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The headquarters of Aixtron, the German chip equipment maker, which Chinese company Grand Chip Investment is hoping to buy for €670 million. Photo: Reuters

Germany risks China’s ire as it puts brakes on two planned takeovers

Move by European nation, which has ‘special relationship’ with mainland, comes before German business delegation’s trip on Tuesday to China and Hong Kong

Alarmed by a raft of Chinese takeovers, Germany is putting the brakes on the Asian giant’s shopping spree as it sends out the message that not everything is for sale – at the risk of antagonising Beijing.

The more assertive noises coming out of Berlin are likely to dominate Economy Minister Sigmar Gabriel’s trip to China in the coming days, putting to the test the oft-vaunted “special relationship” between the top export powers.

Germans have watched with unease as Chinese enterprises have swallowed up a record number of home-grown tech companies this year, sparking fears of German know-how and intellectual property being sold off to the highest bidder.

“Germans seem to be growing more and more sceptical about China, and consequently more willing to pursue a tougher approach to Beijing,” said Hans Kundnani an analyst at the German Marshall Fund.

In the clearest sign yet that Berlin could be squaring up for a battle, the German economy ministry said last week that it was taking a closer look at two planned Chinese takeovers – effectively stalling both deals.

Michael Clauss, Germany’s Ambassador to China. Photo: Simon Song

The moves have not gone unnoticed in Beijing and Gabriel is likely face some prickly questions when he leads a 60-strong business delegation on a five-day trip to China and Hong Kong from Tuesday.

Last Monday the ministry said it had withdrawn its approval for Grand Chip Investment’s 670 million (US$730 million) purchase of chip equipment maker Aixtron, citing security concerns.

The German daily newspaper, Handelsblatt, said the surprise reversal came after US intelligence services warned that Aixtron products could be used for military purposes.

The deal is now back under review, a process that could last three months.

Days later, the economy ministry said it was also reviewing the mooted sale of German firm Osram’s general lighting unit to a Chinese buyer.

So far there has been little official reaction from Beijing.

But a bylined commentary carried by the official Xinhua news agency was scathing, accusing Germany of “protectionist moves” that called into question “Berlin’s sincerity in securing an open and transparent investment climate”.

It added: “It is time for Berlin to let go of its delusional ’China threat’ paranoia.”

Chinese companies spent more than 11 billion on German companies between January and October, a new record, according to accountancy firm EY.

Included in that total is the 4.6 billion purchase of leading robot maker Kuka by Chinese appliance giant Midea – a deal that sparked particular alarm and which Gabriel had sought to thwart.

Gabriel, also Germany’s vice-chancellor, has since drawn up a list of proposals to give European Union governments greater powers to block takeovers by non-EU firms in strategic industries.

Crucially there has been no word yet on whether Chancellor Angela Merkel – who has championed close economic ties with Beijing – approves of the idea.

However, Gabriel is likely to get a sympathetic hearing from at least some European peers.

The new British government recently delayed the controversial Hinkley Point nuclear project over concerns about China’s involvement, before eventually giving it the go-ahead.

In Brussels, an in-depth EU antitrust probe is holding up state-owned ChemChina’s proposed mammoth takeover of Swiss seed maker Syngenta.

Yet observers say Germany is not about to close the door on China, one of its most important trade partners.

Rather, the latest manoeuvres should be seen as part of a growing debate about how “to get a level playing field” with China, Kundnani said.

Gabriel himself told reporters this week that foreign investment with China could not be “a one-way street”.

He added: “We would like reciprocity.”

In an interview with the South China Morning Post published on Friday, Michael Clauss, the German ambassador to China, also spoke about the review of acquisitions of German companies by non-EY countries.

“Companies not just from Germany but from all of China’s major trading partners are growing restless, complaining that investor relations cannot remain a one-way street,” Clauss told the Post.

“However, despite repeated declarations of intent there is no progress on market access, rather, market access is restricted even further.”

Foreign investors have long complained of the obstacles to doing business in China, such as the requirement to team up with local partners, while some sectors are completely off-limits.

Friedolin Strack, of the BDI federation of German industries, said that despite the frustrations, German firms had benefited enormously from doing deals with China – leaving Gabriel to tread a fine line during his visit.

“There are a lot of restrictions in Chinese markets,” Strack said. “And we should increase the political pressure and the pressure from businesses on China to remove these barriers.

“But if we say we are open only to those countries who are open with us, that would harm German companies.”

This article appeared in the South China Morning Post print edition as: Germany risks Beijing’s ire as it halts takeovers
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