In recent years, a growing number of German companies have been taken over by foreign investors. Since last year, there has been a discussion in many EU Member States as well as in the United States about increasing the rights of the state to intervene. Do you see the state as having an obligation?
The state has the regulatory responsibility to set the legal framework for all economic activity. This regulatory framework must ensure that trade in the free market is regulated in such a way that the interests of society are taken into consideration. This responsibility can sometimes demand restrictions for companies, but these should always be in harmony with the fundamental principles of the market economy. Only this ensures that Germany will remain an attractive investment destination. The success of our economy in recent decades, the strength to compete a global scale, and the thus resulting prosperity for our society – all of these elements were built on the foundation of a solid market economy system. Other fundamentals include international relations, global trade and, in particular, cross-border investments.
Investments made by German companies in other countries are just as important as the investments of foreign investors in Germany. German investors hold direct foreign investments worth more than €1 trillion and, for their part, foreign investors have made investments in our country totalling some €670 billion. Almost 3 million people in Germany work for companies in foreign hands. Today, the freedom to invest in our country is subject only to a handful of restrictions, and these are harmonious with the principles of our social market economy. The existing restrictions are aimed at protecting public order and security in Germany. This goal is in the overall interest of society – it is absolutely legitimate. Beyond that, limitations on freedom of investment are not necessary; they rather would only be a step towards national or regional protectionism.
The public discussion is ignited not least by the takeovers from China – for example, of KUKA or Aixtron. How do you judge the activities of Chinese investors on European markets?
In 2015, only around half a percent of foreign investment stock in Germany could be attributed to Chinese investors. The involvement of the Chinese is a relatively new phenomenon, while German companies have been investing in China for decades. In 2015 the total value of German investments in China was still around 30 times that of Chinese investments in our country. But the Chinese are quickly catching up. Official figures for the last two years are not yet available, but it is evident that Chinese investments have increased significantly over this period. Thanks to the Chinese government’s “Made in China 2025” strategy, it is expected that strategically motivated foreign investment from China will continue to increase. This causes concern among politicians and the population. I can fully understand this sentiment.
Nonetheless, it is difficult to come up with sound means to distinguish between good and bad investments. Bans on foreign takeovers constitute far-reaching interference in the property rights of the seller – such measures demand very careful political consideration. The protection of security must be weighed against the market economy principles of private ownership and freedom of contract. Neither the fundamental principles of the social market economy nor our constitution allow such decisions to be determined by everyday political opportunism. And it is almost impossible to imagine what the criteria for such considerations should be in order to be able to uphold the principle of proportionality.
Should the European Union regulate this issue for the Member States and, if so, how?
Relatively few companies EU-wide are Chinese owned. Just over half a percent of total foreign investment in the EU comes from Chinese investors. That China has been investing in Europe in recent years is, fundamentally, a positive development. While in 2016 the EU was still able to attract new investments worldwide, we should not close our eyes to the fact that on a longer-term perspective, the attractiveness of Europe has been constantly diminishing. In 1990, the EU still accounted for 40 percent of global FDI stock; in 2016, that figure stood at less than 30 percent. Today, capital is attracted by the dynamic growth markets of the emerging economies. For this reason, Europe should be concerned about remaining attractive to investors rather than imposing restrictions.
At the same time, it is clear that European security interests must be resolutely protected. This must be done in accordance with the European treaties in which the Member States have agreed to protect the freedom of movement of capital. We must take the basic freedoms and the unity of the European single market seriously – they are a pillar of our competitiveness. Moreover, European consensus is also important in the context of regulating investment controls. That is why I welcome the fact that in its draft regulation, the European Commission has proposed a European framework for investment controls. What does not seem to make sense, however, is countries going it alone – such acts could even limit the freedom of the investment process within Europe.
What appears questionable to me is the argument about “reciprocity”, which frequently features in the discussions on investment screenings. This is because I have grave doubts that we can prompt other jurisdictions to open their markets by adopting protectionist regulations. Of course, policymakers must work towards opening markets in other countries. But to do so, they must make use of political instruments that are more suited to the task – for example, bilaterale investment treaties (BITs) as well as the discussion fo-rums of the WTO, the G7 and the G20.
Hubertus von Baumbach is Chairman of the Board of Managing Directors of C. H. Boehringer Sohn AG & Co. KG, as well as Chairman of the BDI Foreign Trade Committee.