The German Angst? How Germany struggles to protect its crown-jewel industries

December 12, 2018

Are developed countries afraid of losing their competitive advantages to emerging economies? The latest development of investment protection in the US, Germany and on the EU level might lead us to believe so. The US introduced an extension (FIRRMA) of CFIUS, Germany enhanced its investment scrutiny procedures in 2017 and discusses further steps, and the EU is in the process of implementing a common framework for the screening of FDI. These developments are not officially linked to the current increase in Chinese investment inflows, however, the unique climb in numbers and values surely a woke the developed world. Also, where it is not the sheer climb in volume, it’s the role of the state in the firms investing abroad that makes them re-think their current FDI screening mechanisms.


Current development of Chinese FDI inflows to Europe

In a recent study on Chinese investment inflows to Europe, Hanemann and Huotari (2018) revealed the tremendous development of Chinese FDI through greenfield investments, but especially acquisitions (~94%) of a stake larger than the 10% threshold (e.g. KraussMaffei, Kuka) and, lately, below the 10% threshold (e.g. Deutsche Bank; Daimler). Moreover, both authors argue that due to interventions of the Chinese central government on some investments of its private firms, the share of state-related investments into Europe also increased. In the case of Germany, the largest FDI inflows were realized in the high-tech and automobile (supplier) industries. Glancing at figure 1 shows the tremendous increase in number and value of Chinese investments in Europe, especially into Germany. This put Chinese investments into a critical spotlight in German news, primarily as these investments showed to be a good fit with China's industrial policy "Made in China 2025" (MIC 2025).


Figure 2 (below) reveals the industrial coverage of Chinese investments in Germany and how well the business of German target firms fit the latest Chinese industry policies (MIC 2025). 

Relevant documents: (1)(2)

Figure 1: Chinese investments in Europe

The role of China's economic policies

Made in China 2025

China’s industrial development and the growth of its largest firms to become globally successful MNEs is steered through strong policy interventions (Luo, Xue, and Han (2010); Yang and Stoltenberg (2014)). Here, especially the MIC 2025 strategy, it is seen critical by Western countries. The policy is the first in China to specifically target manufacturing. It was established in 2015 and aims at developing the Chinese economy from a "big manufacturing country" to a "leading manufacturing power," by 2049. 

The nine main tasks of the industry strategy including breakthroughs in the ten priority sectors are supposed to be market driven, but government guidance and support is provided in the form of various subsidies and accelerated depreciation. The Chinese central government set up a CNY 20 billion Modern Manufacturing Industry Investment Fund, CNY 6 billion of which are allocated from the government budget. Also, large advertisement and subsidy campaigns are conducted by the government.

Main tasks of the MIC 2025 strategy:

  1. improving manufacturing innovation
  2. integrating information technology & industry
  3. strengthening the industrial base
  4. fostering Chinese brands
  5. enforcing green manufacturing
  6. promoting breakthroughs in 10 key sectors
  7. advancing restructuring of the manufacturing sector
  8. promoting service-oriented manufacturing & manufacturing-related service industries
  9. internationalizing manufacturing

Sectoral foci of the MIC 2025 strategy:

  1. New advanced information technology
  2. High-end computerized machines/ numerical control tools and robotics
  3. Space and aviation
  4. Maritime equipment and high-tech ships
  5. Advanced railway transportation equipment
  6. Energy saving and new energy vehicles
  7. Energy equipment
  8. Agricultural machinery
  9. New materials
  10. Biopharma and high-tech medical devices

    On the one side, the supportive internationalization (related) policies of the Chinese government helped local firms to gain not only access to financial sources that would usually not be accessible in a free market economy, but also brings more firms actually to go abroad.

    On the other side, through a protectionist market approach towards inward FDI, Chinese firms were able to cooperate with and learn from (to that time) more technologically advanced foreign business partners, primarily through joint-ventures. These cooperations were needed for foreign firms to access the many protected local industries and to access the large customer market. Gently, the Chinese government is opening some industries, which might be less due to international calls for reciprocity, but more based upon the fact that the local companies in these sectors are now sufficiently developed to accept global competition. For example, the German insurance group Allianz is the first foreign insurance company to be allowed to establish a 100%-foreign-owned company in China (Keohane & Ralph, 2018).

    Overall, the main aim of the Chinese government is to replace foreign machinery with domestic ones, while climbing up the value chain.

    Related policies to MIC 2025:

    1. Internet Plus plan (2015)
    2. Development Plan for the Robotics Industry (2016)
    3. 13th Science, Technology and Innovation Five Year New Plan (2016)
    Figure 2: MIC 2025 investments in Germany; Source: Jungbluth, 2018

    FDI review process in Germany/Europe

    The German government has the authority to prohibit the takeover of a German company by a foreign entity against the expressed will of the German party, whenever such an acquisition endangers the national security / critical infrastructure of Germany. To intervene in foreign takeovers, the German government has to evaluate the transaction concerning a potential threat for national security.


    Definition of national security / critical infrastructure:

    --> Public security may be affected by acquisitions related to issues such as security of supply in the event of a crisis, telecommunications and electricity, or the provision of services of strategic importance.

    ! Due to the current definition of “public order or security" at EU level, a national investment review can neither be performed on basis of how the state of the acquiring firm is involved into the business of that entity, nor on the basis of unequal market access rights between the host- and home-country.


    Please note, at the end of 2018, Germany amended its Foreign Trade and Payments Ordinance. For a summary of the introduced changes, click here.

    An overview of existing differences between the implemented investment review processes in Germany is given in figure 3 (and described here in more detail).

    Figure 3: German investment review process; Source: German Federal Ministry for Economic Affairs and Energy, 2018

    Examples of German government intervention into non-EU transactions

    In Summer 2018, the German government prohibited for the first-time a foreign takeover. Background information on both interventions is shortly introduced below:

    50Hertz – Transmission Network Operator: 

    The share of the acquisition was below the 25% intervention threshold. Hence, there was no legal basis for the German state to intervene. However, the state used the state-owned bank (KfW) as a vehicle of intervention and acquired the 20% share targeted by the non-EU firm. Doing so, it outrivaled the Chinese state-owned SGCC. This was already the second try of SGCC to acquire 50Hertz. In the first attempt, the Italian mother company of the target firm was able to withdraw this approach. The German government explained that the step to intervene was about protecting critical infrastructure (see official statement).


    Leifeld Metal Spinning – Manufacturer of CNC machinery: 

    The German government prohibited the acquisition of the hidden-champion by a Chinese investor for “reasons of precaution”. The investor withdrew from his plan to acquire the German company shortly before the government had to decide on the case. Nevertheless, the German government decided to make its decision public, also to send a signal to future investors.

    Both interventions took part in July/August 2018 and might be understood as a sign of how the German government tries to secure its critical infrastructure/national security against foreign investors. Both interventions also show the current trend in Germany towards a more conservative screening of investments by foreign companies.

    Today, the government follows two approaches to enhance the FDI review process:

    EU level:

    Germany together with the governments of France and Italy initiated a legislative process at the European Union to extend the current definition of “public order or security” and to include additional criteria as to when EU members are allowed to intervene in takeovers of their companies through firms located in non-EU countries. These requests for additional justifications of intervention include:

    • Non-existing reciprocity regarding market-access,
    • FDI that does not comply with market rules
    • FDI supported by home-government subsidies

    Thus far, no final decision has been made on implementing the relevant framework. However, the EU Commission drafted a proposal, and the 28 EU members supported the compromise so that the EU Parliament will have its plenary vote probably on February 11, 2019, ahead of the upcoming EU elections in May 2019.

    The compromise includes, among others,

    • an extension of the “critical sectors” (aerospace, health, nano-technology, the media, electric batteries and the supply of food),
    • that FDI may be screened by the Member States and the Commission on the grounds of security or public order,
    • the establishment of a cooperation mechanism between the Member States and the Commission to inform each other and exchange information (including the provision of an annual report),
    • the obligation for the EU Commission to screen deals that might affect projects with EU interests and give suggestions to the Member States having a screening mechanism in place (currently 14 countries have screening mechanisms, differing in scope & design),
    • that Member States and the Commission may request certain information on a specific FDI on a case-by-case basis,
    • that Member States establish contact points within their administration which can be consulted on all matters relating to the implementation of the regulation,
    • that the screening process on national level stays optional and the EU members keep the final decision-making power.

    Related documents: (1)(2)(3)(4)


    National level:

    The government started discussions on whether or not the threshold for state intervention shall be reduced to 10% ownership acquisition from the current 25%. Furthermore, discussions also include the sequential purchase of shares.

    Figure 4: EU States with Investment Screening Mechanism; Source: Rasmussen Global, 2017

    Different stances on Chinese investments in Germany

    Support for Chinese FDI

    The more critical position on non-EU investors acquisitions in Germany is largely driven by the state, and less by company owners. The leadership of acquired companies is often attracted by the “China mark-up” paid as this sometimes rescues the company from going bankrupt. They also see the chance of better market access to the Chinese market, and even receive the support of the relevant labor union, as a long-term location and job guarantees are given from the investors. Moreover, as the case of Grammer – a German automobile supplier – reveals, some leaders of the acquired company also seek the last pay-out before retiring (Buchenau et al., 2018).

    The Federation of German Industries (BDI), the largest lobbying group of the German industry, argues in several publications against more enhanced FDI screening mechanisms (Mildner & Sprich, 2017; Sprich, 2018; Strack, 2018). The BDI members state that FDI plays a vital role in the industry in Germany and that the state should not intervene in other situations than where “public order and security” are clearly threatened. However, they also argue that on the EU level clear definitions which are coherent between member states are needed (Mildner & Sprich, 2017; Sprich, 2018). Sprich (2018) also outlines his understanding of the increase in peoples’ concerns regarding the industry-policy supported Chinese FDI in Germany, as the investments lately have had a tendency to be of a more strategic-asset seeking nature.

    Conservative stance

    The concern and the protection of its population is also the primary driver for the position of the German state. Hence, the broader definition of “critical infrastructure” and “national security” might be understandable. However, clear definitions and laws might be helpful to limit uncertainties of the partner in the respective transactions.

    Conclusion and outlook

    • Chinese investments into Germany decreased in 2018, which might be related to the political pressure from the German government.

    • The German government tries to tighten the screws on state-backed non-EU investment inflows on thr EU- and national levels.

    • China observes the current developments in Europe critically (Daye, 2018).
    • The non-existing common investment review process covering all EU member states might lead to countries in need to rather allow investments than others.


    Note: This blog entry was written after the guest lecture of Prof. Taube (Uni Duisburg-Essen), which inspired me to conduct detailed research on this topic. You can find the recording of the full lecture here.

    The content of this document is the sole responsibility of the author and any opinions expressed therein do not necessarily represent the position of the Chair in International Management and Governance at the University of Bremen or other members of the University.



    Buchenau, M., Heide, D., Höpner, A., Hubik, F., Hua, S., Kapalschinski, C., et al. 2018, November 28. Die neue China-Skepsis. Handelsbaltt, 14–15, Düsseldorf.

    Daye, C. 2018. EU foreign investment screening plan shows double standards, harms own interests: experts. Global Times., December 9, 2018.

    German Federal Ministry for Economic Affairs and Energy. 2018. Investment Reviews., Berlin: Bundesministerium für Wirtschaft und Energie (BMWI).

    Hanemann, T., & Huotari, M. 2018. EU-China FDI: Working Towards Reciprocity in Investment Relations. Berlin.

    Hua, S. 2018, July 11. When it comes to industrial policy, Germany should be more like China. Handelsblatt. Düsseldorf.

    Jungbluth, C. 2018. Is China Systematically Buying Up Key Technologies? Chinese M&A transactions in Germany in the context of “Made in China 2025.”, December 9, 2018, Gütersloh.

    Keohane, D., & Ralph, O. 2018, November 26. French insurer Axa takes full control of Chinese venture. Financial Times., Paris, London.

    Luo, Y., Xue, Q., & Han, B. 2010. How emerging market governments promote outward FDI: Experience from China. Journal of World Business, 45(1): 68–79.

    Mildner, S.-A., & Sprich, C. 2017. Screening Foreign Direct Investment? EU Regulation Establishing a Framework for Screening of Foreign Direct Investments into the European Union BDI, 7.

    Rasmussen Global. 2017, November 16. Foreign Investment Screening and the China Factor.

    Sprich, C. 2018. National Security and Private Property Must Be Protected. BDI., December 9, 2018.

    Strack, F. 2018. Chinese Investments in High Technology. BDI., December 9, 2018.

    Yang, X., & Stoltenberg, C. D. 2014. A review of institutional influences on the rise of made-in-China multinationals. International Journal of Emerging Markets, 11(2): 175–189.

    Updated by: Admin