Germany, France and Italy are pressing Brussels to play a bigger role in protecting some of Europe’s most innovative companies from what they see as politically motivated Chinese acquisitions.
In a policy paper obtained by POLITICO, the three countries propose that the European Commission should determine whether acquisitions are being steered by a foreign country’s political objectives rather than market forces. Such a decision from Brussels would then offer EU countries greater leverage in rejecting advances from Chinese suitors.
Chinese moves to buy some of the crown jewels of Europe’s tech industry — such as German robot maker Kuka last year — have turned into a hot political issue. Europeans increasingly fear that the Middle Kingdom’s wave of acquisitions is not driven by the market but by Beijing’s hunger to acquire technology, which is a political goal mapped out in its “Made in China 2025” program.
As POLITICO reported last month, Brussels is already working on new rules to allow EU countries to rein in Chinese takeovers. Commission President Jean-Claude Juncker is expected to announce plans on how to manage foreign investments in his State of the European Union speech on September 13 — but it remains unclear how much power the new mechanism will grant the Commission to act as policeman.
The policy paper gives an indication of how a vetting process will work if the eurozone’s most powerful trio get their way, as they often do.
According to their proposal, the Commission should take on a new role in judging whether a foreign takeover is subsidized, or has a “degree of state influence.”
The paper, which was sent to Juncker earlier this month, said member countries should then have the right to “prohibit” takeovers in strategic sectors, which the paper says “still need to be more clearly defined.”
While the ultimate power to block an acquisition would remain with national governments, the rules grant the EU new powers to judge whether an investment is in line with the free market.
Judging a fair price
“Upon request by the member state, the Commission would assess the market compatibility of the operation,” the proposal says. This includes “the extent to which the investment decision of the non-EU investor has directly or indirectly been influenced by government regulations” as well as “the extent to which the actual acquisition is funded or co-financed by government-controlled or government-influenced agencies, and the extent to which the investor’s bid for the target company clearly exceeds the market price.”
That final point opens up difficult new territory for the Commission as it would have to value a company to determine a fair market price for a takeover. Analysts note that this is a contentious and inexact science as companies regularly pay more than the stock valuation for acquisitions they think will grant a strategic advantage.
The proposal also wants the Commission to prepare a biannual report on the scale of investment across Europe. In a clear reference to China, the trio of EU countries also said that Brussels should study the “subsidies put in place by the main states from which foreign investors in the EU originate.”
The scope of the proposal goes beyond blocking state-funded takeovers and also seeks to enforce a broader principle of “reciprocity.”
This means countries that currently restrict investments by EU companies should be punished for doing so by being treated in the same way. A country should be allowed to “examine an acquisition and, where necessary, make it subject to conditions or prohibit it, if the investment conditions for European investors in the investor’s country of origin discriminate against European investors,” the proposal says.
“We rely on the European Commission’s expertise as far as the analysis of the investment and foreign investment conditions is concerned. The final decision should be left to member states,” the proposal reads.
China has said that it is “concerned” about the EU’s accelerating crackdown on takeovers.
German Economy Minister Brigitte Zypries on Thursday also sent a letter to Juncker, in which she asked him to consider the joint proposal in his drafts for new EU-wide rules.
“I am grateful that you have, in the meantime, personally looked at this issue, and that the offices of the Commission have already discussed concrete questions and ideas with us,” Zypries wrote.
“On the one hand, the inflow of capital is a positive development, as it shows the attractiveness of Europe,” Zypries wrote. “On the other hand, one has to note that these investments are one-sidedly concentrated on hi-tech companies and companies that provide key technologies — which shows obvious connections to the ‘China 2025’ strategy decided by the Chinese government.”
This article is part of an occasional series: China looks West.