Germany Steps Up Efforts to Rebuff China's Swoop for Assets

(Bloomberg) -- Germany moved to rebuff two Chinese purchases, swooping in to nab a stake in one of country’s largest power-grid operators and rejecting the acquisition of another company.

State-owned investment bank KfW will temporarily acquire a 20 percent holding in 50Hertz Transmission GmbH, thwarting an attempt by a Chinese firm. The country is also set to block the acquisition of an engineering company by investors from the world’s second-largest economy in what would be the first outright ban by Chancellor Angela Merkel’s Cabinet, according to a government official.

Germany is joining the U.S. and Canada in taking a tougher line on China. Merkel’s government has been at the forefront of moves to bring in European Union-wide screening of outside investments after being the target of Chinese acquisitions in recent years. Policy makers are acting out of concern that China is seeking access to sensitive technology or wants to boost its global influence by acquiring key infrastructure including ports and electricity networks.

In May, Canada blocked a proposed takeover of construction firm Aecon Group Inc. by a unit of China Communications Construction Co., while the U.S. House of Representatives this week voted to expand reviews of foreign investment in sensitive industries. Chinese investment in U.S. technology companies probably would become more difficult and time-consuming under the legislation, with an increased risk of being blocked by a U.S. government panel that examines national security risks.

Germany’s KfW will take the 50Hertz stake -- valued at about 770 million euros ($895 million) -- from Belgium’s Elia System Operator SA/NV, the Economy Ministry said on Friday. State Grid Corp. of China was in talks to buy the holding before Elia agreed to acquire it from an Australian investor. The Belgian company will retain the remaining 80 percent of 50Hertz.

“On national security grounds, the federal government has a major interest in protecting critical energy infrastructure,” the ministry said, without mentioning China directly. “The citizens and the business community expect a reliable energy supply.”

Attracted by steady cash flows and technical know-how, Chinese electricity companies have been snapping up grid operators around the world. 50Hertz’s transmission grid supplies around 18 million people with electricity across Germany.

Further Tightening

The German government last year tightened rules for foreign investors after high profile acquisitions by Chinese corporations prompted public backlash. Other notable Chinese business forays in Germany have been the 2016 purchase of robot maker Kuka AG by Midea Group Co. and a takeover of semiconductor-equipment maker Aixtron SE that failed due to U.S. opposition.

This week, the Economy Ministry said it would look at further tightening foreign investment rules, while Merkel’s top counterintelligence official told reporters that Chinese acquisitions of high-tech companies in Germany represent a potential national-security threat.

Merkel’s cabinet will implement this tougher approach next week when it’s due to decide on a proposal from the Economy Ministry to veto the sale of Leifeld Metal Spinning to Chinese investors, said a government official, who asked not to be identified because a final decision has not yet been made. Generally, the cabinet follows the lead ministry’s suggestion in such cases. Leifeld specializes in high-strength materials for aviation, space and nuclear technology.

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