Protectionist sentiment in the US, coupled with Chinese policies to discourage outbound in investment, helped to sharply reduce the number of acquisitions by Chinese firms in America last year. Such purchases fell to just over US$10 billion in comparison with over US$50 billion in 2016.
The trend toward greater scrutiny of Chinese inbound investment is not limited to the US, as the European Commission is moving to strengthen mechanisms to screen foreign acquisitions.
But German business daily Handelsblatt reports that the pushback has not taken the shine off the attractiveness of German firms.
“Chinese investors invested a record amount of 13.7 billion dollars in German companies in 2017,” the paper reported. Though the total number of purchases declined by 21%.
The experts at [Ernst & Young] believe that the Chinese shopping tour continues. “Despite political headwinds, the industrial logic remains intact. In the next twelve months, we will therefore again see more deals in the high triple-digit millions with Chinese participation in Germany and Europe,” says Alexander Kron, Head of Transaction Advisory Services at EY for the German-speaking region.
“The interest in German industrial and high-tech companies is unbroken,” says Yi Sun, head of China Business Services at EY in Germany. In addition to traditional industrial investment, the fashion / retail, food and pharmaceutical sectors are increasingly becoming the focus of attention. In the long term, the prospects for acquisitions with Chinese participation are good, says a lawyer in an international law firm. China will also become more open, so that mergers and acquisitions (M & A) business will be less one-sided.
A less one-sided approach will be welcomed by Europe. But scrutiny, including in Germany, will continue if technology acquisitions are still seen as motivated by Beijing’s strategic goals. Proposals that may be included in a new framework to screen investments in Europe, as reported last September, include legislation to allow capitals to block deals if Chinese buyers are bankrolled by subsidies, or if the acquisition is determined to be based on Beijing’s political goals.
Germany’s secretary of state for the economy was reported as advocating such a rule, citing the Chinese takeover of German robotics maker, Kuka. “For cases like that, we want to have the right and legal base for deeper investment probes and want to be able to reject an investment, for example, if it’s not market-driven but state-driven,” Machnig said.
German companies remain attractive to China, but the political headwinds are not dying down anytime soon.