Chinese Companies Shop for Germany’s “Hidden Champions”

The recent developments in the acquisition case of Aixtron – a German manufacturer of deposition systems for the semiconductor industry – have once again drawn public attention to China’s investment abroad: The German Federal Ministry for Economic Affairs and Energy has withdrawn its clearance certificate issued at the beginning of September this year and will reopen its review of the case. The reasons include security aspects, since the involvement of the Chinese government is suspected.

As was mentioned in our earlier blogpost on this topic, it is no secret that the Chinese Central Government actively supports outward foreign direct investment (FDI) in the guise of a Going Global Strategy, which was introduced in 2000. Political and business interests therefore often go hand in hand, when it comes to Chinese companies investing abroad. They seek access to markets and technology and want to upgrade their product portfolio in order to become more competitive internationally and move upwards in global value chains. In regards to China’s overall economic structure, the latter is the explicit goal of the Chinese government, too.

China still mainly invests in Asia, though other destinations are on the rise

The lion’s share of China’s outward FDI flows still go to Asia (74.4 percent). But FDI to developed countries in North America and the European Union, where Chinese companies find the technology they need for their value-chain upgrade, has been rising quickly. Both regions together accounted for about 11 percent of Chinese outward FDI in 2015 (figure 1), up from in 1.5 Percent in 2005. Moreover, it is assumed that due to offshoring (e.g. via Hongkong or the Caiman Islands) and round tripping (Chinese outward FDI in Hongkong being reinvested on the Chinese mainland) the share of developed countries in China’s outward FDI flows is much higher than indicated in national statistics. The Chinese Ministry of Commerce (MOFCOM) has pointed out that in 2015 about 60 Percent of transnational M&A projects by Chinese companies were conducted via reinvestments of their subsidiaries set-up in these offshore centers.[1]

Chinese investors are greeted with mixed feelings in Germany

According to MOFCOM (2016: 27), Germany remained the third-largest recipient country of Chinese outward FDI flows to the European Union in 2015. With its high density of technological world market leaders (so-called “hidden champions”), Germany is a highly attractive destination for Chinese companies’ M&A. However, as seen by recent cases of Chinese acquisitions of German companies, such as above mentioned Aixtron or robot manufacturer Kuka , Chinese investors in Germany are greeted with mixed feelings. Insecurity prevails in regard to the question whether opportunities outweigh challenges or vice-versa. Germany-based Deutsche Welle therefore invited our FDI expert, Cora Jungbluth, to speak about why Chinese companies invest in Germany and which issues may arise from these investments. Please click on the video to understand more.

If you are interested in this topic, please note that our newest study on Chinese direct investment in Germany will be published shortly. Stay in touch to get all the results!

[1] MOFCOM. 2015 Statistical Bulletin of China’s Outward Foreign Direct Investment. Beijing 2016: 13.