German Envoy Says Review of Aixtron Deal a 'Rare Move'
(Beijing) — The German Economics Ministry's decision to review a proposed Chinese takeover of chip-equipment maker Aixtron SE was driven by national security concerns, the German ambassador to China said.
Michael Clauss made the comments in an interview with Caixin amid fears that Berlin might be squeezing Chinese investors' access to its high-tech industries.
The German ministry's decision to re-examine the $728 million Aixtron case is "a really rare move as most investors don't even have to report to the ministry," Clauss said. "Aixtron is an exception because there is a possibility that the deal could affect our national security."
The remarks comes weeks after a German newspaper, the Handelsblatt, reported that U.S. intelligence services had warned Berlin that the proposed deal could give China access to technology that could be used for military purposes.
Germany's outspoken economic minister, Sigmar Gabriel, who was in Beijing earlier this month, had also recently called for the European Union to give national governments more powers to block or impose conditions on deals involving non-EU companies — a sign that Berlin was ruffled by the recent wave of Chinese takeovers.
Clauss said rising protectionism in China, which offers German enterprises only limited access to the domestic mergers-and-acquisitions (M&A) market, has led Germany to reconsider its openness to Chinese buyers.
"If a German company is to invest, in the automobile sector for instance, it has to establish a joint venture with a Chinese partner and share its proprietary technology, which de facto means an involuntary technology transfer," Clauss said. "Protectionism in China has increased in recent years, which has led to a public debate in Germany on whether we can continue to accept a one-way street concerning our bilateral investments."
The following are excerpts of Caixin's interview with German Ambassador to China Michael Clauss.
Caixin: The German Economics Ministry's move to withhold approvals on two takeover bids by Chinese investors pending review — one involving lighting equipment maker Ledvance and another for chip-equipment manufacturer Aixtron — has raised concerns over the rise of protectionism in Germany. What are your thoughts on this?
Michael Clauss: In fact, Germany is the most open market worldwide to Chinese investment. So far we have never turned down investments from China. As for the ministry's decision to examine the Aixtron case, this is a really rare move, as most investors do not even have to report their acquisitions to the ministry. Aixtron is an exception because there is a possibility that the deal could affect our national security.
It is hard to predict the result of the investigation now. Legal hurdles for a refusal are high, and the standards the ministry has to follow in its investigation are very stringent. Both Aixtron and the Chinese investor could appeal to the courts if they are not satisfied with the outcome.
As for the Aixtron deal, previous news reports said that Germany withheld approval due to warnings from the U.S. intelligence agency, which was worried that the Chinese investor might use Aixtron chips in nuclear projects. Is it true?
What I am sure about is that the German government has to re-examine the deal due to new information raising concerns about how it would affect our country's national security. I have to reiterate that, in Germany, the threshold for rejecting or halting foreign investments is very high.
There have been a lot of public comment and discussions about German Vice Chancellor Sigmar Gabriel's recent visit to China. Was the visit a success?
Debate was rife even before he arrived in China because there is an imbalance between Chinese investments in German high-tech firms and how much access German firms have to the Chinese market. Investments flowing from China to Germany surged 2,000% in the first six months of 2016 compared to a year earlier, and two-thirds of it was used to buy high-tech enterprises. And the German market, including high-tech sectors, is also open to investors from other regions, including the U.S., U.K. and Finland.
But it is much harder for outsiders to tap the Chinese M&A market. If a German company is to invest, in the automobile sector for instance, it has to establish a joint venture with a Chinese partner and share its proprietary technology, which de facto means an involuntary technology transfer. Protectionism in China has increased in recent years, which has led to a public debate in Germany on whether we can continue to accept a one-way street concerning our bilateral investments.
Minister Gabriel raised this issue, whether we should continue with this one-way street or ask the Chinese side for greater openness; ultimately, he advocated reciprocity. The meetings were generally harmonious in spite of certain disagreements. The two countries are strategic partners, and our relationship has become closer than ever. We will cooperate in many fields, such as in manufacturing, where both sides are pursuing strategic initiatives: Germany's Industry 4.0 and Made In China 2025.
How have recent developments such as Germany's suspension of the Aixtron deal and Gabriel's visit to China influenced the bilateral-trade relationship?
The German market is open. However, if China does not open its market wider or should even allow protectionism to grow further, we might run into problems. We want China to extend the same treatment to German firms that Chinese firms enjoy in Germany.
A study by the Organization for Economic Cooperation and Development (OECD) ranked China as being one of the most protected economies, and warned that protectionism is on the rise. We do not expect China to eliminate barriers overnight, but we want to see progress. A higher level of openness would allow China to be more innovative and would ensure that the Sino-German economic relationship will have a bright future. The key here is reciprocity.
The German economy is driven by exports, which requires a commitment to free trade. But Gabriel's strong stance on Chinese investors has surprised observers. It is said that the strong stance of the Social Democratic Party leader is a result of pressure imposed by labor unions and grass-roots party members. What is your view on this?
It is not only Vice-Chancellor Sigmar Gabriel or Chancellor Angela Merkel, but also the majority of businesses that call for equal treatment. We will not accept the current situation if there is no progress (in terms of opening up) in China. We will keep this on the agenda as more and more German firms encounter protectionist issues. Germany is and will continue to be an open market for Chinese investors, but we are not naive.
Was the issue of granting China Market Economy Status (MES) discussed during German Economic Minister Sigmar Gabriel's recent visit to Beijing? What is Germany's position on the issue?
The issue was raised during bilateral talks; it was raised by the Chinese side, as we had expected. We agreed on the need to fulfill the obligations identified in the protocol on China's accession to the WTO. But we also pointed out that China still has issues with dumping overcapacity. Currently, the EU is pursuing 39 anti-dumping cases, 17 of which involve China. The EU proposes to extend the same treatment to all countries, including China, while strengthening our anti-dumping instruments, which can be aimed at all countries dumping their products on the European market.
Do "obligations" refer to the 15th article in the protocol?
Yes, it means applying the same methodology to determine price comparability during anti-dumping investigations, regardless of whether a country is categorized as MES or non-MES. For now, countries in the latter category are more susceptible to being slapped with anti-dumping charges.
Do you mean to say Germany would grant China MES?
The essence is to make the question whether a country is a market economy or not irrelevant in our antidumping procedures by no longer putting them in the categories of market and non-market economies. China is entitled to enjoy the same rights as other economies.
What was the Chinese side's reaction to this approach?
The Chinese side expressed their appreciation, while also expressing concerns about us strengthening our anti-dumping instruments. The German side reiterated that there was a problem of overcapacity in certain sectors, such as steel, coal, chemical production, shipbuilding and automobile manufacturing in China; we worry about more dumping cases in the future, so we cannot (help) but strengthen our defenses. We highlighted some concrete cases that show that protectionism in China is a growing problem for German companies, despite of what you sometimes hear from the Chinese side. We hope that there will be progress in opening up Chinese markets to foreign investors.
Germany has been an influential voice in the EU debate on granting China MES. Have any other EU members supported your position?
Ultimately, the EU will as a whole will have to decide. A decision requires at least two-thirds of member states to agree and a majority in the European Parliament. EU countries' views vary, but Germany calls for a compromise, a balance that stops discriminatory treatment to Chinese goods, while strengthening rules to prevent dumping from all exporters.
An earlier version of this story misstated the company name Aixtron in the headline.
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