Are Chinese investments starting to hit a wall in Germany?

Agora Contributor: Jens Bastian
Photo via Flickr
Photo via Flickr

For two successive years, China has been Germany’s most important trading partner. In 2017, the trade volume between both countries reached 186,6 billion euro. Germany’s second most important trading partner was The Netherlands with 177 billion euro, followed by the United States (173 billion euro) and France (169 billion euro).[i] In terms of German export volumes China ranks third, behind the United States and France.

Total bilateral trade between China and Germany ranks first because the latter imports from the former like no other country (100.5 billion euro in 2017). Among all countries it trades with, Germany has the largest trade deficit with China (14,3 billion euro in 2017). Given the export juggernaut that Germany is referred to so often, such a trade deficit is unique. Admittedly, it would be lower if all the German BMWs and Mercedes Benz’ manufactured in US-based production facilities and exported to China would be included in the German trade statistics.

Until recently, the attitude of Germany (political and corporate representatives as well as media examples) was positive towards Chinese companies. This openness was illustrated by various acquisitions of and investments in Germany companies in various sectors by Chinese firms. To illustrate some recent examples from 2017 and 2018:

  • In October 2017, China’s Fosun International acquired the German manufacturer of industrial robots and automation technology FFT.[ii] This acquisition follows previous equity investments by Chinese companies in the sector. In early 2016 China’s Midea acquired Kuka, despite various efforts – supported by the federal government in Berlin - to prevent the acquisition. Fosun also owns a German private bank since 2016, namely Hauck & Aufhäuser which it used as an investment bank adviser to purchase a majority stake in FFT.
  • In June 2018, China’s Contemporary Amperex Technology Ltd (CATL) announced that it will build a battery cell factory in Erfurt in the German state of Thuringia to supply German and European carmakers. CATL will receive federal and regional subsidies to build the battery cell factory and have access to German research infrastructure.[iii]

Increasing Scrutiny

In January 2019, Germany became the latest country[iv] to indicate its growing reservations to allow privately-owned Huawei equipment to be used in its forthcoming mobile telephony 5G wireless network rollout. Previously, the German telecommunication company Deutsche Telekom, the subsidiaries of Vodafone and Telefónica O2 operating in Germany have built the 4G network with Huawei infrastructure equipment. All three companies have long-term strategic partnerships with Huawei. The transfer of dual-use technologies between these telecommunications companies and Huawei is a common practice since years.

The German Federal Office for Security in Information Technology (BSI, Bundesamt für Sicherheit in der Informationstechnologie) has stated that it does not (yet) have any specific proof of wrongdoing by Huawei.[v] Moreover, Huawei has agreed to allow German security specialists to scrutinize its hardware and software at its Huawei Cyber Security Evaluation Centre in Bonn, Germany.[vi]


  • The federal government in Berlin is expected to insist on strict conditions before allowing Huawei to take part, if it allows the company to do so at all. Four companies in Germany have registered to bid in the auction process for the 5G licenses, namely Deutsche Telekom, Vodafone, Telefónica O2 and the newcomer United Internet.[vii]
  • In the German telecommunications sector, the Huawei case is a serious strategic challenge for the federal authorities in Berlin. They have not yet properly mapped the exposure prior to proceeding with the auction process which is expected to be launched end-March 2019.

Deficit in Transparency

Among German companies and business representatives seeking cooperation with Chinese corporates one obstacle stands out vis-à-vis Beijing, namely that various recent examples illustrate an asymmetry of information about Chinese firms operating internationally and the financing arrangements they employ during tranche investments in high-profile German companies.

This asymmetry of information and deficits in transparency also concerns public regulators and competition authorities in Germany, thus triggering increasing reservations to fast-track Chinese equity investments in domestic companies. Three recent examples have raised such challenges and attracted considerable public scrutiny in German media:

  • In April 2017 the aviation and financial services Group HNA bought a 9.9 percent stake in Deutsche Bank. It used offshore financing arrangements (the Austrian investment fund C-Quadrat a subsidiary of HNA) and derivatives contracts (put options) from the Swiss bank UBS, thereby (temporarily) becoming the single largest shareholder in Germany’s leading private bank. Uncertainty over HNA’s ultimate ownership (structure) have negatively impacted on the acquisition from the outset in Germany. Regulators for the German capital market (Bafin) are scrutinizing the HNA deal, mainly to identify who owns the company. After coming under pressure to sell assets to pay its debts, HNA announced in January 2018 that it would gradually sell (most of) its stake in Deutsche Bank in the course of 2018 and 2020. The reported stake stood at 6.3 percent in February 2019.
  • The 9.7 percent equity investment of Li Shufu (head of the Chinese car manufacturer Geely Group) in the German car manufacturer Daimler-Benz in February 2018. The German capital market authority Bafin subsequently opened a formal investigation. Using Hong Kong shell companies, derivatives, bank financing and carefully structured share options, Li Shufu became Daimler’s single largest shareholder. The result was a USD 9 billion investment that skirted German disclosure rules requiring investors to notify German authorities if their share of voting rights in a company surpassed 3 percent, and then 5 percent. Because of the way the stake was structured, there is (to date) no indication that Geely breached those rules.

Both examples illustrate the increased sensitivity and accompanying public scrutiny that Chinese companies are attracting in Germany. Building equity stakes in high-profile German blue-chip companies with financing arrangements that (initially) lack information and transparency risks creating negative feedback loops for other Chinese firms who wish to investment in the country and use different corporate strategies.

  • The third example underlines an unprecedented reaction by German regulatory and political authorities towards attempted Chinese equity investments. The case in point concerns 50Hertz, a German electricity network company that had attracted interest from Beijing. China’s State Grid bid to become a shareholder of 50Hertz, which is one of the four transmission system operators in Germany, is a telling illustration of renewed attention being given to investment screening at the domestic policy-making level. 50Hertz plays a key role in the renewable energy markets across Europe, especially in Northern and East Central Europe. Furthermore, 50Hertz is a partner in the European Network of Transmission System Operators for Electricity, ENTSO-E.

As China’s intent to buy a 20 percent stake in 50Hertz became public in the first half of 2018, serious concerns among politicians (in government and opposition parties) in Germany were raised. The argument articulated most frequently focused on fears that China would establish an initial footprint in Germany’s sensitive energy infrastructure technology.

In an unprecedented defensive move, the German state-owned promotional (development) bank Kreditanstalt für Wiederaufbau (KfW) acquired in July 2018 a 20 percent stake in 50Hertz. For the first time, KfW acted as if it were a sovereign wealth fund, investing in a German company with the backing of the federal government, but contrary to its stated corporate mandate. This form of pre-emptive investment screening at the national level appears to be increasing prior to EU-wide regulations in the making. It is therefore at the national level that Chinese companies can expect to encounter higher obstacles. Regulations and interventions from Brussels will complement these obstacles but are not formulated in a way to neutralize the former.

The bottom line:

Investments in and/or acquisitions of German companies by Chinese firms will become more difficult in 2019 and beyond. The combination of legislative changes at the domestic level and regulatory propositions by the European Commission in Brussels complement each other.

In December 2018, the German government adopted legislation to tighten federal controls of takeovers by non-EU external investors, the so-called Foreign Trade Economic Law (Aussenhandelwirtschaftsgesetz).[viii] The new regulations stipulate a reduced threshold of ten percent equity investment (from previously 25 percent). At this new threshold federal authorities in Berlin can trigger an investigation if national security interests of Germany are at risk. The sectors to which these new screening regulations apply concern electricity and water utilities, IT and telecommunications, but also – and that is an unprecedented insertion clause – companies in food production and hospitals.

This legal change by the federal government in Berlin can be seen as complimentary to an increasingly critical view of China’s activities among German corporate representatives. In January 2019, Germany's most influential industry federation – the Federation of German Industries (BDI) - published a 54-point plan in which China is repeatedly referred to as a partner and “systemic” competitor which requires greater levels of scrutiny from authorities in Berlin and Brussels. The concept brief is notable for its more pro-active call for regulation at the domestic and European levels vis-à-vis Chinese companies investing in Germany and on the continent.[ix]

Finally, German Economy Minister Peter Altmaier unveiled in February 2019 an industrial strategy proposal for Germany that explicitly cited Berlin’s growing awareness about the Chinese investment challenge. He singled out strategically important sectors for protection, e.g. aircraft, finance, telecommunication, trains, energy and robotics. In cooperation with France Altmaier proposes to create national and/or European champions in the aforementioned sectors.[x]

The rapid growth of Chinese outbound investment in recent years has raised awareness in host economies in Europe. Although countries such as Germany continue to welcome Chinese investments, federal and regional officials as well as corporate representatives are increasingly worried about security risks, loss of technological leadership and national economic competitiveness. Growing investments in sensitive dual use technologies such as information and communication technology (ICT) will complicate future development and bilateral cooperation between Berlin and Beijing.


[i] Data provided by the Federal Statistical Office for 2017. Data for 2018 will be published end-February 2019. See: ‘Alle Wege führen nach China’, in: Süddeutsche Zeitung, 22nd February 2018.

[ii] See: ‘Chinesen greifen nach Fuldaer Anlagenbauer’, in: Wirtschaftswoche, 12th October 2017.

[iii] See: ‘Chinesen bauen Batteriezellen in Erfurt’, in: Der Tagesspiegel, 29th June 2018.

[iv] The United States, Australia and New Zealand have banned Huawei from participating in the procurement for the 5G network. EU countries, including Spain, Italy and Finland, held 5G auctions in the course of 2018. The United Kingdom and Canada have expressed considerable concerns about Huawei. France is currently considering legal changes to the procurement process that would effectively prevent Huawei from participating. The Czech Republic is considering regulatory measures to curtail Huawei’s involvement in the next-generation wireless networks.

[v] See: ‘Chinas EU-Botschafter springt Huawei bei’, in: Frankfurter Allgemeine Zeitung, 29th January 2019.

[vi] The decision-making process by federal German authorities when and with whom to launch the tender for the 5G network is ongoing. Lurking behind this complex tender is the open issue of a joint cyberspace agreement between Germany and China. Consultations about such a bilateral cyber norms agreement have been ongoing since July 2016, see ‘Die Angst vor Chinas Hackern’, in: Süddeutsche Zeitung, 21st January 2019.

[vii] Huawei’s outreach activities in Germany extend beyond the provision of equipment for telecommunication networks. In December 2018 Huawei sponsored the convention of Germany’s governing senior party, the Christian Democratic Union (CDU) of chancellor Angela Merkel.

[viii] See ‘Der Wirtschaft geht der Schutz vor China zu weit’, in: Frankfurter Allgemeine Zeitung, 20th December 2018.

[ix] See Bundesverband der Deutschen Industrie (BDI): Grundsatzpapier China: Partner und systemischer Wettbewerber – Wie gehen wir mit Chinas staatlich gelenkter Volkswirtschaft um? Berlin, January 2019.

[x] See: Bershidsky, Leonid: “Germany Enters the Global Economic Wars. Economics Minister Peter Altmaier is shifting policy decisively in favor of economic sovereignty.” Bloomberg Opinion, February 5, 2019,

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