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Germany Cools to Chinese Investors After Record Year for Takeovers

Posted by hkarner - 2. November 2016

Date: 01-11-2016
Source: The Wall Street Journal

Chinese takeovers of German companies are happening at a pace of about one a week

The German government on Oct. 21 withdrew approval for a purchase of Aixtron by the German unit of China’s Fujian Grand Chip Investment Fund.

Germany’s openness to Chinese investment is waning quickly, potentially chilling diplomatic relations between the giant trading partners.

Beijing on Monday summoned a senior German embassy official to discuss Berlin’s recent decision to halt the takeover of a German chip maker by a Chinese fund on security grounds.

The German government on Oct. 21 withdrew approval for a €670 million ($736 million) purchase of Aixtron SE by the German unit of China’s Fujian Grand Chip Investment Fund LP.

Chinese officials in Berlin declined to comment on the dispute.

German Chancellor Angela Merkel’s spokesman Steffan Seibert said Monday that Germany was “right in being open toward investments from abroad and, of course, from China,” but stressed a need for “fair investment and competition conditions in an international context.”

“The key here is reciprocity,” Mr. Seibert said. Germany “must be protected effectively against unfair competition,” he said.

The issue is likely to arise when German Economics Minister Sigmar Gabriel arrives for a planned visit to China on Tuesday, accompanied by almost 60 representatives of German industry. His office said Monday that the growing appetite from China for German businesses had made investment reciprocity a priority.

chinese-takeovers-dBerlin’s revocation of approval for the Aixtron deal, which had been granted Sept. 8, came as German regulators are also scrutinizing a takeover of Osram Licht AG’s lightbulb and LED business—the world’s No. 2 lighting maker—by China’s Sanan Optoelectronics Co.

Berlin in June tried to head off a $5 billion bid for German robotics firm Kuka AG from  Midea Group of China by orchestrating a European counterbid. Despite exhortations from Ms. Merkel, no offer emerged and Midea acquired Kuka in August.

Opposition has increased during a record year for Chinese takeovers of German companies, which are happening at a pace of about one a week, according to data provider Dealogic. Chinese companies have spent more than $11 billion on German companies since January, eclipsing the previous full-year record of $2.6 billion in 2014, and making Germany the top European target for China this year.

Many Chinese investors want access to German engineering and manufacturing know-how. Some in Germany, around Europe and in the U.S. worry China could use such technologies for military purposes or become a fiercer manufacturing rival.

Many observers note that Chinese companies can more easily invest in Europe than vice versa. Some policy makers worry that much of Europe lacks an equivalent of the Committee on Foreign Investment in the U.S., which vets takeovers for national-security risks.

“There is no strategic thinking on foreign investment in Europe,” said Markus Ferber, a senior German member of the European Parliament from a party allied to Chancellor Merkel. “If it makes sense from a market perspective, then the deals can go through.”

After simmering for several months, the subject came to a boil with Berlin’s Aixtron reversal.

“It’s the deal that broke the camel’s back,” said Sophie Meunier, researcher into Chinese overseas investment at Princeton University. “There’s a real fear that the technology is going to leave Germany.”

Aixtron produces a range of high-tech products, but analysts say its research prowess in semiconductors is what the Chinese want. Aixtron is a market leader in the technology, which has both commercial and military uses.

James Lewis, director of the Strategic Technologies Program at the Center for Strategic and International Studies in Washington, said the U.S. Department of Defense has for years tried to frustrate China’s attempts to build up semiconductor capabilities.

“It could go on a nuclear weapon, it could go on a cruise missile, any fighter aircraft,” Mr. Lewis said, adding he thought the deal was likely directed by Beijing.

Chinese pursuit of German companies is “not just business; it’s business driven by the Chinese state,” said Nadège Rolland, senior fellow at the National Bureau of Asian Research in Washington.

A spokesman for Fujian Grand Chip’s German unit declined to comment on suggestions the Chinese government stood behind efforts to buy Aixtron. Grand Chip owner Liu Zhendong said in a recent interview with German magazine Spiegel that the Chinese government didn’t play any role in the bid.

Berlin’s about-face angered Aixtron’s largest shareholder, Edinburgh-based Argonaut Capital Partners. Chief Executive Barry Norris called the move “protectionist posturing” and said Aixtron chips weren’t used in China’s nuclear-weapons programs. Argonaut said it owns 6% of Aixtron’s stock.

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