With eye on China, Germany tightens foreign investment rules

Germany agreed new rules on Wednesday to lower the threshold for screening and even blocking purchases of stakes in German firms by non-Europeans, in a move to fend off unwanted takeovers by Chinese investors in strategic areas.

The decision by Angela Merkel's cabinet is a response to mounting concern that China's state-backed companies are gaining too much access to key technologies in Europe's biggest economy while Beijing shields its own companies.

Under the new rules, which come into effect immediately, Berlin can intervene on grounds of public interest if a non-European investor buys a 10 percent stake in a company, sharply reducing the threshold from 25 percent.

"Companies like investing in Germany and it should stay that way. But we must be able to look carefully at who is buying sensitive infrastructure and what consequences that has," said Economy Minister Peter Altmaier.

Germany introduced the 25 percent threshold in 2004 and expanded its veto powers in 2017. The measures are meant to protect vital infrastructure such as energy, water, food supply, telecommunications, defence, finance and transportation. The rules passed on Wednesday added media companies.

Highlighting fears that Germany is also a target for cyber attacks, the Office for Information Security has warned several German firms of increased Chinese activity, a newspaper reported earlier.

Some business organisations criticised the move.

"Germany must remain open to foreign investors," said the BDI industry association while the DIHK Chambers of Commerce said the new threshold sent a negative signal to foreign partners.

"It is important to keep a balance ... and to use the instruments only after careful consideration," said Joachim Pfeiffer, spokesman for economic affairs in Merkel's conservative bloc, adding: "Sealing ourselves off is not the answer, it leads to a spiral of protectionism."

So far, Germany has never blocked a stake purchase by a non-European company based on the shareholding threshold rules.

However, China's Yantai Taihai dropped an attempted purchase of Germany's Leifeld, a maker of tools for the nuclear power sector, after Berlin signalled in August that it would veto it.

In July, a German state bank took a stake in high-voltage grid operator 50Hertz to stop China's State Grid buying it after it found no alternative private investor in Europe.

A Chinese Foreign Ministry spokeswoman said the new rules mentioned no specific country and that while ties were good, Germany and China shared responsibility to protect free trade.

"We hope Germany can create a fair, open market access environment and stable institutional framework for foreign companies, including Chinese ones, investing in Germany," she said.

Among prominent investments in Germany are the 2016 purchase of German robotics maker Kuka by China's Midea and Geely's surprise purchase of almost 10 percent in Daimler in February.

European Union states agreed earlier this month to a far-reaching system to coordinate scrutiny of foreign investments in Europe, notably from China.