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NEWS ANALYSIS

Chinese takeovers sparking pushback from US, Europe and others

Lawmakers looking at tighter foreign investment rules after acquisitions of key companies set off concerns.

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The 2016 purchase of Kuka, Germany's biggest and most advanced maker of robotics, by a Chinese company set off concerns over the transfer of European know-how to China.

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Li Shufu, chairman of Chinese car giant Geely has stealthily amassed a US$9 billion stake in Daimler, a crown jewel of Germany's auto industry.

Paris

EUROPE is pushing for more stringent vetting of foreign investments, with an eye on Beijing. Australia has been blocking bids by Chinese buyers for strategic assets. And in Canada, a Chinese takeover of a major contractor faces a national security test.

As China looks to spread its wealth and influence, the United States is not the only country seeking to shield its industries under the guise of national security. Governments around the world, and especially in Europe, are increasingly inclined to use such concerns as a litmus test for Chinese investments to protect their competitive edge.

But China presents a difficult policy puzzle. Countries must balance safeguarding their strategic industries and preventing the loss of sensitive technologies, while still courting Chinese investors and improving trade with Beijing.

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The United States appears to be taking the hardest line toward China. President Donald Trump blocked a hostile bid by Singapore-based Broadcom for the rival American chip company Qualcomm over concerns that a takeover could hand Chinese rivals an advantage.

And the panel that reviewed the Qualcomm deal, the Committee on Foreign Investment in the United States, known as CFIUS, is likely to get tougher still on China. Lawmakers are calling to broaden the types of transactions the panel can vet.

In Europe, a protectionist debate ramped up last year when Germany, France and Italy called for a Europe-wide mechanism for more rigorous vetting of foreign takeovers. The move came amid rising worries about the loss of the region's edge in technology, and the transfer of dual-use technologies to China.

Concerns mounted after the 2016 purchase of Kuka, Germany's biggest and most advanced maker of robotics, by a Chinese company. And they have intensified as China has invested in railways, ports and other strategic infrastructure across southern and central Europe.

Some of the reaction reflects domestic political concerns. Bruno Le Maire, France's finance minister, said on a visit to Beijing in January, for example, that Paris would welcome investment from China, but only after screening deals to ensure French assets were not "looted".

Still, numerous governments are pressing to harden reviews of foreign investment as China embarks on a major push to transform its economy to a cutting-edge superpower, an ambitious policy known as Made in China 2025.

European Commission President Jean-Claude Juncker proposed in September creating a Europe-wide framework to screen investment deals by foreign companies. And last year, the German parliament passed a law allowing deals to be scrutinised on national security grounds if an investor's stake reaches 25 per cent.

But the political push to tighten up on Beijing faces considerable hurdles.

For one thing, the risks of angering China are real. Despite the optics, European companies remain eager for Chinese investments. And European governments are also wary of offending Beijing at a time when they are pressing to get better access to Chinese customers.

Even within Germany there is no unity among political leaders. Angela Merkel, recently sworn in for a fourth term as chancellor, has actively cultivated ties with Beijing, and China has become a crucial market for companies like Volkswagen, a German behemoth and Europe's biggest automaker.

Europe is also divided over how to cope with China's rise. Greece, Hungary and other poorer southern and central European countries that benefited from China's largesse during the financial crisis have generally opposed tightening scrutiny for fear of discouraging further Chinese investment.

Mr Juncker's proposal also appears to be weaker than what other major economic powers have in place. Japan recently strengthened restrictions on foreign investments related to security. And Britain this week strengthened government powers to scrutinise foreign investment in specific areas of the economy through the lens of national security, with China in mind.

Nor would the EU's plan necessarily catch innovative new strategies by Chinese investors to take stakes in strategic assets.

Germany was caught offguard after one of China's wealthiest men last month amassed a US$9 billion stake in Daimler, a crown jewel of Germany's auto industry. Li Shufu, chairman of the Chinese car giant Geely, made the grab through a financial manoeuver before anyone even realised what was happening. Last year, Daimler rejected a proposal by the Chinese businessman to take stakes in the company.

German authorities are examining whether the purchase adhered to German investment laws. But it is unlikely that either Daimler or the German government can do anything about the acquisition.

In Australia, where Chinese foreign investment reached more than US$30 billion in 2014 alone, the government has sought to toughen screening.

Wariness of Beijing's growing economic influence has increased as Chinese investors buy up vast swathes of the Australian economy and over concerns about Chinese businessmen giving millions of dollars to Australian politicians. Chinese takeovers of Australian businesses have jumped in recent years, along with an acceleration in purchases of agricultural land.

In 2015, the government strengthened foreign acquisitions and takeover rules to require the approval of a national oversight board if, for instance, a foreign purchaser's portfolio of farmland was worth US$15 million or more. It has also blocked bids by Chinese firms for Australian electricity companies, citing such deals as contrary to the national interest.

The government recently said it would consider updating its foreign investment guidelines so Australians could be sure that proposed investments were "good for the country."

In Canada, some attempted takeovers of Canadian companies by Chinese investors were abandoned because of concerns over national security and Chinese business practices.

Lenovo, the Chinese computer maker, dropped ambitions to acquire BlackBerry, a smartphone used widely in government agencies, after Ottawa signaled a deal could compromise national security. Those concerns prompted Canada's previous Conservative government to strengthen foreign investment laws to require stakes taken by non-Canadian entities to pass a national security test.

"We welcome international investments that will benefit the Canadian economy," said Karl W. Sasseville, a spokesman for Navdeep Bains, the minister for economic development whose department handles investment reviews "but not at the expense of national security." NYT

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