If it isn’t Muslim migrants moving into Spain and Italy and even Sweden (Sweden!), or the Russians supposedly propping up Brexit supporters and far right political opponents to the local establishment, then it’s Chinese multi-nationals. There are bogeymen all over Western Europe. And the latest one has anti-trust authorities stating emphatically that they will block any nationally headquartered firm from joining forces with China companies if it doesn’t past muster with them.
The European Union is preparing legislation that will protect European technology companies from hostile takeovers by foreign companies or states, European Commissioner for Competition, Margrethe Vestager, said over the weekend. The E.U. anti-trust body is reacting to calls coming primarily from Germany, Italy and France, saying that China money is buying them out. If it’s not Muslims in the streets or Russian spy masters manipulating election news, it’s Chinese guys in the C-suites of once famed European businesses. The same anti-trust authority bemoaning China’s corporate spending spree recently approved a deal for Swiss agribusiness firm Syngenta to be bought out by ChemChina.
Vestager made it clear during an economic forum in Italy this weekend that she “cannot ignore” China’s private and state-run enterprises European spending spree, though she singled out technology companies. The Commission is reportedly looking to create guidelines for what China can and cannot buy at some point in the fall.
China increased direct investment into Europe by 90% in 2016, according to Baker McKenzie, an international corporate law firm. Germany saw inbound deals from China rise nearly tenfold, from $1.3 billion in 2015 to $12.1 billion last year. The U.K. brought in $9 billion from the Chinese, much of it into real estate, an increase of 130% from the previous year.
Finland, Switzerland and Ireland were also major recipients of Chinese FDI in 2016, attracting $7.6 billion, $4.8 billion and $2.9 billion, respectively. Switzerland would have been the largest recipient if not for pending regulatory approval of the massive, $43 billion Syngenta sale.
Last month, the European Commission received a letter from representatives of Italy, Germany and France, complaining about Chinese inroads into their markets. They were asking for Commission authorities to “pay attention” to a number of attempts by foreign investors, including state ones, to buy European companies developing “key technologies”.
According to European media, they asked if the move was politically motivated. In at least one case, a key German official said China was trying to “divide” Europe. Last year, the Chinese company Midea bought German robotics firm Kuka for around $5 billion. Once again, the European Commission approved the deal. China foe and German Minister of Economy, Sigmar Gabriel, said Germany failed to conduct proper due diligence on that deal and now says he intends to initiate a “public discussion” about a merger he thinks gives China access to strategically important German robotic technologies.
This newfound disdain for Chinese ‘capitalists’, if you will, goes all the way to the top.
European Commission president, Jean-Claude Juncker, said he intends to increase the powers of the region’s anti-trust watchdog when it comes to mergers and acquisitions. Stricter measures, or rhetoric about stricter measures to come, are expected to be announced this month, the Financial Times reports. Juncker wants tighter control over purchases of European companies targeted by foreign firms, in general. But, China and new technologies were at the forefront of the issue.
Some 30 deals were canceled last year worth a total of $74 billion, according to Baker McKenzie. The majority of the M&A is coming from private Chinese companies, not state owned enterprises. Most of the companies are in the information and communications technology space ($13.7 billion in deals last year), transportation, utilities and infrastructure ($12.2 billion) and industrial machinery ($6.2 billion). Those three sectors accounted for almost 70% of total Chinese investment. Baker McKenzie said 2016 was a record year for China IT investment in the E.U., outstripping levels in the U.S.
“Well over half of all Chinese investment in Europe…since 2000 took place in the last three years, marking the continued influence of globalization and the rapid development of China’s economy,” Michael F. DeFranco, global chair of M&A at Baker McKenzie. More deals are in the works. But the European Commission is busying the detour signs. “The deal pipeline is strong, but political and regulatory uncertainties are weighing on the outlook,” DeFranco says.