Made in china 2025, Acquisitions of companies in EU by Chinese companies and its implication
As reported by south china morning post “US President Donald Trump signaled that the Chinese government’s ‘Made In China 2025′ plan as a threat to US economic growth and a clear example of “unfair” trade practices. To an extent the threat mentioned by Donald Trump is justified where China is involved in multiple controversial acquisitions, halted by CFIUS – an inter-department government body tasked with vetting deals supposedly in an effort to protect US national security interests.
Made in china 2025 is a strategic directive given by the Chinese government in 2015 to move from labor intensive economy to technology intensive economy, while upgrading the country’s economic structure and growth model over the next decade.
As an aspiring nation for technological advancement, the state-capitalist country is massively pooling in investments in European nations, involving in various controversial Merger & Acquisitions. As the European Union doesn’t have an independent body like USA’s CFIUS they are not able to scrutinize on acquisitions and investments which might hamper their technological niches in the long run
Looking at the trends in past 4-5 years from the graph given below , it is seen that the acquisitions is mostly in the field of sophisticated tech companies, predominantly aircraft, robotics, electric cars and computer chips. Aircraft, Robotics, Electric cars and Computer chips. According to MERICS and rhodium Group , Germany , U.K and France (big-3) accounted for 59% of total investment in Europe and more than 670 Chinese entities invested in Europe out of which 100 were state backed( it is also claimed that most of the acquisitions were initiated by government entities by secretly funding private companies)
The thirst for becoming self sufficient economy and thus dominant economy is actually dangerous for the world. The country has realized its level of prosperity through its labor intensive industries and is afraid of middle income trap, and for that is ready to take any steps to shift its economy to a capital intensive economy, ranging from M&A to joint ventures. According to the MIC 2025, the domestic market share of Chinese suppliers for “basic core components and important basic materials” is intended to increase to 70 per cent by 2025, which means that the countries exporting its sophisticated raw materials would have to search for new markets or bow down to china’s terms and conditions. The post world war effort to get liberal and free trade would only make sense if the major economies inculcate and understand the theory of comparative advantage but china with its state-capitalist economy is defying the concept of comparative advantage as stated by ricardian model.
Steps taken by Beijing to achieve its goals.
1. China invests more in EU than in US for various reasons 1. Open market 2. Easy penetration, the strategy can be seen as “divide and conquer” strategy ,where if one country restricts entry , china could access bloc’s market through different country( it also implies that U.K would be a less attractive destination for china after brexit)
2. Beijing has rolled out large, low interest loans from state investment funds and development banks, aid for the purchase of foreign tech companies and research subsidies, many of which appear to be clear violation of WTO.
3. Putting a sort of indirect obligations on companies that to get market access (while investing in china), the company needs to share technology.
4. The top five countries in EU with their own complications of slow growth rate in EU are exploring ways to get capital inflows, China is with its deep pockets is ready to investment , acquire or merge. ( at times undermining the country’s national security ), though Germany, France and Italy are pushing for more stringent investment screening mechanism , Greece, Portugal and Cyprus are reluctant of such a move, arguing that it would hamper their countries’ ability to attract much-needed capital.
5. In the 16 +1 grouping (a partnership of 11 EU countries and 5 Balkan countries) concessional loans were cleared for projects which have a very less probability of economic return, leading to debt trap. On the contrary EU funds come in the form of grants, nor to compare them with private investment based on profit calculations.
The above image shows the sudden rise in Chinese FDI in Europe (and the made in china 2025 was also rolled out in 2015)
Some of the biggest acquisitions and stakes by Chinese private and state-run companies. (Hongkong based company’s acquisitions which have direct or indirect relation with Chinese enterprises are not included)
1. Tencent’s 6.7 billion Euro acquisition of Finnish gaming company super cell
2. Midea’s acquisition of KUKA (Robotics Company).
3. Chem China’s acquisition of syngenta (a company that produces agrochemicals and seeds.)
4. Beijing Enterprise’s purchase of Germany’s EEW Energy for Euro 1.4 billion, and Ctrip’s Euro 1.6 billion acquisition of British travel platform Sky scanner.
5. Chinese conglomerate CEFC acquired stakes in Czech airline, a brewery, two media groups and a top football team.
Similarly In October of last year, China’ sovereign wealth fund CIC invested one billion Euros in German property group BGP
Some of the controversial deals
1. Chinese funding in controversial nuclear project – The hinkley point nuclear plant
2. ChemChina bought Pirelli tyres for 7.1 billion Euros.
3. Aixtron acquisition by Fujian grand chip investment fund was halted by US authorities as Aixtron was a key supplier of certain gallium nitride technologies, which were used by NATO defense contractors.
The Bloomberg report states that Chinese companies have expressed interest in a number of European deals that haven’t been officially announced yet, including nuclear reactors in Romania and Bulgaria, buying a Croatian container terminal and building a Swedish Port, taking over Czech carmaker Skoda Transportation AS and an Ireland based oil and gas producer, investing in French Ski-lift firm Compagnie des Alpes
Reactions by Europe to Chinese investments
Though the Chinese investors with rich checkbooks are always welcomed by European countries, as they are a source of fresh capital to ailing companies in Europe, at the same time Chinese investments are facing scrutiny on the fear of long term impacts of technological losses associated with it. Recently in Europe and US there has been a lot of debate to about revision of laws and making a body to scrutinize investments and acquisition of its technological niche. There were stoking concerns about various acquisitions like Kuka- a German robotics company, acquisition of syngenta by Chem China. The biggest blockade was at the time of acquisition of Aixtron, where government of Germany and US stopped it, raising security concerns.
On sept 2017, the European commission proposed that EU should be given more power for scrutinizing FDIs in EU countries though it was difficult to come into conclusion at that time that an EU body could be given the powers to overrule the decision of the member countries , which have their own national protocol to accept or reject foreign investment but the thinking in that direction is getting stronger.
However EU can follow three types of threats
1. The chances of foreign surveillance or destructive malpractices
2. Leakage abroad of sensitive technologies
3. The ability of foreign players to manipulate or disturb the supply chain of important supplies (which can happen in the case of syngenta).
It is clearly visible that China with its integrated state led economy is pushing its goals of hegemonic sphere of trade, communication, transportation, and security links. And if countries are saddled with onerous levels of technological loss, debts, and economic sovereignty and concentration of supply chain in China, their financial woes exclusively aid China’s neocolonial strategy and the countries which have not under the shadow of China’s neocolonial strategies should take whatever steps they can to avoid it.