Chinese Investments in High Technology

Friedolin Strack © BDI

Chinese company takeovers in Germany are currently being hotly debated. As such, the responses from Berlin and Brussels are politically motivated. For its part, German industry rejects protectionist measures. This is the opinion of Friedolin Strack, head of the department for international markets at BDI.

Developments in China over the past three years suggest that we will have to adjust to long-term competition between different systems. China has been successful with its one-party system and its economy subject to strong state control. In the EU and in many partner countries of the Union, democracy and an open market economy are regarded as founding principles. Germany’s openness to international competition is fundamental for the future viability of industry. For this reason, German industry rejects reciprocity in the context of direct investments. In the worst case, reciprocity means opening the European single market to competitors only to the extent that their countries of origin have opened their markets to our companies. However, given the likelihood that we will be faced with competitors from a state-led economy for the foreseeable future, we must examine whether our market economy system is sufficiently crisis-proof. We must guarantee that our competition law offers sufficient protection from companies that do not operate on the basis of a market economy. The new EU antidumping Basic Regulation guarantees such protection in the trade in goods; we should also provide such protection in the case of company takeovers and public tenders.

The Public Debate About Takeovers from China

Public discourse regarding Chinese investments in Germany was particularly ignited by the planned takeovers of the industrial robot maker KUKA and the systems manufacturer Aixtron in summer 2016. This debate revolves around a few major arguments and comparisons. While in the EU, for example, goods and services can be traded freely, entire sectors in China are closed to foreign business. While the EU provides the condition for open and market based international competition, in China's “socialist market economy” –  the state extensively intervenes in markets. Finally, while the German state is focused on fundamental research and supports industry in applied research, China has established a system in which the state steers innovation in order to meet clear objectives. The “Made in China 2025” strategy favours Chinese companies over Western sones.

Political Initiatives on the Part of the EU

In 2017, several political camps within the EU launched initiatives that addressed the issue of company takeovers. The fact that many markets in China remain closed to Western investors played a major role in the discussions. Opportunities were sought to guarantee more transparency in investments and to block takeovers by Chinese investors. What remains valid in the course of this however, is the consensus agreed to in the European treaties, that limitations on the free movement of capital can be imposed only in order to protect public order and security. Nonetheless, possibilities to broaden the concept of security-related sectors – for example, to include “critical infrastructure” – are currently being discussed. An example is the amendment to Germany’s Foreign Trade Ordinance that entered into force in July 2017. It allows the German government to withhold its approval of acquisitions by foreign companies if the affected firms develop or work on “software for the operation of facilities or systems for transporting people and goods by air, by rail, by sea or river, by road, by public transport or in the logistics branch is to be developed or changed”. In September 2017, the European Commission proposed a European framework. Investment screenings will continue to possible only on the basis of national security and order. In this context, the Commission explicitly names robotics, artificial intelligence, semi-conductors, cyber-security, and nuclear technology.

German industry: Remain Open!

The position of German industry is clear: investments by Chinese companies are as welcome as are those by other investors. The protection of private property is a fundamental component of our market economy system and the foundation of European economic competitiveness. It goes without saying that this also includes the right to sell a company to interested foreign parties, as long as public order and security are not threatened. The fact that an investment benefits from subsidies or corresponds to the economic goals of the country of origin does not mean that it will damage the German economy. Moreover, the current available data on Chinese investments in Germany does not suggest that concerns about loss of competitiveness and technology leakages are justified. The German government and the European Commission must continue to encourage states that offer only limited market access, like China, to open their own markets. Threats to introduce restrictions on market access for foreign investments do not qualify as suitable means to persuade China to open its markets.

Friedolin Strack is head of the Department of International Markets at the BDI, as well as Managing Director of the Asia Pacific Committee of German Business (APA).