Jun 02, 2017 08:17 PM

Distrust in Deutschland as China Investment Spreads

Hamburg’s centuries-old legacy as a German port with multilingual merchants and international reach has turned a page with an influx of companies from China.

About 550 Chinese businesses have set up shop in the seaside city since the 1980s, building on a history of relations previously limited to the cargo transportation business, as Hamburg has long been a key port of call for Chinese ships.

Today’s widening scope of Chinese business interests in Hamburg reflects the strengthening of Sino-German investment relations. Last year, China was the No. 1 source of new foreign investment in Germany for the third year in a row, according to the German government’s economic development agency Germany Trade & Invest.

Attracted by Germany’s skilled workforce, high manufacturing standards and strong legal system, Chinese companies last year accounted for 281 greenfield investments across the country, the agency said.

Chinese companies in 2016 spent $2.95 billion on new business projects and acquisitions in Germany, according to China’s Ministry of Commerce (MOFCOM). That’s more than the $2.71 billion that German companies invested in China last year.

For example, in January China’s Midea Group Co. bought German automation pioneer Kuka AG for 4.5 billion euros. Midea is the world’s largest home appliance maker and Kuka’s robots are so dexterous that one can pour a beer with a perfect head.

And German companies such as Volkswagen and Siemens have enjoyed a major presence in China for years.

But the Chinese investor’s huge and growing footprint in Germany is a more recent development: MOFCOM said Chinese investment by monetary value in Germany grew nearly 259% between 2015 and last year.

Mutual Distrust

Clouding this blossoming relationship are elements of distrust among players on both sides, German and Chinese business sources close to Chinese-German partnerships told Caixin.

Chinese companies fear their business interests could be affected if European populism fuels protectionism in Germany.

Those fears have deepened since Germany in October raised obstacles against a proposed takeover of German chip manufacturer Aixtron by China’s Fujian Grand Chip Investment Fund. The deal was eventually blocked by the U.S. government on the basis of national security.

Germany’s high-profile decision rattled Chinese investors who wondered whether the German government might further limit tech firm acquisitions. But in November, Germany’s ambassador to China Michael Clauss, speaking to Caixin, called the rejection “a really rare move.”

German companies, meanwhile, have complained that China’s restrictions on foreign investment and tight supervision of auto manufacturing, shipbuilding and other industries have given them fewer opportunities in China than Chinese companies enjoy in Germany.

China’s economy is less open to German businesses than vice-versa, said Ferdinand Schaff, senior manager at the Asia-Pacific Committee of German Business.

China does not allow foreign investment in certain industries, Schaff noted. And the Beijing government requires foreign companies form joint ventures with Chinese companies and meet stringent requirements before investing.

Speaking in May at the B20 Summit, Federation of German Industries Chairman Dieter Kempf also referred to a gap between Chinese and German market supervision operations.

“There are certain market regulations in China that we would not encounter, and are not familiar with, at home,” Kempf said.

German automakers, for example, were alarmed in November when the Chinese government rolled out new electric vehicle production guidelines. The companies feared guidelines, which are designed to encourage alternative energy-powered vehicles, offer advantages to their Japanese and American competitors.

A few days before calling for a review of Grand Chip’s proposed buyout of Aixtron, Minister of Economy Sigmar Gabriel faulted China for compelling non-Chinese companies to jump hurdles before being winning permission to invest in China.

“Whoever wants to invest in other parts of the world must not block investment from those countries in their own country,” Gabriel wrote in an article published by the newspaper Die Welt.

Gabriel and France and Italy’s economy ministers in November co-signed a letter to the European Commission asking that European Union member-states be given more freedom to decide whether to block or approve foreign investments. They cited particular concerns about national security being compromised if sensitive technology falls into the hands of non-EU countries.

At the same time, Gabriel called for closer scrutiny of merger and acquisition deals that might involve non-EU governments.

Technology Access

Gabriel’s comments sparked concern among some Chinese company executives who worried that financing a proposed acquisition with a state-owned loan might be construed as government involvement.

According to Zibo Hanhai Munich Technology park management committee director Liu Xiufei, many Chinese companies acquiring German tech firms in the past did not get access to core technology through the deals.

But Chinese companies are admittedly hungry for advanced technology, as shown by the growing number of Chinese investors targeting southern Germany’s Bavaria, which is home to a variety of successful auto and machinery manufacturers. Liu said tech parks can be used to overcome technology-access obstacles.

One investment outcome is the Zibo Hanhai Munich Technology Park, the first Chinese-run tech park in Germany, which opened in 2013 in the city of Munich. Its operator is high-tech conglomerate Hanhai Holding.

The park is home to a maglev train research lab, Changzhi Pump Co. Ltd.’s subsidiary Bavaria Herkules Fluidtechnik GmbH, and Huacheng Group-owned HM Getriebetechnik GmbH.

Bavaria is also attracting Chinese companies with existing operations in northern Germany. For example, the electronics giant Huawei has a German headquarters in the northern Nordrhein-Westfalen but a German research center with 300 staffers in Bavaria.

“In the future, Chinese businesses in Bavaria will start concentrating on high-end manufacturing,” said China’s Munich-based Consul-General Pei Yonggui. “The space for growth is huge.”

Shanghai-based electric car maker NIO opened a design headquarters in Munich two years ago. Today it has 108 staffers hailing from 26 countries. Company General Manager Zhang Hui said Munich’s competitiveness factored into the company’s decision to pick the city for its first overseas base.

Meanwhile, German start-up companies are trying to access the China market. Representatives from German 11 start-ups visited Shanghai for five days through a tour sponsored by Berlin Partner for Business and Technology, a business support group tied to the city’s government.

During the tour, the Shanghai city government agreed to join a Berlin Partner global network called Start Alliance Berlin whose member-cities provide representatives from eligible start-ups free work-spaces during brief visits. Other network cities include Tel Aviv, New York and Paris.

New companies can use the Start Alliance network to test business ideas in a given market, said Marc Erfkamp, managing director at Edaole, one of the German start-ups invited to Shanghai. Edaole is a platform connecting western retailers and Chinese tourists.

China market access has long been problematic, Schaff told Caixin. And no one denies that the country is more open to foreign investment today than in the past. Market-related issues have been drawing attention lately in part because Chinese economic growth is slowing.

So, it may take time for the distrust now shadowing relations between Germany and China to fade.

“The mutual opening up of markets is extremely important,” Kempf said. Greater openness, he said, fosters mutual trust.

Additional reporting by Qing Ying


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