Chinese investors' enthusiasm for Europe has not diminished, but their investment will face more scrutiny.

Germany, which is most favored by Chinese investors, first introduced the New Deal. In mid-July, the German cabinet passed an amendment to the Foreign Economic Law, which established new rules of review for acquisitions by investors outside the EU in Germany.

German Economy Minister Brigitte Road Zipris said that in view of the significant increase in the number of acquisitions in recent years, the transaction has become more complicated. "We will expand the scope of review for specific industries, including specific types of critical infrastructure." Strong

Tune, Germany is still one of the most open economies in the world.

According to the Caijing reporter, the European Commission President Juncker is expected to propose a possible action plan when he publishes the League of Attorney in September this year . At present, the European Commission has set up a special working group.

Expanded scope of review

The new rules, which came into effect on July 18, will allow the German government to conduct a broader review of direct and indirect foreign acquisitions. The new regulations introduce notification obligations, more industry sectors and longer review cycles.

Previously, non-EU investors did not need to report to the German government unless the acquired German company was engaged in the production of defense and encryption technology. The new rules require non-EU investors to raise more than 25 % of critical infrastructure and safety-related technologies

At the time of the acquisition, it is obliged to notify the German Ministry of Economic Affairs.

Industries covered by this regulation include energy, water, nutrition, information technology, healthcare, financial services and insurance, transportation and critical infrastructure software, communications interception, cloud computing services and medical telematics.

The Ministry of Economic Affairs will decide whether to initiate a formal review within three months, and the review period will be extended from two months to four months.

Indirect acquisitions will also be reviewed, targeting foreign investors who set up companies in the European Union to acquire German companies. There has been no change in the content of the review, ie whether it poses a danger to public order or security and basic security interests.

“It is expected that the German government will launch more investigation procedures than in the past,” said Jana Dammann de Chapto, a consultant at the German office of Ruisheng International Law Firm, to the Caijing reporter.

The sharp increase in Chinese investment is one of the factors that Germany considers when formulating new rules, although it is not just for Chinese investors. “The revised foreign investment review system is not only for Chinese investors. All transactions involving critical infrastructure and security-sensitive areas will be subject to review by the German government,” Ding Jiana said.

After the German Ministry of Economic Affairs revised the foreign economic regulations, Florian Kessler, managing partner of Wei Ze Consulting, who is engaged in Sino-German investment, received advice from some clients. In his view, the main background of this change is indeed a series of overseas

Corporate-to-German mergers and acquisitions, including the acquisition of KUKA. "But this revision of the law is mainly aimed at key infrastructure areas, such as power grids, water supply, airports, railway stations, etc. I think the protection of sensitive areas is very common in any country, so it should be more objective. The law was revised." Kai Fuan told the Caijing reporter.

Germany is the country that absorbed the most Chinese investment in the EU in 2016: China's investment in Germany reached 11 billion euros, accounting for 31% of China's total investment in Europe. China’s investment in Germany also surpassed Germany’s investment in China for the first time this year.

Germany therefore stands at the forefront of European policy debates on China's investment.

China Midea Group 000333, 300024 diagnosis shares on the German robot, the acquisition of shares attending the manufacturer KUKA is the biggest deal. The acquisition sparked controversy last summer, and the voices of "China bought German technology" and "German key technology loss" were rampant. German then Minister of Economy Gabriel also expressed opposition, until the German Ministry of Economics concluded in August last year that it would not pose a threat to public order and security in Germany and abandon the formal investigation of the transaction.

Germany does not have a special foreign investment security review agency like the United States. According to the German Foreign Economic Law, the German Ministry of Economic Affairs can review projects in which non-EU investors acquire more than 25% of German companies. In the past decade, the German Ministry of Economic Affairs has reviewed 338 foreign investments. No transactions involving Chinese investors were rejected.

In 2016, the reason for the Chinese company's acquisition of German semiconductor equipment manufacturer Ai Siqiang was frustrated by the US Foreign Investment Committee (CFIUS). The acquisition, initiated by Fujian Hongxin Fund Investment Co., Ltd., was approved by the German authorities in September last year. However, after receiving new information from the US government, the German government withdrew the license and launched an investigation into the transaction. After the US Foreign Investment Committee refused Fujian Hongxin’s acquisition of Ai Siqiang’s assets in the United States on the grounds of national security, Hongxin announced its abandonment.

A German-based Chinese executive told the Caijing reporter that Germany is more open to foreign investment than the United States, but they have also felt some pressure.

Chinese Foreign Ministry spokesperson Yan Shuang responded to Germany’s new regulations on foreign investment review. China’s economic and trade cooperation with other countries, including Germany, is mutually beneficial and win-win. It is hoped that Germany and the EU will take care to avoid relevant measures. Interfere with the protectionist trend of thought and avoid releasing confusing and negative signals to the outside world.

The German Ministry of Economic Affairs responded to the Caijing reporter that the amendment improved the security-related review process. “These changes have not changed Germany’s acceptance of foreign investment and have not changed the category of censorship. As in the past, the new rules apply to all foreign direct investment in Germany, no matter where they come from. We do not want to have any negative impact on foreign investment. ."

Disagreements within the EU

A report by Rongding Consulting in January showed that the asymmetry of two-way investment and China’s acquisition of high-end technology and infrastructure assets sparked heated debates in Germany and other European countries. The report believes that although China's investment in Europe will remain high, uncertainty is also increasing, including changes in European investment attitudes toward policymakers, regulators and the public.

In February of this year, the German and French Ministers of Economy and the Italian Minister of Industry sent a letter to the European Commission, expressing concern over the non-EU investors’ acquisition of EU technology for their strategic goals and the failure of EU companies to enjoy equal treatment. They asked the EU to reconsider foreign investment. Rules of the EU market.

According to the German Ministry of Economic Affairs, the number and size of China’s direct investment in Europe has increased significantly over the past two years, which is a challenge for our existing review mechanisms. “It has nothing to do with which country they come from. What we are worried about is whether these investments follow market rules.”

China's investment in the EU reached a record 35 billion euros in 2016, an increase of 77% over the previous year. A report released this year by the European Union Chamber of Commerce in China pointed out that one-third of the investment has entered the EU's advanced manufacturing industry.

In an interview, State Secretary of the German Ministry of Economic Affairs, Matthias Lumahenik, said that if Chinese buyers get subsidies or make acquisitions based on political goals rather than market forces, EU legislation should establish a framework for countries to block transactions. He believes that "Made in China 2025" is a politically driven acquisition of technology.

There is currently no legislation reviewing foreign investment based on security interests at the EU level. Ding Jiana analyzed that investors may face the European Commission's review based on merger and acquisition control regulations, which are concerned with the impact of competition and are applicable to both EU and non-EU investors.

A paper on globalization published by the European Commission in May this year pointed out that the opening of foreign capital is still an important principle of the EU, but there have been concerns about foreign investors recently. “Especially for state-owned enterprises to take over European companies with key technologies for strategic reasons, EU investors cannot enjoy the same rights in the source of investment. These concerns need to be carefully studied and appropriate action taken.”

A spokesman for the European Commission told the Caijing reporter that the European Council asked the European Commission to analyze investment from a third country in the strategic area at the EU summit in June this year . "This is what we are doing. The European Commission President Juncker has set up a special working group to demonstrate the possible first action. The goal is to propose a possible course of action when Juncker publishes the League of Attorney in September this year ."

However, there are still differences within the EU. “Not all EU members believe that there is a need for a unified approach to controlling foreign investment,” Ding Jiana said.

French President Mark Long proposed in the first appearance of the summit in June that the EU needs to introduce mechanisms to restrict foreign investors' acquisition of key industries, but countries have not reached a consensus on this, Greece, Portugal, Ireland, Spain, the Netherlands, and Eastern Europe and the Nordic countries. Express opposition.

According to the Financial Times, Portuguese Prime Minister Antonio Lu Costa pointed out that in the EU's rescue plan for Portugal, they had to privatize some strategic industries. Portugal's recovery from the crisis relied heavily on foreign investment. Irish Prime Minister Leo Luvaladka said that such a proposal should be avoided as a "protectionist Trojan horse."

The UK, which is in the process of breaking the EU talks with the EU, is also promoting relevant plans. In June this year , Queen Elizabeth II said in a speech at the opening ceremony of the parliament that the British government will propose a bill to ensure that critical infrastructure is protected and national security is safeguarded. This is one of the legislative plans of the Teresa Lume government.

A British government spokesperson told Caijing that this will ensure that controlling foreign ownership of critical infrastructure companies will not harm the security or basic services of the UK. The spokesperson also stressed that the UK wants to be the best investment and business location in the world; the UK government welcomes China's investment in the UK.

In July last year, the Hinkley Point nuclear power plant project built by the Sino-French cooperation in the UK was temporarily suspended. Two months later, the decision of the British government to approve it was allowed to continue.

In a report released in July this year, the British think tank Henry Road Jackson Society called on Britain to set up an institution similar to the US Foreign Investment Committee. The author of the report, John Lumings, said that Britain needs to emulate Germany and establish a sound review process.

Europe's tightening of foreign investment review In addition to national security considerations, reciprocal treatment has been repeatedly mentioned.

Hemings told the Caijing reporter that the attitude of developed economies towards Chinese investment is changing. "China is already the second largest economy in the world. It should be fairer to European countries and give the same access to the market... If China does not change its policy, it will face more resistance in the investment environment."

China’s Ministry of Commerce spokesperson said that the Ministry of Commerce has noticed that some countries have voiced calls for enhanced security review of foreign investment, and some countries have passed relevant legislation. “A security review of investments in sensitive areas is a legitimate right of a country, but security review should not be used as a tool to pursue protectionism,” he said.

The Ministry of Commerce previously stated that most of China's fields are completely open to foreign investment, and there are only restrictions on foreign investment in a few sensitive areas. This restriction has also been gradually reduced as China continues to expand and open up.

(The first issue of this article was published in the August 7th issue of Caijing magazine)