German momentum grows for curbs on Chinese overseas investment

[BERLIN] Germany is seeking tighter control over foreign investment in European companies, in a sign of a growing protectionist reaction to China's appetite for overseas acquisitions.

Spurred by the purchase of German robot maker Kuka AG by China's Midea Group Co, Chancellor Angela Merkel's deputy, Sigmar Gabriel, is calling for European Union measures to give national governments expanded powers to block or impose conditions on shareholdings of non-EU companies.

He's found an ally in EU Digital Economy Commissioner Guenther Oettinger, a German who's a member of Ms Merkel's party.

"It's absolutely right to initiate this debate at the European level," Mr Oettinger said in an interview last week.

"Everybody has to play by the same rules. Clearly, there are many countries, including big ones such as China, that make market access or corporate takeovers difficult or effectively impossible."

While Ms Merkel hasn't publicly backed her vice chancellor's push, Mr Gabriel's proposal reflects growing resistance within her government to unfettered Chinese investment in Europe's biggest economy.

In the latest potential Chinese bid, lighting maker Sanan Optoelectronics Co Ltd said it had held talks with Osram Licht AG on a possible acquisition of the almost century-old German company.

The initiative by Mr Gabriel, who also is Germany's economy minister, calls for allowing EU member states to step in if a non-EU investor seeks to acquire more than 25 per cent of the voting rights in a company, according to a government document obtained by Bloomberg.

Restrictions would potentially kick in if the home country restricts foreign investment or its government orders or funds the acquisition.

The proposal is being discussed within Ms Merkel's government, Economy Ministry spokesman Korbinian Wagner told reporters on Oct 17. He declined to elaborate on its content. A chancellery spokesman declined to comment.

Mr Gabriel heads Germany's Social Democrats, the junior partner in Ms Merkel's governing coalition. With his party trailing her Christian Democrats in polls ahead of elections next year, he's sounding warnings about Chinese encroachment on German industry and the risk of job losses. EU commissioner Mr Oettinger's support suggests cross-party backing.

"The EU has to take a clear position toward China," Mr Gabriel told a meeting of the Federation of German Industries lobby in Berlin this month.

"We shouldn't shy away."

In another sign of European headwinds, opposition by the Belgian region of Wallonia halted a trade pact between the EU and Canada on Friday. Failure of the deal, which has been in the works for five years, would complicate separate negotiations with the US, Japan and other countries as a populist surge around the world challenges the benefits of free trade.

Chinese companies have announced or completed acquisitions of German companies worth a record 11.3 billion euros (S$ 17.156 billion) this year, almost eight times the level of 2015, according to data compiled by Bloomberg.

That includes the purchase of Kuka by Midea, China's biggest appliance maker, after Mr Gabriel led a failed effort to find an alternative bid by a European suitor. Ms Merkel herself has repeatedly pressed Chinese leaders to ease access for foreign investors.

Mr Gabriel, who also is leading opposition within Merkel's government to the proposed EU-US trade pact, will need allies among EU governments to build momentum for tightening safeguards against foreign investors.

While the European Commission, the EU's regulatory arm, is seeking to modernise its trade defences, it isn't working on such a proposal for now, according to a European official who asked not to be identified discussing private deliberations.

Existing rules generally allow governments to stop takeovers only if they threaten energy security, defense, media concentration or financial stability.

Still, the EU has signaled a tougher stance toward Chinese government-owned companies, ruling this year in a nuclear-power deal that China General Nuclear Power Corp couldn't be viewed as independent from the Chinese state and other state-owned firms.

"Germany has always been an open market for business investment, including for Chinese companies," Ms Merkel told reporters alongside Chinese Prime Minister Li Keqiang in Beijing in June.

"Of course we expect that reciprocity on the Chinese side."

BLOOMBERG