Late last week, Berlin announced plans to stop Chinese companies from acquiring EU firms. The FT:
The move — received coolly by German business leaders — reflects a protectionist backlash in Berlin against a wave of Chinese dealmaking, which peaked this year with the €4.5bn acquisition of robotmaker Kuka, one of Germany’s most innovative companies, by Chinese appliance maker Midea.
In an interview with the Financial Times, deputy economics minister Matthias Machnig said the government welcomed foreign investments but was wary of deals that seemed to be state-directed or were only about gaining access to German technology rather than about “Germany as an investment destination”.
“We need to have the powers to really investigate deals when it is clear that they are driven by industrial policy or to enable technology transfers,” he said, calling for a better legal basis for such investigations.
“When necessary, in exceptional cases, [we need] maybe even to say we’re not going to allow [certain deals],” he added.
It’s likely that German-Chinese tensions over trade and economic issues will grow. Beijing is making a big push — not always respecting rules of intellectual property — to make its manufacturing base competitive with the highest-end firms in the world. That is exactly where Germany sits, and its technological edge is why German manufacturing has been relatively immune to Chinese competition further down the value chain. Until recently, German firms were mostly profiting off China’s rise. But now China wants to play on Germany’s turf, and German firms are struggling to protect their intellectual property rights and competitive edge. Ultimately, German companies are likely to face global competition from Chinese firms who do much of what Germany now does — but cheaper.
As this situation develops, it will have implications for the European economy (mostly bad), European trade policy (making progress on global trade deals even more difficult), transatlantic relations (mostly good) and on German politics (probably strengthening the sense of German identity and nationalism). Making the defense of German manufacturing part of Merkel’s administration is smart politics, but addressing the problems that growing Chinese competition will cause German industry could become a major preoccupation of Berlin’s and is unlikely to reach any satisfactory resolution.