Sigmar Gabriel’s mission to halt China’s investment spree
Sigmar Gabriel is greeted by an officer as he boards an aircraft to travel to China | Bernd Von Jutrczenka/AFP via Getty Images
BERLIN — When German Vice Chancellor Sigmar Gabriel lands in Beijing Tuesday for talks with Chinese Premier Li Keqiang and other officials, he is set to deliver a one-two-three punch: Open your market for German investors, keep your government out of our businesses — and don’t mess with your closest European trading partner.
As Chinese acquisitions in Europe skyrocket, anger in Germany is growing over Chinese companies pushing into the market, some of them backed by governmental programs, at a time when German investors have limited market access in China.
“It’s not on that Germany sacrifices its companies on the altar of free markets, while at the same time our own companies have huge problems investing in China,” said Gabriel, who is also German economy minister, during a heated Q&A following a speech in Berlin last week.
In a piece published in Die Welt, the Social Democrat launched another broadside against China’s trade practices. “If you want to invest in other parts of the world, you can’t block those countries from investing in your own,” he wrote.
This year alone, companies from China have announced or completed purchases of German firms worth €11.3 billion, almost eight times the level in 2015, according to Bloomberg.
While officials stress that any investment is desirable, the potential involvement of some Chinese government programs has raised criticism in Berlin, with officials accusing the country of distorting competition.
“Germany is mostly concerned about the growing Chinese investments in hi-tech companies. Many of these acquisitions are clearly part of a political strategy, steered by the Chinese government and financed through state-sponsored funds and investor networks,” Björn Conrad, vice president of Berlin-based think tank Mercator Institute for China Studies, said.
Programs such as “Made in China 2025,” on how to modernize industry within the next decade, are part of China’s long-term strategy to turn it into a leading industrial superpower by its 100th birthday in 2049. Part of the strategy is to buy up technological know-how by acquiring companies abroad.
“Previously, the flag followed the money,” said Jörg Wuttke, president of the European Union Chamber of Commerce in China, via phone from Beijing. “But now it seems as if the money follows the flag.”
Wuttke said he has increasingly observed Chinese state authorities exerting influence on companies when it comes to which sectors to invest in. At the same time, he added, it’s become ever-more difficult for German companies to invest directly in China.
“We must do green-field investment here in China and generate new jobs, while the Chinese can just buy into pre-existing industrial structures” in Germany, Wuttke said.
Gabriel’s statements, which echo industry concerns, also signal to Beijing ahead of his trip that the German government is monitoring closely what’s happening.
Early last week, German chip equipment maker Aixtron announced that Gabriel’s economy ministry had withdrawn its approval of a takeover by Chinese investment fund Fujian Grand Chip Investment Fund LP, despite clearing the deal in September, citing national security concerns. Worries about energy security, defense or financial stability are some of the few legal means for governments in the EU to put a veto on foreign investment.
Not surprisingly, Beijing was not amused.
One day before Gabriel left for China, the Chinese foreign ministry in Beijing summoned a high-ranking official from the German embassy to present him with a formal protest.
As China’s economy goes through a major transformation, so does its longstanding economic relationship Germany. The close ties between Berlin and Beijing (China is one of less than a dozen countries that Germany holds regular intergovernmental consultations with) are rooted in German companies supplying Chinese industry. As it transforms, at least partly, from manufacturing to service, this relationship is put to the test.
Gabriel made sure to hammer home the message that the government disapproved of the recent Chinese business expansion in Germany.
Ahead of his five-day visit to China — after two days in Bejing, he will travel on to Chengdu to attend the Western China International Fair, before finishing his trip at the Asia-Pacific Conference of German Business in Hong Kong — Gabriel made sure to hammer home the message that the government disapproved of the recent Chinese business expansion in Germany.
Last weekend, he told Frankfurter Allgemeine newspaper about plans to push for a Europe-wide safeguard clause to curb foreign takeovers of certain technology companies.
“It’s about regulating fair competition on the European level — particularly when it comes to states who have no free market economy like we do, or who do investments in our key technologies via companies ruled by the state,” he said.
At the same time, he stressed that in order for China to be granted the important status as a market economy under the rules of the World Trade Organization, the country “also has to act accordingly.”
Statements like these won’t make talks in Bejing any easier, especially because Beijing may have the upper hand — at least for now.
“At the moment, the EU’s negotiation position is fairly weak,” said Conrad of the Mercator Institute. “The EU and member state governments have very limited instruments to intervene in foreign acquisitions — and the Chinese side is well-aware of that.”