German technology company Aixtron SE, which builds equipment used in semiconductor manufacturing, announced Oct. 24 that the German government has withdrawn its approval for China's Grand Chip Investment GmbH to buy the company and is reopening its review of the $728 million deal. German Economy Minister Sigmar Gabriel is preparing a proposal to the European Union to allow member states to block deals with non-EU investors in which at least 25 percent of the voting shares of a company will be transferred and in which the foreign government is behind the acquisition or funding it.
This is the second time that Berlin has publicly opposed a high-profile merger or acquisition by a Chinese company of a German industrial technology company. Earlier this year, Germany came out against a proposal for Chinese appliance manufacturer Midea to take over Kuka Robotics Corp., but the deal was eventually approved. Just this year, Chinese companies have been involved in 15 mergers and acquisitions in Germany, worth a collective $6.6 billion; 18 more deals are pending, worth another $6.6 billion. Two additional deals have been proposed worth $7.5 billion. That is the equivalent of about one deal per week this year.
Much of the activity has been concentrated in the industrial and heavy manufacturing sectors, which along with automobile manufacturing comprises the backbone of Germany's economy. For Germany, China's continued expansion into these sectors represents a substantial threat to German competitiveness. In response, the government has been implementing protectionist measures on its technology sector, clearly aimed at China. Germany is not the only country concerned. There are related fears that China's acquisition of telecommunications and other related sectors in some countries could compromise national security. The United States has balked over China's recent moves to expand into the U.S. telecom market.
As a German issue, the question of foreign investment and trade is also an EU one, and following the Brexit vote, it is a priority topic. The European Union's stance on trade and investment will likely change soon. The United Kingdom was a staunch supporter of free trade and a counterweight to countries with more protectionist tendencies. Now that the United Kingdom will be leaving the union, the bloc will undoubtedly embrace more protectionist policies.
In the meantime, China's interest in foreign tech companies will not subside and neither will foreigners' suspicion of them, especially given the Chinese government's role in many of the deals. Though many of China's tech companies are privately owned, Communist Party leaders hold key positions in many of them as well. For China, growing protectionism will complicate many of their planned acquisitions and will require companies to make special concessions to regulators to be granted approval.
