforce concerns but many Chinese-German M&A’s have been largely happy ones.

  • Facts


    • Beijing’s stated strategic goal is to transform its companies from workbenches of the world into leading suppliers of advanced technologies in the next five years.
    • Chinese companies spent around €20 billion on acquisitions or stakes in European companies and the trend shows no signs of stopping.
    • Chinese companies have invested nearly $3.2 billion into 12 German companies so far this year, far outbidding their international counterparts.
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A telephone rather than a doorman greets visitors at the entrance of German piano manufacturer Schimmel in Braunschweig, in the state of Lower Saxony. Next to it is a list of extensions that includes the number for Hannes Schimmel-Vogel, president of the 131-year-old company.

When visitors dial the number, Mr. Schimmel-Vogel asks them to come to a modest conference room furnished with the kind of metal frame chairs that were modern in the 1990s.

The Schimmel family has never been one to spend lavishly on self-promotion. Several weeks ago, family members sold their tradition-steeped piano business to Pearl River of Guangzhou, China. The world’s leading piano producer manufactures approximately 130,000 units per year, compared to 2,500 for Schimmel, Europe’s leading manufacturer.

Though just a small player in the global market, Schimmel finds itself right in the middle a growing global trend: China is on buying spree.

For years, Chinese companies have been seeking to parlay their export-driven earnings into overseas acquisitions. Until recently, their interest in German companies had been more rumor than real.

“We are seeing a new wave of Chinese capital gushing over into Europe”

Mikko Huotari, Mercator Institute for China Studies

But now, as a series of recent multi-billion-dollar takeover bids shows, the People’s Republic has firmly emerged as a true heavyweight in the acquisitions arena – in Germany and across Europe.

No deal makes its hunger for European companies more apparent than state-owned ChemChina’s massive $43 billion bid in February for Swiss biotech firm Syngenta. The single-largest takeover attempt in Chinese history,  which is expected to close by the end of 2016, was only one stop in ChemChina’s global shopping spree that also included last year’s €7.1 billion, or $8 billion, acquisition of Italian tire maker Pirelli and its approximately $1 billion purchase of German machinery maker KraussMaffei.

“We are seeing a new wave of Chinese capital gushing over into Europe,” said Mikko Huotari of the Mercator Institute for China Studies. Last year, Chinese companies spent around €20 billion on acquisitions or stakes in Europe, and the trend shows no signs of stopping.

To date, China’s biggest direct investment in a German company is Beijing Enterprise Holding’s purchase in February of waste-to-energy firm EEW Energy for around $1.6 billion. Chinese companies have invested nearly $3.2 billion into 12 German companies so far this year, far outbidding their international counterparts.

“Chinese companies have arrived on the world stage,” said Wolfgang Fink, co-head of Goldman Sachs’ business in Germany. China’s interest in mergers and acquisitions, globally and in Germany, show the country “is consistently following its strategic aim to tap new markets and globalize its companies,” Mr. Fink said.

China, he added, continues to execute that strategy, even in times “when organic economic growth is lacking.”

True, China’s economic engine is sputtering amid the frenetic M&A offers of Chinese firms. Economic growth this year is forecast at around 6.5 to 7 percent, a level that feels like a minor recession for the fast-growth People’s Republic. Real estate, heavy industry and chemical sectors are in real decline in some regions.

But rather than hitting the brakes, China Inc. has its foot on the gas.

“Companies are generating big losses and competition is getting more fierce,” said André Loesekrug-Pietri, founder of investment company A Capital, which tracks China’s overseas investments. “That’s why they’re betting on international expansion.” Many Chinese enterprises, he noted, have determined they need to expand beyond the domestic economy, adding: “They want to diversify.”

Chinese Takeovers in Europe-01


But that’s not always so easy, especially when it comes to the United States, the world’s largest market.

In the past year alone, the U.S. Committee on Foreign Investment has initiated proceedings on 25 separate takeover bids by Chinese companies. The regulator in January killed Dutch consumer electronics company Philips’ intended $3.3 billion sale of its Silicon Valley-based lighting arm Lumileds to China-led consortium GO Scale Capital.

The trade watchdog also showed its teeth again when it announced a review of China-based Unispendour’s nearly $3.8 billion offer for hard-disc developer Western Digital, of Irvine, California. The would-be buyer backed out in late February.

This week, China’s Anbang Insurance Group shelved another major takeover bid that most certainly also would have landed in committee’s crosshairs. Anbang recently had engaged in a bizarre bidding war with Marriot International for U.S.-based Starwood Hotels & Resorts. The Chinese firm boosted its bid to $14 billion on Monday, before abruptly pulling out of the deal on Thursday.

Such actions are perhaps not surprising this election season, with both Republican and Democratic presidential candidates pronouncing protectionist points of view.

“For Asian or Middle Eastern buyers, the U.S. high-tech market is closed for the next 12 months,” said Christoph Seibt, an attorney with German law firm Freshfields. “That makes German and European assets more interesting. For German companies, it’s an excellent time to sell.”

This environment may open the door for higher prices for some companies. For others, such as piano maker Schimmel, it may mean a better shot at survival.

In 2009, the Schimmel family owners filed for insolvency with the intention of making a new start. The premium piano maker wanted to boost its sales in Europe, the United States and China. The company began importing pianos from China under a sub-brand. But acting as middleman for the budget pianos only brought Schimmel slim margins, while its superior-quality brands failed to find enough buyers.

As a result, the Braunschweig-based company in 2014 posted a €1.4 million loss, followed by another loss-making year in 2015, according to Mr. Schimmel-Vogel. After the sale to Pearl River, the family retained just 10 percent of the company.

“Emotionally, taking this step was very difficult for the family,” Mr. Schimmel-Vogel said. But doing so, he added, secured the survival of the company, which currently employs 140 people in Braunschweig and 83 in Poland.

Mr. Schimmel-Vogel said he hopes there will be few changes in Braunschweig.

“Schimmel will continue to operate completely independently,” he said, explaining that Pearl River’s intention was to add a German company to its portfolio and market its premium products as such.

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Liang Wengen, chairman of Sany Heavy Industry, and Karl Schlecht, chairman of Putzmeister, have forged a successful partnership.  Source: DPA/Picture Alliance


Pearl River chief executive Janning Li confirmed that strategy. “Schimmel will continue the tradition of German craftsmanship into the future,” he told Handelsblatt.

At least one thing in Braunschweig will change, however: Mr. Schimmel-Vogel will share his post with a new colleague from China.

And several questions remain: Will the operational savings be realized? Will the German family enterprise find harmony with its new Chinese parent? Will the new owner understand complicated German business conventions?

For any foreign company, small or large, there’s also a fundamental fear that goes along with Chinese business ventures – that intellectual property and domestic factories are at risk of being transferred back to the People’s Republic.

Hubert Lienhard, head of the Asia-Pacific Committee on German Business, argues that such concerns are unfounded.

“We see none of the fears confirmed that Chinese companies simply want to extract the technological know-how of acquired German companies”

Hubert Lienhard, head of the Asia-Pacific Committee on German Business

“We see none of the fears confirmed that Chinese companies simply want to extract the technological know-how of acquired German companies,” Mr. Lienhard told Handelsblatt.

Such concerns became rampant in 2012 when Karl Schlecht, the founder of Putzmeister, a global leader in high-tech concrete pumps near Stuttgart, sold his company to China’s Sany Heavy Industry for nearly $700 million.

The Putzmeister workforce staged angry protests over what was the first major Chinese acquisition on German soil.

“The company was hawked off to the Chinese overnight,” said a member of Germany’s largest union, IG Metall.

Four years later, Jörg Löffler, head of Putzmeister’s works council, strikes a completely different tone. “I can’t say anything negative,” he said. In the understated ways of people living and working in this Swabian region of Germany, that’s high praise.

To calm the fears of the workforce, the new Chinese parent signed an agreement to keep production local. Last year, Sany extended the agreement for another five years.

Moreover, a clear division of labor between German and Chinese colleagues has helped the takeover run smoothly, according to Putzmeister marketing head Michael Walder. “Putzmeister is responsible for the concrete pump business outside of China and Sany for China,” he said.

Putzmeister’s tie-up with Sany is no isolated Sino-German success story.

Another is Chinese state-owned engine maker Weichai Power’s 38-percent stake in Wiesebaden-based forklift manufacturer Kion, a Linde spinoff.

Chinese Takeovers in the U.S. 2-01


“It was a very good decision for us to go into a partnership with Weichai Power,” said Kion Chief Executive Gordon Riske. “Our partner thinks long term, not in quarterly horizons,” he said.

Weichai also owns 90 percent Linde Hydraulics, another spinoff originally owned by Kion, where the Chinese parent company naturally has more influence.

So far, there’s been no culture war. “We have a very good rapport with the Chinese,” said Oliver Polomsky, head of the works council at Linde Hydraulics. The collaboration, he added, is considerably more pleasant than with working with the “in part very arrogant Americans,” who had previously invested in the company and “wanted to force their philosophy on us.”

The new owners, Mr. Polomsky said, were curious, open and made an effort to understand the rules of “Mitbestimmung,” or worker participation in company management.

The one issue, however, that does create discord, are worker strikes – a completely foreign concept for the Chinese.

“It doesn’t fit into their picture of labor relations: We Germans are very different,” Mr. Polomsky said.

The labor representative said he also has had to mediate in a case where management was simply dictating to workers and has had to explain the meaning of collective bargaining.

But Mr. Polomsky praised Linde Hydraulics’ Chinese bosses for making an honest effort to work with labor. Unfortunately, due to the global economic downturn, the company was forced to lay off more than 300 workers. The owners, however, were fair and softened the blow with robust compensation, he said.

To be sure, the current trend of Chinese takeovers is not motivated solely by entrepreneurial instincts – higher political motivations are at play.

Beijing’s stated strategic goal is to transform its companies from workbenches of the world into leading suppliers of advanced technologies in the next five years. The government’s recently approved five-year plan lists environmental engineering, robotics and Internet services as key growth drivers.

Last year, China’s Ministry of Commerce published investment guides for more than 170 countries. The guide for Germany lists automation, environmental and the automobile sectors as interesting investment targets.

“For some time, China has been creating national champions through the fusion of state-owned companies that then push into European and other global markets with government backing,” said Jo Leinen, chairman of the European Parliament’s delegation for relations with China.

But state-owned enterprises are not the only ones behind the current takeover trend; privately owned Chinese companies are also following their lead. Given the country’s strategic objective, it’s easy for private companies to secure subsidies or tax breaks for purchasing high-tech companies abroad. State-held banks add further enticement with low-interest capital for overseas acquisitions in key sectors.

“The money is available and it appears as if many companies would rather spend it right now than in coming years,” said Mr. Seibt, the Freshfields attorney.

Cheap money, strategic targets, waning domestic growth and an economic superpower that increasingly throwing up roadblocks are the key factors driving China’s spending spree in Germany.

As harmonious as Sino-German relations often are when it comes to Chinese acquisitions in Germany, the same cannot be said the other way around.

“Naturally, we are keeping an eye on this trend,” E.U. Competition Commissioner Margrethe Vestager told Handelsblatt. “Market-based competition law is still relatively new in China. That’s why we are working on the development of common standards in the area of mergers.”

Ms. Vestager, a former Danish economics minister, was recently in Beijing to advocate for China’s membership in the International Competition Network, an informal group created to improve global cooperation on competition law and policies.

“A trusting and effective collaboration with China – as we have been practicing with the United States for decades on the topic of mergers and competition law – would be ideal,” the commissioner said.

But Ms. Vestager is a realist: “Getting there is still a long way off.”


Handelsblatt editors Nicole Bastian, Martin-Werner Buchenau, Anna Gauto, Christoph Kapalschinski, Peter Köhler, Thomas Ludwig, Christian Ricken and Martin Wocher collaborated on this story. To contact the authors:,,,,,, and

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