Germany at odds over Chinese investors

The Chinese state-owned shipping company COSCO announced earlier this week that it had delayed an attempt to buy a 35% stake in the Tollerort terminal, which is the smallest of the four container facilities in the Hamburg port.

The announcement came after Economic Affairs and Climate Action Minister Robert Habeck indicated last week that he would probably veto the acquisition because of concerns that China is taking over too much of Germany's so-called critical infrastructure. A spokesperson said German Chancellor Olaf Scholz had not yet agreed with the relevant ministers on how to proceed with COSCO's bid.

Germany's government considers ports to be critical infrastructure, allowing officials to screen and block acquisitions of larger stakes in shipping facilities by non-EU companies.

According to the Hans Böckler Foundation, which is linked to the German Trade Union Confederation, about 193 Chinese investors acquired 243 German enterprises either partly or fully between 2011 and 2020.

More recent figures provided by the EY consultancy show that from 2016 to 2018, the number of takeovers by Chinese firms fell 40%, but reaccelerated again in 2021 to 35 acquisitions, up from 28 in the previous year, according to the latest available data.

EY's head of Greater China Business Services, Yi Sun, thinks the ups and downs in China's overseas investments in major industrialized countries is because of increased attempts by Western governments to avoid future dependence on China and generally curb the influence of foreign companies in their national infrastructures and domestic security.

In regard to China, such concerns are not entirely unfounded a study from this year by the European Union has found. Commissioned in the wake of Russia's invasion of Ukraine, the EU survey found that, of 137 goods and products deemed critical, almost half are supplied by China and only 3% by Russia. The goods investigated mainly concerned the health care sector and renewable energies.

'Complacent toward China'

In 2016, Germany learned the hard way that foreign direct investment from China isn't always a positive development. That year, the Economy Ministry couldn't prevent the full takeover of Germany's flagship robotics firm, KuKa, by the Chinese company Midea, a manufacturer of dishwashers and refrigerators.

As a result, foreign takeover and acquisition laws were hastily upgraded in Germany to avoid future unsolicited bids from abroad in such key economic sectors as medical technology, energy supply and telecommunications. Later, artificial intelligence technology was included in the list of protected sectors.

The new regulation now gives the government a veto in all critical mergers and acquisitions. "The awareness of the political risks involved has grown," Christian Rusche, an economist at the German Economic Institute, told DW.

Rusche cited the failed 2018 bid by Chinese state-owned electrical utility SGCC to buy a 20% stake in German electricity grid operator 50Hertz as a good example of state interference. The stake would have given China undue influence on managing Germany's electricity supply. Similarly in 2018, Berlin stopped a Chinese buyout of Leifeld Metal Spinning — a global leader in tooling machines for chipless metal forming based in Ahlen.

Germany's foreign intelligence service, the BND, is keeping a wary eye on "the rise of an autocratic China to become a global power." BND President Bruno Kahl told lawmakers during a recent parliamentary hearing that German leaders had been "too complacent toward China" by accepting a "painful dependency" on a power that appears to be "no longer well-disposed to Germany."

China's investments become political minefield

With at least 5,000 German firms operating in China and more than 2 million German jobs depending on exports to the Asian powerhouse, the countries' economies are intertwined, Horst Löchel, China expert with the Frankfurt School of Management, told DW. He warned against premature decisions regarding Chinese investors in Germany.

Löchel called overcritical views of China "hypocritical" against the backdrop of recent government efforts to forge closer energy ties with Qatar and Saudi Arabia — two countries that are not exactly known as big defenders of human rights. Attempts by Washington to pressure Germany and Europe into isolating China also came into play here.

Rusche said the real influence of China's investors on the management of the firms they had acquired would only become apparent in the longer term. He cited a Böckler Foundation study that showed financial pressure from the Chinese owners mounting over the years.

"There are cases in which staff and wage cuts were demanded by investors and companies had to dismiss workers who had previously been protected by labor protection clauses included in the acquisition deal," he said.

Even former KuKa owner and chief executive Till Reuter didn't escape the power grab by the Chinese investors he sold his company to. He was forced to resign in 2018 — two years after he had strongly advocated the Midea bid. This summer he issued a stern warning, saying Germany "must reduce its foreign dependencies in all sectors of the economy — first and foremost those on China."

This article was originally published in German.