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With eye on China, Germany tightens foreign investment rules

Berlin

GERMANY agreed to new rules on Wednesday to lower the threshold for screening and even blocking purchases of stakes in German firms by non-Europeans, in a move to fend off unwanted takeovers by Chinese investors in strategic areas.

The decision by Chancellor Angela Merkel's Cabinet is a response to mounting concern that China's state-backed companies are gaining too much access to key technologies in Europe's biggest economy while Beijing shields its own companies.

Under the new rules, Berlin can intervene on grounds of public interest if a non-European investor buys a 10 per cent stake in a company, sharply reducing the threshold from 25 per cent.

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"Germany is an open market economy where foreign investments are welcome. That will remain the case in future. But we must not be naive," said Joachim Pfeiffer, spokesman for economic affairs in Mrs Merkel's conservative bloc.

If foreign states pursue political goals with targeted investments in key areas, Berlin must be able to act, he pointed out.

"It is important to keep a balance ... and to use the instruments only after careful consideration," Mr Pfeiffer noted, adding: "Sealing ourselves off is not the answer, it leads to a spiral of protectionism."

Germany introduced the 25 per cent threshold in 2004 and expanded its veto powers in 2017. The measures are meant to protect vital infrastructure such as energy, water, food supply, telecommunications, finance and transportation.

The rules passed on Wednesday added media companies.

The BDI industry association criticised the move. "Germany must remain open to foreign investors," it said.

So far, Germany has never blocked a stake purchase by a non-European company based on the shareholding threshold rules.

However, China's Yantai Taihai dropped an attempted purchase of Germany's Leifeld, a maker of tools for the nuclear power sector, after Berlin signalled in August that it would veto it.

In July, a German state bank took a stake in high-voltage grid operator 50Hertz to stop China's State Grid buying it after it found no alternative private investor in Europe.

A Chinese Foreign Ministry spokeswoman said the rules mentioned no specific country and that while ties were good, Germany and China shared responsibility to protect free trade.

"We hope Germany can create a fair, open market access environment and stable institutional framework for foreign companies, including Chinese ones, investing in Germany," she said.

Among the most prominent cases in Germany are the 2016 purchase of German robotics maker Kuka by China's Midea and Geely's surprise purchase of almost 10 per cent in Daimler in February. REUTERS