Commentary: Does Europe have a problem with Chinese investments?
To address worries, Beijing could ease market access and increase protection of IP, says the Financial Times' Jonathan Ford.
LONDON: Many of the recent debates about Chinese takeovers and investments in Europe have been conducted in the opaque language of security.
Spooks in Britain and Germany openly worry about the consequences of allowing Chinese groups such as Huawei into their 5G mobile networks. A recent delegation from Berlin even visited China to explore the intriguing idea of a no-spying pact.
But real concerns about these deals go far beyond public safety and defence.
READ: Huawei would make a terrible spy - and other reasons why US indictments don't stick, a commentary
CONCERNS OVER STRATEGIC SECTORS
Last week, the German economy minister Peter Altmaier proposed transposing into law plans to allow the government to take direct equity stakes in companies in certain key sectors.
While the details remain vague, the idea is to establish a state fund that would temporarily hold shares in private companies to deter or even foil foreign takeovers. These might be targets in areas with implications for defence or security policy.
But they could also include other strategic sectors that Germany wishes to nurture. After all, Mr Altmaier is no stranger to the delights of industrial strategy.
Last month, with his French counterpart Bruno Le Maire, he unveiled a joint manifesto on such a policy. This proposed a focus on such perceived high-value areas as artificial intelligence and the production of battery cells.
The new fund is only tangentially about preserving national security. Its aim is to avoid the sort of situation the German government experienced in 2016 when a Chinese company, Midea, bought Kuka, an Augsburg-based manufacturer of industrial robots.
This had more to do with restrictions on foreign access to China. The real fear was simple: The bidder had been victorious in buying Kuka not because of any discernible industrial advantage.
It had outbid all comers because of Midea’s ability to exploit Kuka’s technology not simply in the west, but also in China’s vast domestic market — something rival bidders simply could not do.
WHY IT MATTERS NOW
This might not have mattered so much back when Beijing had less heft on the world stage.
But it matters a lot more now when China isn’t just a quarter of the global economy; its leaders are also noisily beating the mercantilist drum with their “2025 Made in China” policy. This aims to make subsidy-fuelled state-owned enterprises dominant in global high-tech manufacturing over the next few years.
Mr Altmaier’s plan has yet to be enacted. But there is no reason to believe he is kidding. The German government has already acted on an ad hoc basis to thwart a similar situation.
Last year, it instructed KfW, the state investment bank, to take a 20 per cent stake in 50Hertz, a high-voltage power network operator, to pre-empt a Chinese state investor.
Other European governments have also started tightening their screening procedures. The UK government has proposed taking on new and intrusive powers, including lowering the size of takeover they are willing to investigate and looking past investment funds to the sources of cash for deals.
Even the European Commission is seeking to establish its own process for screening direct investments.
END THE UNFAIRNESS
One way to set this right would be for China to end the unfairness: Easing its restrictive approach to market access and the protection of intellectual property.
Earlier this month, China’s National People’s Congress passed a foreign investment law that holds out promises of fairer treatment. But onlookers remain sceptical, waiting to see how this legislation translates into regulations on the ground.
Beijing could also desist from bankrolling Europe and US-based investment funds whose only purpose is to pick off western companies possessed of interesting technology and intellectual property while remaining below the radar. This raises the spectre of some covert “Made in China” drive.
DODGY TO USE NATIONAL SECURITY AS A COVER
The problem with using national security as a coverall is that it can lead to an explosion of politically motivated intervention. Not only will governments be lobbied domestically; they also feel the need to keep up with what other countries are doing.
The result can be an orgy of leapfrogging intervention, damaging investment. This is already falling. Chinese investment in the EU’s 28 countries dropped to €17.3 billion (US$19.56 billion) last year from €37.2bn two years ago.
In an ideal world, European countries would coordinate their approach, thus helping to define consistently what constitutes grounds for public interest scrutiny.
Don’t hold your breath though. One big barrier is their varying dependence on foreign capital, whether to buy government debt or fund grand infrastructure schemes.
While those with surpluses — such as Germany — may be more willing to turn the Chinese tap off, that’s not necessarily true for those whose needs make them see foreign assistance as a vital economic lever.
Portugal has signed up to China’s Belt and Road Initiative, while Italy made a similar commitment at the weekend.
In modern Europe as elsewhere, you get the security and industrial policy you can afford.