Germany tightens foreign investment rules eyeing China

Earlier this month, European Union states have agreed to coordinate scrutiny of foreign investments in Europe, notably from China.

In a significant development, Germany has agreed to adopt new business rules that lowers the threshold for screening for mergers and acquisitions; the new rules also allow it to block the purchase of stakes in German firms by non-Europeans.

The strategic decisions are aimed at fending off unwanted takeovers by Chinese investors in strategic areas of German business and industries and comes in the wake of mounting concerns that China’s state-backed companies are gaining too much access to its key technologies.

Beijing does not provide market access to foreign companies although it receives free access to markets across the globe.

The new rules, which come into effect immediately, allows Berlin to intervene on grounds of public interest if a non-European investor buys a 10% stake in a company; the earlier threshold was 25%.

“Companies like investing in Germany and it should stay that way. But we must be able to look carefully at who is buying sensitive infrastructure and what consequences that has,” said Peter Altmaier, Germany’s Economy Minister.

The measures are meant to protect vital infrastructure, including energy, food supply, water, defense, telecommunications, transportation and finance. The rules apply to media companies as well.

Highlighting risks from cyber attacks, Germany’s Office for Information Security has warned several German firms of increased Chinese activity.

“Germany must remain open to foreign investors,” said the BDI industry association while the DIHK Chambers of Commerce said the new threshold sent a negative signal to foreign partners.

“It is important to keep a balance … and to use the instruments only after careful consideration,” said Joachim Pfeiffer, spokesman for economic affairs while adding, “Sealing ourselves off is not the answer, it leads to a spiral of protectionism.”

Although Germany has, so far, never blocked the purchase of a stake in its businesses by a non-European company, however in August when China’s Yantai Taihai attempted the purchase of Germany’s Leifeld, a tool maker for the nuclear power sector, Berlin signaled that it would veto the move.

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.

Earlier this month, European Union states have agreed to coordinate scrutiny of foreign investments in Europe, notably from China.

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