How did China do your business
Chinese holdings and takeovers in Germany –
In 2017 and 2018, the federal government tightened the foreign trade ordinance in order to secure more powers for takeovers and holdings of foreign investors in Germany. A further tightening is planned for 2020.1 In addition, in 2019 - especially on the initiative of Germany2 - the creation of a framework for foreign direct investments at EU level was decided in the EU Regulation 2019/452. The background to these interventions is the economic rise of the People's Republic of China and the associated increasing activity of Chinese investors in Germany and worldwide. It is feared, among other things, that state-controlled investment programs such as “Made in China 2025” will unfairly promote China's economic rise.3 The aim of the measures taken should therefore only be to remedy the distortions of competition caused by China. Against this background, the aim of this article is to conduct quantitative research on Chinese holdings and takeovers in Germany in order to enable a realistic assessment of the activities of Chinese investors.
Chinese direct investment
For this purpose, the development of foreign direct investments into and from the People's Republic of China is first analyzed. The consideration of direct investments makes it possible to focus on long-term investments with a strategic influence on the investment object, since only transactions with more than 10% of the voting rights are considered.4 This includes acquisitions of and investments in companies as well as start-ups. With regard to the People's Republic of China (see Figure 1), it can be said that at the beginning of the opening policy in 1979, the country played a role neither as a destination nor as the source of direct investment. It was not until the 1990s that China became increasingly attractive as a destination for investment. At the end of the 1990s, more than US $ 40 billion a year was invested in this way. With the exception of slight setbacks around the year 2000 and during the financial crisis, investments in China subsequently rose continuously to around US $ 139 billion in 2018, the last year for which figures are already available. Even if the increase in investment has flattened out in recent years, the People's Republic is still a very attractive destination for foreign direct investment.
Foreign direct investment in China (inflow) and from China (outflow)
As the origin of direct investment, the People's Republic only gained importance at the beginning of this millennium. In addition to joining the World Trade Organization (WTO) in 2001, the going-out strategy of the Chinese government from 20025 in particular probably played a role. Investments from China rose from just US $ 3 billion in 2003 to more than US $ 196 billion in 2016. After that, investments fell to almost US $ 130 billion in 2018. The decline in the The years 2017 and 2018 can be attributed on the one hand to the tightening of the Chinese regulations in 2016.6 In particular, unproductive investments should be avoided through the increased controls. On the other hand, the stricter rules in Germany and the trade conflict with the USA7 are likely to have played a role. Despite the decline in absolute values, the share of direct investment from China in global foreign investment even reached a new all-time high of almost 13% (2018).
It should be noted that investments from China have become more and more important from a global perspective. In addition, the People's Republic became a net investor for the first time in the years 2015 to 2017, i.e. H. direct investment from China exceeded investment in China. With the achievement of an initial agreement in the trade dispute with the USA and against the background of increasing Chinese investments as part of the Belt and Road Initiative8, China should continue to gain in importance as an investor after 2018.
Chinese takeovers and investments in Germany
However, China's direct investment is very unevenly distributed. In 2017, more than 57% of all Chinese investments went to Hong Kong.9 11.7% went to Europe (continent) and 4.1% to the USA. This inequality in direct investment flows is also reflected in direct investment stocks. Hong Kong accounted for more than 54% in 2017.10 The whole of Europe accounted for just 6.1% and the US for 3.7%. The importance of Germany as a destination for Chinese direct investment is therefore also rather low: Germany's share of Chinese direct investment has so far been in the low single-digit percentage range
Accordingly, the Chinese takeovers and investments in Germany are also comparatively low (see Figure 2). Due to the close ties between Hong Kong and the People's Republic, both are considered together. Up to and including 2010, Chinese takeovers were irrelevant and only affected very few cases.12 For example, only six transactions were recorded in 2010. With this information, too, only transactions are considered in which at least 10% of the voting rights are taken over. This is only deviated from if it is a significant company and the share is close to 10%. These include, for example, the entry of the Chinese car maker Geely into Daimler AG with 9.7% in 2018 or the meanwhile 9.9% stake of the HNA Group in Deutsche Bank AG in 2017.
Chinese1 acquisitions and investments in Germany
1 People's Republic of China and Hong Kong.
Source: own research.
An increase in the number of cases did not occur until 2011. This year, 24 transactions were recorded. With the exception of 2014, in which 29 transactions were counted, up to and including 2015 only 24 or 23 transactions were recorded annually. In 2016, however, the number almost doubled compared to the previous year to 44 cases. Since this peak, the number of cases has been falling continuously worldwide, in line with the general development of Chinese direct investments. In the past year, only 25 transactions could be booked. The activities of the federal government also contributed to this decline: In 2018, the state-owned credit institute for reconstruction had to acquire a stake in the network operator 50Hertz in order to forestall a Chinese state-owned company.13 In addition, the tightening of the foreign trade regulations that had been resolved was applied, which also prevented another transaction in 2018. 14 Once again in 2019, the expanded competencies were used, in particular with the sale of the Locomotives division of Vossloh AG to a subsidiary of the China Railway Rolling Stock Corporation (CRRC) 15. The review of this transaction continues to this day (January 24, 2020). It is feared that this comparatively small takeover with a value in the single-digit million range will pave the Chinese company's entry into the European market. 16
The decline in the number of cases also reduced the relative importance of Chinese investors in takeovers and investments in Germany. In 2017, only 6.6% 17 of the transactions were accounted for by investors from the People's Republic of China and Hong Kong. In 2018 it was estimated to be only 5.5% 18, and based on the figures from PricewaterhouseCoopers Wirtschaftsprüfungsgesellschaft, the proportion even fell to 5.3% in 2019 .19
The value of Chinese transactions in Germany has also fallen rapidly in recent years along with the number of cases. In 2019, the transactions only corresponded to a value of around 1.3 billion euros and thus roughly the level from 2011 to 2015. The highest transaction values were recorded in 2016 with more than 11 billion euros and in 2017 with more than 12.1 billion. However, these high values were due to large individual transactions.20 The high value in 2018 is also characterized by a single transaction: The entry into Daimler AG contributed more than 7 billion euros. When looking at the transaction values, however, it must be noted that not all values are published.
Conclusion on Chinese holdings and takeovers in Germany
Since the peak of Chinese investments abroad in 2016, activities worldwide, but also especially in Germany, have declined noticeably. Regulatory tightening in and outside of China, but also uncertainties in the course of the current trade disputes, contributed to this. As a result, if the uncertainties diminish and the People's Republic grows in importance in the world economy as well as the increasing trade integration through the Belt and Road Initiative, the activities of Chinese investors could also pick up again. It should be noted that the focus of Chinese activities has not (yet) been on Germany. In addition, the already expanded powers of the supervisory authorities have been reflected in practice. Further tightening and isolation should therefore be avoided. Instead, Germany and the European Union should use their economic importance for the People's Republic to establish a level playing field in relations with China.
- 1 See Federal Ministry for Economic Affairs and Energy: Industriestrategie 2030, November 2019, p. 27.
- 2 See Federal Ministry for Economic Affairs and Energy: Strengthening our national security through improved investment reviews, press release from December 19, 2018, https://www.bmwi.de/Redaktion/DE/Pressemitteilungen/2018/20181219-staerkung-unserer-nationalen-sicherheit -by-improved-investitionspruefung.html (22.1.2020).
- 3 Cf. S. Beer, J. Matthes, C. Rusche: Decoupling Chimerica, Consequences for the European Union, IW-Report, No. 42, Cologne 2019.
- 4 Cf. Organization for Economic Co-operation and Devlopment (OECD): OECD Benchmark Definition of Foreign Direct Investment, 4th edition, Paris 2008, p. 17.
- 5 Cf. G. Lim: China's "Going Out" Strategy in Southeast Asia: Case Studies of the Automobile and Electronics Sectors, in: China: An International Journal, Vol. 15 (2017), H. 4. P. 157- 178.
- 6 Cf. C. Rusche: Chinese investors very active in Germany in 2017, IW short report, No. 11, Cologne 2018.
- 7 Cf. S. Beer, J. Matthes, C. Rusche, op. a. O.
- 8 Ibid.
- 9 Ibid, p. 23.
- 10 Ibid, p. 31.
- 11 C. Rusche: Activities of Chinese Investors in Germany, in: IW Trends, Volume 44 (2017), No. 2, pp. 41-59, p. 51.
- 12 Cf. C. Rusche: Activities of Chinese Investors ..., op. a. O.
- 13 C. Rusche: Chinese participations and takeovers 2018 in Germany, IW short report, No. 5, Cologne 2019.
- 14 Ibid.
- 15 Vossloh AG: Vossloh Aktiengesellschaft: Vossloh signs contract to sell the Locomotives division, August 26, 2019, https://www.dgap.de/link.php?isin=DE0007667107&typ=adhoc&von=19970101&a=10&sprache=de&v=de&id=1188519 ( January 23, 2020).
- 16 Ntv: China buys Vossloh locomotive division: Le Maire makes serious allegations in Brussels, September 9, 2019, https://www.n-tv.de/wirtschaft/Le-Maire-macht-Bruessel-schwere-Vorwuerfe-article21244116. html (January 24th, 2020).
- 17 C. Rusche: Chinese investors in Germany ..., op. a. O.
- 18 C. Rusche: Chinese holdings and takeovers ..., a. a. O.
- 19 Own calculation based on PricewaterhouseCoopers: Destination Germany, M&A activities of foreign investors 2019.
- 20 The Kuka takeover accounted for 4.6 billion euros in 2016 and the ista takeover for 5.8 billion euros in 2017.
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