SHOPPING SPREE

China wants to become a tech giant—so it’s coming after what Germany does best

Obsession
China's Transition
Obsession
China's Transition

Beijing’s long-term strategy, called “Made in China 2025,” is about transforming the country from the world’s factory into a technology leader. While it invests everywhere in Europe, it’s mainly eyeing Germany’s top-class technology and engineering to help it achieve its goal.

A new study by the Bertelsmann Foundation (link in German) crunched the data on which sectors of the German economy China has been targeting for investment and says that “buying stakes in foreign companies are explicitly part of this strategy.”

No surprise then that, in line with its government’s goal, Chinese investors have been shopping in sectors like automotive tech, robotics, and biomedicine in Germany.

Bertelsmann examined 175 Chinese M&A transactions taking a share of 10% or more in Germany (the threshold for foreign direct investment) between 2014 and 2017. It found that almost 64% of these investments happened in the sectors that China plans to dominate globally by 2025.

Chinese appliance maker Midea’s $5 billion takeover of robotics company Kuka in early 2017 caused a national debate over whether Germany was giving away too much technical know-how. In February this year, the government said it was “watchful” after Geely Automotive took a 10% stake in Daimler. This week, the State Grid Corporation of China, the world’s largest utility, tried again to buy a 20% stake in German high-voltage energy network 50Hertz, according to Handelsblatt.

The study found that only around 20% of Chinese investments were by state-owned companies, but that doesn’t mean that the German government shouldn’t rest easy. Study author Cora Jungbluth said that both Germany and the EU as a whole should demand that China gives EU firms a reciprocal level of free market access, rather than let China keep protecting its key industries.

“There is cause for concern on the one hand because of the potential state influence on Chinese company holdings in Germany,” says Jungbluth.

“On the other hand, there is a lack of reciprocity in the German-Chinese economic relationship: Germany offers an open investment environment for foreign investors, China doesn’t,” she added. “If this imbalance persists, it will be a long-term disadvantage for Germany as a business location. Germany should give serious consideration to lowering the threshold for investment screening. Currently, the threshold is at 25 %, it would make sense to lower it to 10%.”

She notes that from 10% upwards, an investor’s goal is generally to grasp control.

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