Daily Management Review

Western countries switch on protectionist policies in relation to China


Companies from China are facing new challenges when buying assets in the US and Europe. The government of the Federal Republic of Germany amended the law on foreign investment aimed at protecting all strategically important sectors of the economy.

After four decades of almost undisturbed contemplation of how Chinese business penetrates the Western economy, Washington and Brussels suddenly realized and decided to end this at once. The huge public investment funds of the PRC have already felt a sharp change in the investment climate both in the Old and in the New World.

The United States, Britain and Germany made it clear that they intend to stop penetration of Chinese business into strategically important sectors of the economy. 

"We are worried about the fate of the planned investments in the US due to the aggravation of trade disagreements between the United States and the PRC," the Financial Times (FT) quoted Tony Dong, the top manager of the China Structural Reform Fund (CSRF).

According to Dong, his fund is currently negotiating about 40 deals in the US and the EU and hopes that 10-12 of them will end successfully. However, he is afraid that the growing protectionism in the New and Old World will negatively affect his work.

He also notes that Europe remains a more important trading partner of China than the US. Therefore, CSRF will pay more attention to investments in the European Union.

According to a study of Rhodium Group consulting company, in the first half of 2018 Chinese investments in the economy of North America fell to the lowest level in the last seven years. The total investment of Chinese firms and funds in the US and Canada collapsed to $ 2 billion, which is 92% lower than in the first half of 2017. As for the European economy, over the same period, it received six times as much investment from China ($ 12 billion). In addition, the volume of mergers and acquisitions in the EU in January-June 2018 amounted to $ 20 billion, and in North America – to only 2.5 billion.

The vector of Chinese business activities abroad is gradually changing from America to Europe. This can be explained by the sharp tightening of rules for Chinese companies in the United States. Europe, too, tightened the M&A rules for Chinese companies, but these restrictions are much inferior to the American ones.

In July, the UK published a document. Its120 pages describe expansion of powers of Her Majesty's government in business relations with Chinese companies. China mentioned is in the document only once, but no one hides the country against which these tightening are directed.

Last week, Berlin ordered the state bank KFW to buy a 20% stake in the energy operator 50 Hertz, to prevent the purchase of it by Chinese investors. This or next week, analysts also expect an official ban on an attempt by Chinese investors to buy Leifeld Metal Spinning, a small company specializing in the production of materials and equipment for the aerospace and nuclear industries. Such unprecedented intervention in affairs of business shows the extent of protectionism in the country. 

The government of the Federal Republic of Germany amended the law on foreign investment aimed at protecting all strategically important sectors of the economy. Ministries can block any transaction that can weaken public order or security if at least 25% of the shares in German companies are put up for sale.

As for the United States, it is expected that Donald Trump will soon sign a law on expanding the powers of the Committee on Foreign Investment (CFI) under the pretext of protecting the country's national security.

"We simply cannot allow China to reduce our advantage in national security, bypassing our laws and taking advantage of opportunities for obtaining investments for very unclear reasons," said Sen. John Cornyn, one of the authors of the new law. 

source: ft.com