German-Chinese M&A Transactions in the SME Sector: General Conditions, Success Factors, Implementation 3658405368, 9783658405366

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Daniel Graewe   Editor

German-Chinese M&A Transactions in the SME Sector General Conditions, Success Factors, Implementation

German-Chinese M&A Transactions in the SME Sector

Daniel Graewe Editor

German-Chinese M&A Transactions in the SME Sector General Conditions, Success Factors, Implementation

Editor Daniel Graewe Hamburg, Germany

ISBN 978-3-658-40536-6 ISBN 978-3-658-40537-3  (eBook) https://doi.org/10.1007/978-3-658-40537-3 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Responsible Editor: Vivien Bender This Springer imprint is published by the registered company Springer Fachmedien Wiesbaden GmbH, part of Springer Nature. The registered company address is: Abraham-Lincoln-Str. 46, 65189 Wiesbaden, Germany

Foreword

China has been Germany’s most important trading partner since the middle of the 2010s. In 2019, German trade with the People’s Republic of China reached a total of 206 billion EUR, fifteen billion euros more than with the Netherlands and the USA. China plays a dominant role in the German economy, not only as a market for sales, but also as a supplier of intermediate products and consumer goods. But actually, a look at trade balances provides a perspective of the past. In the age of globalization and digitalization, service and data economy, other interconnections are more important than trade in goods. These include cross-border corporate participation, takeovers and mergers. Mergers & Acquisitions are the financial connections beyond the production of goods, which at the beginning of the twenty-first century connect economies more closely than ever before. However, M&A are much more complex transactions than the purchase and sale of goods. Here the Mittelstand quickly enters unknown territory—especially when it comes to complex activities with actors from completely different legal cultures, such as Chinese takeovers in Germany. Accordingly, there is a great need for knowledge in economic practice. This is exactly where Professor Daniel Graewe comes in with his carefully edited guide “Deutsch-Chinesische M&A Transaktionen im Mittelstand—Rahmenbedingungen, Erfolgsfaktoren, Umsetzung”. In easily understandable language and well illustrated with concrete case studies, the following nine chapters explain the success factors (in the different phases of the M&A process) as well as possible pitfalls to be considered in German-Chinese corporate participation. The range of topics covered goes far beyond the legal or economic. In particular, the cultural analysis is given a lot of space. And in addition to the activities of Chinese investors in Germany, the opportunities but also the difficulties of the German Mittelstand in expanding into the People’s Republic of China are competently analyzed. With the guide for successful cooperation with Chinese business partners in M&A business, Daniel Graewe delivers a well-readable, clearly structured and cleverly

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formulated handbook, which will become compulsory reading for the German Mittelstand when it wants to make successful businesses beyond commodity trade with and in China. Thomas Straubhaar

Preface

Germany and China, two global economic heavyweights, are as interdependent as they are different, despite all the historical and current challenges in their relations. This ambivalence is particularly evident in Chinese takeovers in Germany. Here, different legal understandings, governance concepts and cultural behaviours meet each other. How difficult it is to manage an M&A transaction under these complex conditions is shown in particular by the high proportion of failed takeover attempts; state interventions, media condemnations, language and cultural barriers add to the normal challenges of financing, contract negotiation and integration. The problem is further exacerbated in the SME sector, which has only little experience and structure in the field of company takeovers, let alone internationally. In these problem areas, the authors of this work are trying to gain practical experience in the context of various master’s projects at the NORDAKADEMIE University of Applied Sciences. This book is one of several works that have emerged within the framework of the research project “Germany and China: Investment Relationships under Complex Conditions” at the Institute for Applied Economic Law at the NORDAKADEMIE University of Applied Sciences. The project was significantly funded by the non-profit NORDAKADEMIE Foundation, without whose commitment the project could not have been carried out and to which we are particularly grateful. We are also indebted to Johanna Tensi, the responsible scientific project manager. Her constant support and her eye for detail have made this work possible. Hamburg, in March 2020

The editor Daniel Graewe

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Contents

1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Daniel Graewe 2 Macroeconomic Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Hicham El Bakbachi, Thomas Knie and Sebastian Oliver Ziesel 3 Target Companies as Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Marion Schmidt and Thomas Knie 4 Regulatory Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Matthias J. Annweiler 5 Cultural Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Anne Grohs and Mona (Stechmann) Rösing 6 Process of Corporate Takeovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Florian Eutert, Kevin Royla, Michael Rüller and Stefan Staegemann 7 German-Chinese Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Florian Eutert, Philipp Lührs and Finn Vorburg 8 Case Studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Ann-Kristin Thoms 9 Guide for a Successful Cooperation with a Chinese Business Partner in M&A Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 Philipp Waldenmeier and Batur Yar References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

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Introduction Daniel Graewe

In April 2013, the German federal government presented the strategy “Industry 4.0”. This has the goal of equipping the German industry for the future and is dedicated to a number of global development issues. Two years later, the government of the People’s Republic of China presented the strategic plan Made in China 2025. The focus of this strategy is above all the further development of the domestic industry in order to make it internationally independent and competitive. Although these two strategies have different names and are not identical in content, they are an indicator of the ambitious claim of both countries to take on a global leading role with a focus on further development of the manufacturing industry and strengthening of their own economy (Shubin & Zhi, 2016, p. 92). Of particular interest from a German point of view is the investment strategy of Chinese companies in Europe and above all in Germany. China has invested approximately US$385 billion (just under 20% of the total investment sum) in European countries in the last fifteen years. This makes Europe the world leader among regions (American Enterprise Institute and The Heritage Foundation, 2019c). Within Europe, Germany is currently the country into which the most Chinese capital is flowing. This explains why, of the US$46.55 billion invested by China in Europe in 2018, US$12.75 billion, or 27%, flowed into the Federal Republic (American Enterprise Institute and The Heritage Foundation, 2019b). In view of this development and the fact that the flow of capital mainly affects the technology sector (American Enterprise Institute and The Heritage Foundation, 2019a), the concern about the sale of know-how in important key industries of the German economy stands in contrast to the openness to invest in local companies.

D. Graewe (*)  Hamburg, Germany e-mail: [email protected] © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 D. Graewe (ed.), German-Chinese M&A Transactions in the SME Sector, https://doi.org/10.1007/978-3-658-40537-3_1

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References American Enterprise Institute & The Heritage Foundation. (Statista, Hrsg.). (2019a). Höhe der Direktinvestitionen (FDI) von China in Europa aufgeschlüsselt nach Branchenanteilen im Jahr 2018 (in Milliarden US-Dollar), Statista GmbH. https://de.statista.com/statistik/daten/ studie/888652/umfrage/chinesische-direktinvestitionen-in-europa-nach-branchen-in-2018/. Accessed 14. Nov. 2019. American Enterprise Institute & The Heritage Foundation. (Statista, Hrsg.). (2019b). Höhe der Direktinvestitionen (FDI) von China in Europa aufgeschlüsselt nach Staaten im Jahr 2018 (in Milliarden US-Dollar), Statista GmbH. https://de.statista.com/statistik/daten/studie/888124/ umfrage/chinesische-direktinvestitionen-in-europa-nach-staaten-in-2018/. Accessed 14. Nov. 2019. American Enterprise Institute & The Heritage Foundation. (Statista, Hrsg.). (2019c). Höhe der Direktinvestitionen (FDI) von China weltweit nach Regionen von Januar 2005 bis Juni 2019** (in Milliarden US-Dollar), Statista GmbH. https://de.statista.com/statistik/daten/studie/459264/ umfrage/direktinvestitionen-fdi-von-china-weltweit-nach-regionen/. Accessed 14. Nov. 2019. Shubin, T., & Zhi, P. (2016). „Made in China 2025“ und „Industrie 4.0“—Gemeinsam in Bewegung. In U. Sendler (Hrsg.), Industrie 4.0 grenzenlos (Xpert.press, pp. 91–118). Springer Vieweg.

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Macroeconomic Background Hicham El Bakbachi, Thomas Knie and Sebastian Oliver Ziesel

2.1 Internationalization of the Chinese Economy as Part of the Political Realignment In addition to the Xinhai Revolution in 1911, which led to the abdication of the last Chinese emperor, and the Communist Revolution in 1949, the meeting of the Third Plenum of the Eleventh Central Committee of the Communist Party in 1978 is referred to as the third turning point in Chinese history of the twentieth century (Wang & Wong, 1999, p. 1). At this meeting, the change from Mao’s class struggle to economic opening and market-based reform was officially decided. Deng Xiaoping (Franz, 2008) was considered the initiator of this policy. With his opening policy towards the West, he pursued the goal of modernizing China weakened by planned economy and class struggle and promoting orderly economic development (Spross, 2018). After the Cultural Revolution of 1966– 1976, the term “sick man of the East” had become a common term for China (Franz, 2008). The economic reform began with the decollectivization of agriculture in rural areas in order to create a stable basis for the upcoming industrial reforms (Wang & Wong, 1999, p. 2). The farmers previously worked in forced communities under the leadership of local party cadres. Fixed cultivation areas and fixed prices provided little incentive to H. E. Bakbachi  Ratingen, Germany T. Knie  Hamburg, Germany S. O. Ziesel (*)  Laupheim, Germany © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 D. Graewe (ed.), German-Chinese M&A Transactions in the SME Sector, https://doi.org/10.1007/978-3-658-40537-3_2

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work more productively and efficiently. Only with the transfer of production responsibility to the producer and the possibility of selling produced goods on free markets at non-fixed prices above the minimum production specification led to an incentive for performance and to an improvement of the standard of living (Seitz, 2006, pp. 236–237). The same was then done for the village and community enterprises. Production specifications were mostly abolished and profits could be largely appropriated (Seitz, 2006, pp. 242–244). The reform process was characterized by state decentralization. The reforms were to be tested first at the local level before they were introduced nationally in the event of success (Gründer, 2010, p. 25). In addition to the introduction of market-based components, China’s economic liberalization was also an important part of Deng Xiaoping’s policy. China should be integrated into the world economy, as rapid and successful modernization would only be possible with export revenues, foreign capital and technologies (Seitz, 2006, p. 257). In 1979, the provinces of Guangdong and Fujian were allowed to engage in first trade activities with—at that time still belonging to the British Empire—Hong Kong. In order to limit the risks of economic liberalization, four so-called special economic zones were established as test areas in these two provinces. Over time, more and more special economic zones were added with the goal of promoting exports. Within these geographically delimited areas, different economic and tax legislation applies than in the rest of the country. Companies within these areas enjoyed some advantages. For example, intermediate products could be imported duty-free and products manufactured for export could be re-exported tax-free (Cho, 2005, p. 139). The economic reform in the following years was characterized by a gradual introduction of market-based components in order to involve opponents of the reform process in particular. This led to the fact that reforms were only introduced and then partly corrected or withdrawn again. A mixture of market-based and socialist elements emerged, which complemented, overlapped and also replaced each other again and again (Gründer, 2010, p. 25). In this respect, one can also speak of a socialist market economy (Sennewald, o. D.), the establishment of which was decided as an economic policy goal at the 14th Party Congress of the Communist Party in 1992 (Fig. 2.1). With China’s accession to the World Trade Organization (WTO) in 2001 and the resulting theoretically complete economic liberalization, the People’s Republic continued its economic reform process. However, the increasing integration into the world

Death of Mao

Opening under Deng Xiaoping

Decollectivisation and decentralisation

External economic opening in the form of special economic zones

Socialist market economy

Fig. 2.1   Internationalization of the Chinese economy as a result of the political realignment. (Own representation)

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economy led to a stronger dependence on developments outside China, which was particularly visible in the financial crisis from 2009 onwards. China’s most important markets were now affected by an economic crisis, which led to a sharp decline in the Chinese export industry. The Chinese government launched a multi-billion dollar investment program to counteract the decline (Kerwer & Röming, 2018, p. 75). This investment program is still in place today, but with a different target. Now the rapid economic development is to be extended to the whole country, the living conditions of the Chinese are to be improved and the wealth of China is to be further increased. But in order for such economic development to be not only possible, but also sustainable, China needed both a stable supply of raw materials and a worldwide infrastructure in the global import and export markets (Dorloff, 2018). In 2013, therefore, the Chinese head of state Xi Jinping called for the infrastructure plan of the “New Silk Road”. In addition, China has set another strategic priority—Made in China 2025. China no longer wants to serve as the “workshop of the world”, which is primarily associated with low wages and environmental pollution. It wants to catch up with the large industrial nations of the West—if not even overtake them. For this purpose, the Chinese government has selected ten industries in which it wants to become the technology leader. Automation, smart factory, artificial intelligence and “Industry 4.0” are the central keywords to eliminate the lack of productivity in Chinese companies, reduce environmental destruction and establish a new educated middle class (Lee, 2019).

2.1.1 New Silk Road In 2013, Chinese state and party leader Xi Jinping first presented his plans for a “New Silk Road” to bring the former powerful world and empire back onto the world stage. $ 900 billion is to be invested in a new trade network between Africa, Europe and Asia (Dorloff, 2018). The main goal of the Chinese government is to significantly accelerate and simplify the movement of goods to the sales and raw materials markets, to ensure the raw material supply of the Chinese economy, and to increase the political and military influence in the world (Dorloff, 2018). In addition to the land route along the historical trade routes, a maritime “Silk Road” is to be built from the Chinese east coast via the Indian Ocean to Africa with the final destination Europe, as shown in Fig. 2.2. However, many states along the “New Silk Road” are not able to make such large investments in infrastructure. China therefore offers these neighboring countries corresponding loans—which, however, at the same time represents a high risk of indebtedness for these countries and is likely to further increase Chinese influence (Hurley et al., 2018).

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Fig. 2.2   Planned land and water routes of the “New Silk Road” project. (Eder & Scherer, 2019)

2.1.2 Made in China 2025 In 2015, the incumbent Prime Minister Li Keqiang presented another strategic initiative—Made in China 2025. The template for this was the German government’s strategic concept of “Industry 4.0.” This program is designed to make the German industry fit for the production of the future. A high individualization of the products goes hand in hand with a strong flexibilization of the production. The customers are closely involved in the value creation and the processes of the manufacturers. Through intelligent monitoring and decision-making processes, entire value creation processes are to be controlled and optimized in real time (Federal Ministry of Education and Research, o. D.). China is pursuing similar goals with its program Made in China 2025. However, the focus is slightly different here. The main components of a product developed and produced in China are to be increased to 40% by 2020 and to 70% by 2025. In other words, Made in China 2025 is a roadmap for the Chinese economy to promote indigenous developments in certain key industries. It is intended to strengthen China’s competence in the high-tech industry and enable higher value creation for the country’s produced goods (Goldkorn et al., 2018). In Fig. 2.3 the ten key technologies are shown, which China has identified and which are to be promoted and developed. China no longer wants to produce mass products with cheap labor and thereby run the risk of falling into the “Middle Income-Trap” (Goldkorn et al., 2018): Many countries, including many Asian countries, have not been able to transition from a growth driven by cheap labor to a growth due to higher productivity. With rising wages, manufacturers are often not able to compete with cheaper producers on export markets over time, for example in Africa. At the same time, they cannot provide the quality that is possible for the so-called “first world” countries of the industrial nations (o. V., 2011).

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Fig. 2.3   Ten key technologies of the program Made in China 2025. (Cyrill, 2018)

Expansion of wealth with the risk of the “middle income trap”

Silk Road Project: Ensuring the necessary infrastructure in import and export markets

Made in China 2025: Technology & Innovation Leadership

Knowledge acquisition via M&A in technology states

Fig. 2.4   Backgrounds of the Chinese M&A strategy. (Own representation)

As with the German concept of “Industry 4.0”, production in Chinese industry is to take place in the future in an automated and digitalized manner in order to meet domestic demand on the one hand and increase competitiveness on international markets on the other. In order to achieve this goal, the Chinese government has put in place a number of measures, including the so-called “Supply-Side Structural Reform”. This is designed to promote environmentally friendly high-tech production (Lee, 2019) (Fig. 2.4). In parallel to these political measures, Chinese companies are also significantly increasing their foreign direct investments, especially in the USA and Europe, in order to minimize the technology gap. Chinese direct investments in the years 2015 to 2017

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Fig. 2.5   Chinese direct investments in the EU from 2010-2018. (merics, 2019, o. S.)

are therefore well above the investment sums of previous years, which is mainly due to the Made in China 2025 program. As can be seen in Fig. 2.5, direct investments reached the level of 2015 again in 2018, which is due to higher capital controls and a shortage of liquidity in China (merics, 2019). In addition, however, additional legal regulations regarding the review of Chinese foreign investments for security risks in the different recipient countries played an important role. In some cases, this led to delays or even the prevention of investments (merics, 2019).

2.2 Economic Factors for Chinese Investments in Germany Most of the time, Chinese investors pursuing investments in German companies are mainly pursuing the following three goals: First, they want to gain access to the German and, indirectly, to the European market (interview with Cora Jungbluth, 18.10.2016, 0:28). Furthermore, since the Brexit decision in June 2016, a shift of further investments from Great Britain to Germany is likely due to the need for access to the European internal market (Welfens et al., 2017, p. 5). Second, Chinese investors want to be able to offer Made in Germany products in order to gain a kind of quality label in this way (interview with Cora Jungbluth, 18.10.2016, 0:39). Third, and this is the main intention, access to key technologies helps to accelerate internal research and development processes (interview with Cora Jungbluth, 18.10.2016, 0:51).

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In this context, China’s policy plays a supportive role: In order to force the political goal of world market leadership in the areas of medical technology, robotics and energy-saving vehicles by 2049, the Chinese government is supporting, for example, foreign direct investments associated with know-how transfer with the help of state funds (Dreger et al., 2017, p. 265). This is problematic in so far as, on the one hand, the more or less involuntary technology transfer reduces the competitive advantage generated here, which in turn generates prosperity (Matthes, 2017, p. 4). On the other hand, the indirect interference of the Chinese government is perceived as competitive distortion (Matthes, 2017, p. 4). However, Chinese investments in German companies are not only seen in a negative light: One advantage of the investments lies in the increase in the capital stock, which in turn strengthens the growth potential, inter alia because German companies can spend more resources on research and development as a result of inflows of investment funds (Matthes, 2017, pp. 4–5). A spill-over effect on the suppliers of the target company is also conceivable (Matthes, 2017, p. 5). Another advantage is the improved access to the Chinese domestic market, which can lead to an increase in exports (Welfens, 2017, p. 11).

2.2.1 Market Entry Forms Market entry forms can be divided between Mergers & Acquisitions (M&As) and new formations (Greenfield Investments) (Dreger et al., 2017, p. 267). If a market is characterized by established companies and a high level of competition, the M&A channel is preferred (Dreger et al., 2017, p. 267). In the period from 2000 to 2014, about 82% of Chinese direct investments in Germany were M&As (Hanemann & Huotari, 2015, p. 16). However, a high information asymmetry between the investor and the target company promotes Greenfield Investments as a market entry form because of high monitoring costs (Dreger et al., 2017, p. 267). Greenfield Investments are usually associated with larger investment volumes (Dreger et al., 2017, p. 267).

2.2.2 Germany as a Focus of Chinese Investments The majority of Chinese direct investments, with around 70% in 2017, flow to Europe after Great Britain, France and Germany. In 2018, however, it was only 45%, which is due to the new legislation in London, Paris and Berlin to strengthen investment reviews. At the same time, investments increased, especially in the northern states of Europe. The distribution is shown in Fig. 2.6. Germany recorded an increase of 400 million from 2017 to a total of 2.1 billion EUR in 2018. Reasons for the interest in German companies are in particular the high technological development, the educational level and the

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Fig. 2.6   Chinese direct investments in Europe. (Hanemann & Huotari, 2018, p. 31)

quality of German workers, the central location within the EU, a demand-driven market, legal certainty as well as the radiance of the label Made in Germany (Sohm et al., 2009). As Fig. 2.7 shows, the majority of Chinese direct investment in Europe has flowed into the transport sector since 2008—in particular, into infrastructure projects along the “New Silk Road”. The “Made in China 2025” strategy is also reflected in the investmentintensive industries.

2.2.2.1 Perspective and Reaction of German Politics However, the German government is increasingly concerned about Chinese investment, especially in sensitive technology areas and critical infrastructure. The takeover of the German robot manufacturer KUKA and the Chinese entry into Daimler led to controversial discussions—also in public. In response, the German government tightened the Foreign Trade and Payments Ordinance (AWV). There is now a reporting requirement for company acquisitions in certain economic sectors in critical areas, such as water supply. In addition, the list of economic sectors in which an acquisition requires approval has been extended to include various key technologies (see 2019).

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Amount of foreign direct investment (FDI) from China in Europe by industry share from 2005 to 2018 (in billions of U.S. dollars) Transport Energy Agriculture Finance Real Estate Technology Entertainment Logistics Tourism Other Chemistry Health Metals Utilities Investments in billions of US dollars Sources The Heritage Foundation; American Enterprise Institute ©Statista 2019

Further information: Europe; China

Fig. 2.7   Sectoral shares of direct investment. (American Enterprise Institute and The Heritage Foundation, 2019)

The investment review procedure for an acquisition by the Federal Ministry of Economics and Energy is regulated by the (AWG) and the AWV, as shown in Fig. 2.8. Usually, the so-called sector-spanning investment review procedure according to § § 4 para. 1 nos. 4, 5 para. 2 AWG, § § 55 to 59 AWV applies to an acquisition. This applies regardless of the size and industry of the company to be acquired. Here, all company acquisitions of more than 25% of the shares by an investor outside the European Union or the EFTA area can be reviewed. If the company to be acquired provides securitycritical services according to § 55 para. 1 sentence 2 AWV, a threshold of 10% already applies (Federal Ministry of Economics and Energy, o. D.). For companies operating in particularly security-relevant areas, such as the arms industry, even more stringent regulations apply—also for investors within the European Union. The critical attitude of the authorities is reflected not only in legislation, but also in its implementation and the prevention of takeovers. For example, the entry of Chinese investors in the company Cotesa was only approved after a months-long review of the documents in April 2018 (Rusche, 2019). Another example was the planned entry of the Chinese State Grid Corporation in the German high-voltage operator 50 Hertz, whereupon the Reconstruction Credit Institute participated with 20% in 50 Hertz to prevent a Chinese entry. Also in the company Leifeld Metall Spinning the entry of Chinese

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Sector-specific (§§ 60-62 AWV) Concerns any foreign acquisition

Cross-sectoral (§§ 55-59 AWV) Concerns only acquisition by non-EU/non-EFTA foreigners Obligation to notify if target company is operator of critical infrastructure

Opening of examination procedure BMWi in agreement with AA + BMVg (+ BMI); If necessary, additional request for documents Within three months of receipt of complete documentation

Release decision BMWi in agreement with AA + BMVg (+BMI)

Prohibition/orders BMWi in agreement with AA+BMVg (+ BMI)

Acquirer applies for Clearance certificate

Explicitly or by fiction after two months

Explicitly or by fiction after three months

General obligation to notify

Initiated by BMWi Within three months from the date of knowledge of the contract under the law of obligations or publication

Opening of examination procedure by BMWi; if necessary, additional request for documents Within four months of receipt of complete , documentation

Clearance cerficate BMWi

Prohibition/ Orders BMWi with Zust. BReg

Fig. 2.8   Flow of investment reviews. (Federal Ministry of Economics and Energy, o. D., o. S.)

i­nvestors was prevented. After the announcement of security policy concerns, the Chinese investor abandoned his plans. However, the transaction was subsequently prohibited by the federal government (Heide, 2018; o. V., 2018d).

2.2.2.2 Societal Reservations and Experiences with Chinese Investors With headlines like “Chinese investments: buy up and slaughter” (Naß, 2018), “China: investors buy German knowledge” (o. V., 2018b) or “Good that Germany is leaving its naivety towards China” (Rusche, 2019) some media express their concerns about Chinese investments. Always the concerns are that China would benefit from the M&A purchases in particular. Technology would be transferred and jobs would be relocated to China. But there are also positive opinions in the domestic press landscape that also address the advantages of Chinese investments in Germany “German companies benefit from record investments” (o. V., 2018a) or “How a Chinese investor saved a mediumsized company” (Sill, 2019). From the side of the unions mainly critical voices can be heard against Chinese investors. For example, Wolfgang Lemb, as managing director of the IG-Metall, said in an article in the Wirtschaftswoche that the increasing takeovers of German companies in key industries could become dangerous. Furthermore, he pointed out that the unions would increasingly find that cooperation in terms of co-determination and tariff binding with Chinese investors would become increasingly difficult (o. V., 2018c).

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Also from the side of the industry critical voices are loud, because China would not develop towards more market economy and liberalism contrary to earlier expectations and actively intervene in the markets through state subsidies to pursue its own interests. In a position paper of the Association of the German Industry (BDI) a subsidy control is demanded, which should examine and if necessary prevent state-financed takeovers of European technology companies (Sprich, 2019). In contrast to these negative preconceptions about Chinese investments, the experiences are mostly positive, as surveys by the union-affiliated Hans-Böckler Foundation or the University of Jena at companies where Chinese investors have entered show: 60% of the companies examined by the University of Jena were economically distressed. The Chinese investments helped these companies to overcome their plight. Chinese investors would also make more capital available than German investors, which would create new modernization and research opportunities. There would also be little change in the company structure in order to avoid attracting too much social attention. In 2012, the concrete pump manufacturer Putzmeister was taken over by a Chinese construction company. A location guarantee was given and new jobs were created over the years (Lehner, 2016). Neither a reduction nor a relocation of jobs can be seen from the survey of the HansBöckler Foundation, in which the works councils of the companies concerned were interviewed. Companies in which employees had been reduced after the entry of Chinese investors had already been in an economic crisis before the takeover. Furthermore, the patience of Chinese investors in times of corporate crisis was mentioned several times before the possibility of a reduction in staff was brought into play (Müller, 2017, p. 19–21). The codetermination was also not questioned by Chinese investors (Müller, 2017, p. 19–21). The works councils also refuted the fear of a transfer of technology or a shift in development to China. The research budgets of the companies concerned were not cut. Rather, the Chinese investors even increased research and development spending (Müller, 2017, p. 19–21). Chinese investors have recognized that a company cannot simply be transferred to another country in order to remain successful, because the company culture and the employees often make the success of many German companies. However, what the works councils criticize are the often missing intercultural events for mutual acquaintance and for building mutual understanding. In particular, the Chinese culture and mentality often appear foreign and are difficult to understand for outsiders (Müller, 2017, p. 21–22). The Chinese culture is characterized by three main teachings—Confucianism, Taoism and Buddhism. These three teachings are responsible for a high need for harmony, face-saving, indirectness, great power distance, a high importance of rituals, performance orientation and collectivism. While German culture is characterized by directness, low power distance and individuality (College Contact, o. D.).

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2.3 Economic Factors for German Investments in China 2.3.1 The Economic Location of China In order to be able to assess the current economic situation of the People’s Republic of China, it is necessary to look at the development of the economy over the past few decades. Based on this, the current economic situation can be analyzed and classified.

2.3.1.1 Development of the Chinese Economy The development of the Chinese economy has been subject to radical change since the founding of the People’s Republic of China in 1949, with time also marked by multiple paradigm shifts and changes in economic strategy (Taube, 2014, p. 646). “As a result, the economic development process of the PRC over the past 60 years or so does not appear to be a coherent sequence of development steps, but rather gives the impression of an erratic succession of experiments.” (Taube, 2014, p. 646). This can roughly be divided into the phase from 1949 to 1978, with an increasingly market-oriented approach, or between 1978 and 1986/1987. Between 1978 and 1986/87 there was import substitution and the establishment of special economic zones (SEZs), which increased the number of products allowed for foreign trade and saw the first foreign investors settle in privileged special economic zones in southern China and other coastal cities (Huotari, 2018, p. 77). In the next phase, between 1987 and 1992, there was a deepening of the export orientation, which resulted in competitive advantages from the devaluation of the Chinese currency as well as the low wages in labor-intensive production. In the years 1992 to 2001, which represent the fourth phase, the Chinese market was further opened in the run-up to WTO membership. During this time, an import substitution policy was pursued for selected areas and certain industries were promoted or protected by high import tariffs (Huotari, 2018, p. 77). However, the changes since WTO membership in 2001 have had the greatest impact on the current economic situation, so that China has developed into the leading exporting nation as a result of further liberalization of economic policy (Huotari, 2018, p. 78). Since the mid-2000s, the financial sector, which was completely cut off from international markets until then, has also been opened up internationally. However, the exchange rate of the Chinese currency is still heavily controlled by the Chinese government and pegged to the US dollar (Huotari, 2018, p. 78). However, the global use of the Chinese currency has increased, leading to the inclusion of the renminbi as the fifth currency in the IMF’s currency basket in 2016 (Deuber, 2016a). There is also an opening up of the stock market, so that Chinese stocks have been traded on the MSCI stock index since 2017 (Lange, 2017). There is currently a deep-seated change taking place in the Chinese economy, resulting in the industry moving away from labour-intensive products which have lost competitiveness vis-à-vis Southeast Asian countries, towards capital-intensive and high-quality products. In particular, independent innovation is now to be given priority in order to

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take a leading role in future technologies and achieve world market leadership. This has already been achieved in the telecommunications industry, for example, as set out in the Made in China 2025 strategy, which provides for the promotion of certain technologies and the replacement of foreign technologies by Chinese technologies (Deuber, 2016b). High-speed trains, nuclear reactors, aircraft and (electric) cars are in the focus of this strategy. The economic goals for the coming years were set out in the 13th Five-Year Plan (2016–2020), in which a doubling of incomes and economic output by 2020 compared to 2010 with an annual economic growth of at least 6.5% is envisaged (Xinzhen, 2016). The reasons for the current growth include, inter alia, the expansion of infrastructure and a high urbanization rate, which is to be increased by an urbanization plan (Embassy of the People’s Republic of China in the Federal Republic of Germany, 2014), which provides for twelve megacities and one billion people as city dwellers. In addition, there is the effect of the previous growth, which has led to a significant increase in the average per capita income, which is expected to lead to higher consumption within the Chinese population in the future. If we look at the Gross Domestic Products in Fig. 2.9, we can see that there was particularly strong growth in the last two decades. China’s growth significantly exceeds that of the leading world economies. It averaged around 10%, which corresponds to a fifteenfold increase in China’s GDP since 1978. The high phase of growth can be located in the 1990s and between 2004 and 2010: This has resulted in China’s gross domestic product (GDP) in purchasing power parity (PPP) terms developing into the world’s largest economy ahead of the United States, with a GDP of $2.3 trillion in 2017, as shown in Fig. 2.10. China’s economic development can therefore no longer be viewed in isolation, but there are far-reaching dependencies on developments in the world economy; in parGDP growth

China, EU and USA in comparison 15%

10%

5%

0%

Fig. 2.9   GDP growth. (Zenglein & Wübbeke, 2018, p. 64)

17

16

20

15 EU

20

14

20

13

China

20

12

20

11

20

10

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09

20

08

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Source: Weibank

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The largest economies

their economic performances in real terms (2017)

Ch

in

a US A In di a Ja pa Ge n rm an Ru y s In sia do ne Un sia ite B d ra Ki zi ng l do m Fr an c M e ex ico Ita ly Tu So rk ut ey h Sa Ko ud re iA a ra bi a

GDP in billions of internaonal dollars, adjusted for purchasing power

Fig. 2.10   Comparison of economies. (Huotari, 2018, p. 76)

ticular, there is a dependence on exports. This means that both positive and negative developments in the Chinese economy have an impact on international markets, with farreaching consequences for the world economy as a whole. However, if we look at the last ten years in Fig. 2.11 or the forecasts, it can be seen that growth is stagnating or even declining, as a comparison of the growth rates between 2010 and 2017 makes clear: Investments in research and development can be used as an indicator of a country’s future orientation. This results in a positive indication for China, as private investment amounted to 183 billion euros, or 1.37 trillion yuan, in 2018. This represents an increase of more than 13% compared to the previous year. In addition, there are state investments, which currently amount to around 2.1% of GDP. China’s economy has therefore grown strongly and undergone a great transformation in recent years, with this structural transformation not yet complete. Therefore, due to the size of the market and the growth forecasts, it is an interesting market for many companies and industries. However, it must be noted that despite the liberalization, the state’s presence in the organization of the economy with far-reaching intervention possibilities

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Fig. 1 Development of China's gross domestic product (in USD million) 10.6% 9.5% 8,570 7,522 6,066

2010 GDP

2011

9,635

7.9%

7.8%

2012

2013

11,938

11,226

11,232

7.3%

6.9%

6.7%

6.9%

2014

2015

2016

2017

10,535

Growth in %

Fig. 2.11   Development of GDP since 2018. (PricewaterhouseCoopers, 2018, p. 12)

remains. This results in particularities and restrictions for foreign companies planning an investment in China, which is why, in addition to the general economic situation, the situation for foreign investment must also be considered.

2.3.1.2 German Investments in China Investments in China are not possible without restrictions because foreign investments in China are partially prohibited and subject to restrictions or local partners in the form of a joint venture are often necessary for investments. These restrictions have been reduced in recent years. Nevertheless, there is still a disadvantage for foreign companies compared to domestic companies. Nevertheless, China was the most important target country for foreign direct investment in 2015 with an inflow of 128 billion US$. German companies are among the largest investors (Association of the Bavarian Economy e. V., 2017, pp. 13–14). The stock of German direct investments in China was around 59 billion EUR in 2014 and around 5200 German companies, so that by the end of 2017 around 75 billion EUR of direct investment were available, although annual investments have declined since 2014 (Association of the Bavarian Economy e. V., 2017, pp. 13–14). The level of new investment is therefore decreasing year by year. Since 2005, there has been a bilateral German-Chinese Investment Protection Agreement, which regulates the framework conditions for mutual investments and is intended to create an equal investment situation, while the EU and China have been trying to conclude a comprehensive investment agreement since 2013 in order to improve access to the market even further. In recent years, the framework conditions have not only changed positively, but also the rising labour costs, from an average wage of 62,029 yuan in 2015 to 82,502 yuan in 2017, have significantly worsened the investment conditions, which 67% of respondents

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in a survey by the German Chamber of Commerce in China rated as negative (Viklenko, 2017). Further obstacles are the opaque legislation or the restriction of data and information transfer. In addition, language and culture are perceived as obstacles. However, these challenges are partly offset by the growth opportunities and new technology and logistics projects on the one hand, and on the other hand, the Chinese government has relaxed numerous restrictions and announced further steps towards equal treatment of German companies compared to Chinese companies in recent years. In addition to these opportunities and challenges that exist with foreign investments, there are also challenges due to the economic development of the economy.

2.3.1.3 Economic Location China—Opportunities and Risks The prospects for the Chinese economy and in particular for German companies in China are ambivalent. The Volksbank states: “In no other country in the world are there greater growth prospects for German companies, and yet the mood among German companies in China is not only euphoric. According to a survey by the AHK from September 2016, the business year was perceived by German companies operating in China as the most challenging in ten years: Rising labor costs, increasing competition from local Chinese competitors and increasing competition for good talent proved to be particular challenges.” (DZ BANK AG and Deutscher Genossenschafts-Verlag eG, 2017, p. 1).

A particular challenge for foreign companies is the Made in China 2025 strategy, which can lead to the transfer of know-how being used to develop its own industry in order to subsequently drive foreign companies out of the country (Ketterer & Wiendieck, 2019). “China’s economy is still only really open to foreign investment where Chinese companies are dependent on technology transfer. Every fifth company there feels the pressure to pass on technical know-how in exchange for market access.” (Deuber, 2018). In particular, the theft of intellectual property is seen as a danger by the companies. In addition, there are the immanent dangers of the Chinese economy. In total, five dangers to China’s economic growth can be identified: Firstly, there is the danger of an asset bubble due to overpriced prices in the big cities. Secondly, shadow banks pose a danger because this results in a large number of unregistered financial institutions that cannot be controlled by the state. Thirdly, there is a large number of bad loans because banks have issued loans without checking. As a fourth danger, the overcapacities in production caused by government subsidies are to be taken into account. The fifth danger are international crises, such as the trade dispute with the USA (Mattheis, 2015). Another problem is environmental protection. China’s CO2 emissions are among the highest in the world or one quarter of global emissions are caused by China. Here, reforms are necessary not only for the sake of meeting climate targets, but also because of the pressure from the population, which could also burden the local companies (DZ BANK AG and Deutscher Genossenschafts-Verlag eG, 2017).

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2.3.2 The Chinese Aviation Industry China is now one of the most important markets in aviation due to the strong growth in passenger numbers. Therefore, there is great potential for various types of foreign involvement in the Chinese market, such as investments, joint ventures and M&A.

2.3.2.1 Assessment and Development Opportunities The Chinese aviation industry expects an annual growth of 10 to 15% in the next few years. Airbus alone expects 1.6 billion passengers on domestic flights by 2036. In particular, this will require more aircraft, so that Airbus expects a demand for 6000 aircraft and Boeing even 7200 aircraft within the next 20 years, while 1440 Airbus aircraft were already in use in 2017 (Balser, 2017). This is shown in Fig. 2.12 for the development of passenger numbers between 2011 and 2016: The economic development can be seen as the reason for this trend. On the one hand, purchasing power continues to increase due to the increasing per capita income. On the other hand, the average number of flights in China is only one third as high as that of Europeans, with 0.34 flights per year; for North Americans, the average is even five times as high. There is great potential in the Chinese market, as can be seen in Fig. 2.13, because, with an average of 1.23 flights per year, which is to be expected according to the estimate by Airbus in 2035, 1.2 billion additional passengers are expected due to the high population. This would represent a growth by a factor of 3.5 within 20 years (Machemehl, 2017). In addition to the additional aircraft, this also requires additional airports or investments in the existing airports. However, the infrastructure measures already envisaged cannot prevent bottlenecks in air traffic control or pilots, so that these bottlenecks can be seen as a challenge for the aviation industry.

China: Development of passenger numbers Passenger numbers in million

Fig. 2.12   Development of passenger numbers. (Machemehl, 2017)

600 500

+9.5%

+11.8% +10.8% +10.7% +11.3% 12% +8.9%

10% 8%

400 300 200 100 0

293

319

354

392

2011

2012

2013

2014

Passenger figures

438

488

6% 4% 2%

2015

2016

Change compared to previous year

Source: CIVII Aviation Administration of China (CAAC)

0%

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Flights per inhabitant p.a

China: Flights per inhabitant in relation to GDP 3.0 2.5 2.0

Europe

1.5 1.0

Asia/Pacific

0.5 0.0

0

North America

China

20,000

40,000

60,000

80,000

GDP per inhabitant in USD China 2015

Asia/Pacific 2015

Europe 2015

North America 2015

China 2035

Asia/Pacific 2035

Europe 2035

North America 2035

Source: Airbus Global Market Forecast 2016-2035, (as of 2016)

Fig. 2.13   Flights per inhabitant in relation to GDP. (Machemehl, 2017)

Overall, it is also a market regulated by the Civil Aviation Administration of China (CAAC). The CAAC implements the government’s requirements on the one hand and controls operational developments on the other hand, such as the approval of new routes or interventions in pricing. While the CAAC grants rights to numerous airlines for a certain domestic route on the one hand, it only allows one Chinese airline on each long-distance route. The CAAC also approves the purchase of wide-body aircraft and grants the right to fly internationally. In addition, it monitors the performance of an airline. If there are irregularities with an airline, such as frequent delays, the authority can deny further growth opportunities such as new routes. In the worst case, the CAAC can even revoke the approval to operate a certain route (Nord LB, 2017). This leads to a strong impairment of the companies’ freedom of decision. In addition, there is the airline regulationRule96. According to this, newly founded airlines may only purchase larger aircraft when they operate 25 smaller so-called “Cityhopper” (aero. de, 2018b). This has resulted in only two new foundation in China since this regulation. The Chinese aviation industry is also highly fragmented. In 2015 there were 55 airlines (including seven cargo airlines), with 88% of total sales generated by four aviation groups that control the majority of airlines in China: China National Aviation Group (Air China), China Southern Air Holding Group, China Eastern Air Holding Group and Hainan Airlines Group. The China National Aviation Corporation (CNAC) currently holds, among other things, the majority of Air China and was founded as early as 1929 as China Airways (Björkell, 2017). Chinese airlines generated sales of around EUR 63 billion in 2015, resulting in a result of just under EUR 5 billion and a result margin of 7%, which, assuming that the

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information provided by the Chinese authorities is correct, is a profitable market. The majority of sales are generated by domestic flights, only 11% of sales are generated by long-distance flights (Machemehl, 2017). Overall, this is therefore a strongly growing market, which offers great potential for investors. At the same time, however, it must not be forgotten that this is a highly regulated sector on the one hand and, on the other hand, that there is a risk for investors that entry is associated with know-how transfer and that the actual interest lies not in cooperation but in the long-term development of one’s own market using the acquired knowhow (Machemehl, 2017).

2.3.2.2 German Investments in the Chinese Aviation Industry Previously, Chinese partners in the form of joint ventures were necessary for foreign investments in aviation. However, this regulation was relaxed in 2018 (aero.de, 2018a). As an exemplary cooperation between German and Chinese companies, the commitment of Airbus in China can be mentioned. As early as 2008, a production facility was set up in Tianjin, where the A320 was assembled with the supply of parts from abroad. This engagement is to be further expanded. The Federal Office for the Protection of the Constitution warns of the danger of industrial espionage, which can arise if Chinese cooperation partners are given insight into the construction. They could use the information to build their own aircraft. Closer cooperation is also planned in research and development. Although Airbus sees the risks of losing technology, it does not want to forego the potential of the market (Balser, 2017). In 2017, Airbus also opened a fitting station for A330 wide-body jets for the painting and interior design of the aircraft, with Aviation Industry Corporation of China (Avic) as a partner (aero.de, 2018a). There is also cooperation in the field of helicopters. Airbus Helicopters entered into an industrial partnership with a Chinese consortium in the form of a joint venture, from which the assembly of 300 helicopters is to result in the next ten years or 1000 to 2000 in the next 20 years. In addition, there are also cooperation agreements with aviation suppliers, such as Liebherr Aerospace, which are successfully involved in programs of the Chinese aviation industry. In summary, there are already numerous examples of German investments in China. The companies are aware of the risks, but do not want to forego the opportunities of the Chinese market. With the easing of investments by the Chinese government, increasing investments are likely in the future.

References aero.de. (2018a). China verbessert Bedingungen für Flugzeugbauer. https://www.aero.de/news28997/China-erleichtert-Flugzeugbauern-Geschaefte-im-Land.html. Accessed 18. Nov. 2019. aero.de. (2018b). Prognose für China: Rechnung mit Unbekannten. https://www.aero.de/news-29440/ China-bringt-Wachstumsprognose-fuer-Luftfahrt-ins-Wanken.html. Accessed 18. Nov. 2019.

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Franz, U. (Bundeszentrale für politische Bildung, Ed.). (06. August 2008). Porträt: Deng Xiaoping. https://www.bpb.de/internationales/asien/china/44262/deng-xiaoping%3Fp%3Dall. Accessed 14. Nov. 2019. Goldkorn, J., Tao, A., Niewenhuis, L., & Feng, J. (28. Juni 2018). Made in China 2025: The domestic tech plan that sparked an international backlash. SupChina. https://supchina. com/2018/06/28/made-in-china-2025/. Accessed 14. Nov. 2019. Gründer, W. (2010). Chinas Integration in die Weltwirtschaft. Auswirkungen auf die chinesische Volkswirtschaft (Reihe China, Vol. 28, 1. Edn.). Diplomica. Hanemann, T., & Huotari, M. (2015). Chinese FDI in Europe and Germany. Preparing for a new era of Chinese capital. https://rhg.com/wp-content/uploads/2015/06/ChineseFDI_Europe_Full. pdf. Accessed 18. Nov. 2019. Hanemann, T., & Huotari, M. (2018). EU-China FDI. Working towards reciprocity in investment relations (Merics Papers on China Nr. 3). https://www.merics.org/sites/default/files/201808/180723_MERICS-COFDI-Update_final.pdf. Accessed 18. Nov. 2019. Heide, D. (29. Juli 2018). Nach 50 Hertz—Bundesregierung wehrt sich gegen weitere Übernahme aus China. Handelsblatt. https://www.handelsblatt.com/politik/deutschland/sicherheitsbedenken-nach-50hertz-bundesregierung-wehrt-sich-gegen-weitere-uebernahme-aus-china/22858764. html. Accessed 14. Nov. 2019. Hessiche Landeszentrale für politische Bildung. (2018). Die Volksrepublik China—Partner und Rivale (Kerwer, J. & Röming, A., Eds.) (Forum hlz), Wiesbaden. https://www.hlz.hessen.de/ uploads/tx_userhlzpub/X396-China.pdf. Accessed 14. Nov. 2019. Huotari, M. (2018). China in der Weltwirtschaft. Informationen zur politischen Bildung, 337(2), 76–81. Hurley, J., Morris, S., & Portelance, G. (2018). Examining the debt implications of the Belt and Road Initiative from a policy perspective (Center for Global Development, Ed.) (CGD Policy Paper 121), Washington DC. https://www.cgdev.org/sites/default/files/examining-debt-implications-belt-and-road-initiative-policy-perspective.pdf. Accessed 14. Nov. 2019. Ketterer, T., & Wiendieck, S. (Rödl & Partner, Ed.). (2019). Erfolgreich investieren in China. https://www.roedl.de/themen/internationalisierung/china. Accessed 18. Nov. 2019. Lange, K. (26. Juni 2017). China bekommt mehr Gewicht—Was Anleger wissen müssen. Manager magazin. https://www.manager-magazin.de/unternehmen/artikel/msci-nimmt-china-aktien-aufchina-bekommt-an-weltboerse-mehr-gewicht-a-1153847.html. Accessed 18. Nov. 2019. Lee, F. (13. März 2019). Aufstieg Chinas: Die Wanderarbeiter bleiben auf der Strecke. Südkurier. https://www.suedkurier.de/ueberregional/wirtschaft/Aufstieg-Chinas-Die-Wanderarbeiter-bleiben-auf-der-Strecke;art416,10080951. Accessed 14. Nov. 2019. Lehner, L. (7. März 2016). Investoren aus China: Fluch oder Segen? Stuttgarter Nachrichten. https://www.stuttgarter-nachrichten.de/inhalt.wirtschaftsunternehmen-im-land-investoren-auschina-fluch-oder-segen.e489ac32-9d43-4a39-b87b-c1b1a0ac2505.html. Accessed 14. Nov. 2019. Machemehl, N. (31. Juli 2017). China aviation market—Assessment and outlook (Nord LB, Hrsg.) (Sector Research). https://www.nordlb.de/fileadmin/redaktion/analysen_prognosen/flugzeuge/2017/2017_August_Aviation_Monitor_-_China.pdf. Accessed 18. Nov. 2019. Mattheis, P. (19. Oktober 2015). Warum das schwächelnde Wachstum nicht der Untergang ist. WirtschaftsWoche. https://www.wiwo.de/politik/ausland/konjunktur-in-china-warum-das-schwaechelnde-wachstum-nicht-der-untergang-ist/12468196.html. Accessed 18. Nov. 2019. Matthes, J. (06. Oktober 2017). Unternehmensübernahmen durch chinesische Firmen in Deutschland und Europa. Unter welchen Bedingungen besteht Handlungsbedarf? (Institut der Wirtschaft Köln, Ed.) (IW-Report Nr. 30). https://www.iwkoeln.de/fileadmin/publikationen/2017/364483/IW-Report_2017_30_China.pdf. Accessed 18. Nov. 2019.

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merics. (2019). Wachsende Skepsis und regulatorische Hürden verstärken Rückgang chinesischer Investitionen in Europa. Neue Studie von Rhodium Group und MERICS. Berlin. https://www. merics.org/de/china-flash/wachsende-skepsis-und-regulatorische-huerden-verstaerken-rueckgang-chinesischer. Müller, W. (2017). Chinesische Investoren und Auswirkungen auf Arbeitsbeziehungen und Mitbestimmung (Hans Böckler Stiftung, Ed.), Düsseldorf. https://www.boeckler.de/pdf/p_mbf_ report_2017_36_ci_mueller.pdf. Accessed 14. Nov. 2019. Naß, M. (8. Mai 2018). Aufkaufen und ausschlachten. Chinesische Investitionen. Zeit. https:// www.zeit.de/wirtschaft/2018-05/chinesische-investitionen-deutschland-unternehmen-handelsstreit. Accessed 14. Nov. 2019. Nord LB. (Ed.). (04. Mai 2017). Aviation Compact. China: Starkes Wachstum in einem staatlich regulierten Markt (Sector Research). https://www.nordlb.de/fileadmin/redaktion/analysen_ prognosen/flugzeuge/2017/Aviation_Compact_Mai_2017.pdf. Accessed 18. Nov. 2019. o. V. (22. Dezember 2011). Running out of steam. The Economist. https://www.economist.com/ graphic-detail/2011/12/22/running-out-of-steam. Accessed 14. Nov. 2019. o. V. (25. Januar 2018a). Deutsche Unternehmen profitieren von Rekordinvestitionen. WirtschaftsWoche. https://www.wiwo.de/politik/ausland/chinesische-investoren-deutsche-unternehmen-profitieren-vonrekordinvestitionen/20885404.html. Accessed 18. Nov. 2019. o. V. (4. Februar 2018b). Chinesen kaufen deutsche Technologie auf—Jetzt will die Bundesregierung sich wehren. FOCUS Online. https://www.focus.de/finanzen/news/investitionenauf-rekordhoch-china-hat-grosses-ziel-und-kauft-dafuer-deutsches-wissen_id_8414078.html. Accessed 14. Nov. 2019. o. V. (3. Juni 2018c). „China kann uns überrollen“. WirtschaftsWoche. https://www.wiwo.de/ politik/deutschland/uebernahmen-durch-chinesische-investoren-china-kann-uns-ueberrollen/22637028.html. Accessed 18. Nov. 2019. o. V. (1. August 2018d). Bundesregierung untersagt Firmenkauf an Chinesen. Spiegel Online. https://www.spiegel.de/wirtschaft/unternehmen/leifeld-bundesregierung-untersagt-firmenverkauf-an-chinesen-a-1221205.html. Accessed 20. Nov. 2019. PricewaterhouseCoopers. (Ed.). (2018). Deutsche Unternehmen in China. Logistikprozesse im Wandel. https://www.pwc.de/de/transport-und-logistik/pwc-china-studie-2018.pdf. Accessed 20. Nov. 2019. Rusche, C. (2019). Chinesische Beteiligungen und Übernahmen 2018 in Deutschland (Institut der deutschen Wirtschaft Köln, Ed.) (IW-Kurzberichte Nr. 5). https://www.iwkoeln.de/fileadmin/ user_upload/Studien/Kurzberichte/PDF/2019/IW-Kurzbericht_2019_Chinesische_Beteiligungen.pdf. Accessed 14. Nov. 2019. Seitz, K. (2006). China. Eine Weltmacht kehrt zurück (Goldmann Sachbücher, Vol. 15376, 5th. Edn.). Goldmann. Sennewald, I. (Planet Wissen, Hrsg.). (o. D.). China. https://www.planet-wissen.de/kultur/asien/ china_weltmacht_im_umbruch/index.html. Accessed 14. Nov. 2019. Sill, J. (18. Januar 2019). Wie ein chinesischer Investor einen Mittelständler rettete. Markt und Mittelstand. https://www.marktundmittelstand.de/finanzierung/investor-finden-was-mittelstaendler-bei-der-investorensuche-beachten-muessen/wie-ein-chinesischer-investor-einen-mittelstaendler-rettete-1280331/. Accessed 20. Nov. 2019. Sohm, S., Linke, B. M., & Klossek, A. (2009). Chinesische Unternehmen in Deutschland. Chancen und Herausforderungen (Bertelsmann Stiftung, Ed.), Gütersloh. https://www.bertelsmann-stiftung.de/fileadmin/files/BSt/Publikationen/GrauePublikationen/GP_Chinesische_ Unternehmen_in_Deutschland.pdf. Accessed 14. Nov. 2019.

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Sprich, C. (Bundesverband der deutschen Industrie, Ed.). (2019). Investitionskontrolle in Deutschland und Europa. https://bdi.eu/artikel/news/investitionskontrollen-in-deutschland-undeuropa/. Accessed 14. Nov. 2019. Spross, H. (18. Dezember 2018). Deng verschaffte der KPCh neue Legitimität. Deutsche Welle. https://p.dw.com/p/3A5pz. Accessed 20. Nov. 2019. Taube, M. (2014). Wirtschaftliche Entwicklung und ordnungspolititscher Wandel in der Volksrepublik China seit 1949. In D. Fischer & C. Müller-Hofstede (Eds.), Länderbericht China (Schriftenreihe/Bundeszentrale für Politische Bildung, Vol. 1501, pp. 645–680). bpb, Bundeszentrale für politische Bildung. Vereinigung der Bayrischen Wirtschaft e. V. (Ed.). (22. Mai 2017). Ausländische Direktinvestitionen—ein Blick auf das Investitionsengagement Bayerns und China, München. https://www. baymevbm.de/Redaktion/Frei-zugaengliche-Medien/Abteilungen-GS/Wirtschaftspolitik/2017/ Downloads/170522-Ausl%C3%A4ndische-Direktinvestitionen-China.pdf. Accessed 20. Nov. 2019. Viklenko, K. (GTAI, Ed.). (18. Dezember 2017). Deutsche Firmen mit Geschäften in China zufrieden. https://www.gtai.de/GTAI/Navigation/DE/Trade/Maerkte/suche,t=deutsche-firmenmit-geschaeften-in-china-zufrieden,did=1836364.html. Wang, G., & Wong, J. (1999). China. Two decades of reform and change. Singapore University Press; World Scientific. Welfens, P. (2017). Chinas Direktinvestitionen in Deutschland und Europa. In Hans Böckler Stiftung (Ed.), Chinesische Investitionen 2016. Erfahrungen von Mitbestimmungsakteuren (pp. 9–15). Düsseldorf. Welfens, P., Reisach, U., & Müller, W. (2017) Zentrale Ergebnisse. In Hans Böckler Stiftung (Ed.), Chinesische Investitionen 2016. Erfahrungen von Mitbestimmungsakteuren (pp. 5–6). Düsseldorf. Xinzhen, L. (15. Januar 2016). Erklärungen zum 13. Fünfjahresplan. Beijing Rundschau. https:// german.beijingreview.com.cn/China/201601/t20160115_800046941.html. Accessed 18. Nov. 2019. Zenglein, M. J., & Wübbeke, J. (2018). Von der „Werkbank der Welt“ zur Innovationswirtschaft. Informationen zur politischen Bildung, 337(2), 64–75.

3

Target Companies as Portfolio Marion Schmidt and Thomas Knie

The Institute for Applied Economic Law at the NORDAKADEMIE University of Applied Sciences in Hamburg operates one of the largest M&A databases for the DACH region.1 In addition, a Bertelsmann study from 2018 analyzed some data on this (Jungbluth 2018). In connection with the announcements in the Federal Gazette, it is thus possible to analyze a total of 227 transactions with Chinese involvement in Germany over the past ten years. This chapter provides a comprehensive overview of the M&A landscape in Germany based on the analyzed data. The most important federal states, industries and company sizes in which transactions with Chinese investors are most represented will be presented.

3.1 The German M&A Landscape The Statista portal has evaluated the number of M&A deals in Germany in the period from 1991 to 2018, as shown in Fig. 3.1.

1 Inquiries

for access to the database under www.wire-institut.de.

M. Schmidt ()  Thedinghausen, Germany e-mail: [email protected] T. Knie  Hamburg, Germany e-mail: [email protected] © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 D. Graewe (ed.), German-Chinese M&A Transactions in the SME Sector, https://doi.org/10.1007/978-3-658-40537-3_3

27

28

M. Schmidt and T. Knie Number of M&A deals in Germany from 1991 to 2018

Number of transactions Source Institute for Mergers, Acquisitions and Alliances (IMAA) © Statista 2019

Further information: Germany

Fig. 3.1   M&A deals in Germany

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29

It is noteworthy that in 2018 the number of investments fell back to a level similar to that in 2015. This decline is due to a capital control and a shortage of liquidity on the part of China. If one differentiates the 436 transactions in Germany in 2015 according to their countries of origin, the statistics show that the USA is in first place with 114 transactions by far the market leader. China ranked ninth in 2015 with 17 M&A deals in Germany, as shown in Fig. 3.2. It should be noted here that in 2015 the strategic objective Made in China 2025 was only introduced. The years 2014 to 2017 show a comparatively higher transaction density compared to the previous years. The evaluation of the Federal Statistical Office reflects a similar trend of the total deals in Germany. This is due to the introduction of the Chinese

Ranking of the global countries of origin of M&A deals in Germany in 2015 by number of transactions USA United Kingdom Switzerland France Netherlands Austria Japan Sweden China & Hong Kong Italy India Canada Belgium Norway Singapore Poland Finland Ireland

Number of transactions Source Oaklins Germany © Statista 2018

Further information: Worldwide

Fig. 3.2   Ranking of the global countries of origin of M&A deals in Germany in 2015 by number of transactions. (Oaklins Germany 2016)

30

M. Schmidt and T. Knie

Fig. 3.3   Chinese investors in Germany. (Own representation)

­strategy Made in China 2025 in 2015. Due to Chinese, but also the tightening of German regulations in 2018, only seven transactions were carried out in Germany. Figure 3.3 shows the activity of Chinese investors who have invested particularly intensively in Germany. Fosun International Limited is in first place with eight transactions in Germany. The company is privately owned and, according to its own information, one of the largest companies in China. Like Fosun, the companies Joyson Automotive Electronic Holding Co. Ltd. and Zhongding Sealing Parts are privately owned. However, state-owned companies are the Aviation Industry Corporation (AVIC) and the Shanghai Electric Group (SEG). When looking at the ownership structure in Fig. 3.4, the privately owned companies are in the lead with 52%. Companies owned by the state are listed in the evaluation with 21%. No information was available for the remaining companies.

3.2 Core Industries for Chinese Investment The most common M&A transactions are in the machinery/precision engineeringindustry. Automotive manufacturing ranks second with 19%. The strategic economic sectors of vehicle technology and automation of the Made in China 2025 strategy are therefore in line with the analyzed industry favorites. Figure 3.5 makes the distribution clear. Another evaluation by Statista in Fig. 3.6 shows the number of companies in Germany, broken down by economic sector. The manufacturing industry, in which the machinery/precision engineering and automotive industries are also included, ranks seventh with 234,310 companies.

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31

Fig. 3.4   Ownership structure. (Own representation)

Plant engineering/steel/ environmental engineering, 7, 3%

Automotive, 44, 16%

Construction/building materials industry, 1, 0%

Other, 48, 17% Computer industry/ telecommunications, 9, 3%

Chemicals/pharmaceuticals, 28, 10%

Other, 48, 17%

Food, beverages and tobacco, 1, 0%.

Financial services, 3, 1% Paper/Furniture/Wood/ Packaging, 1, 0%

Energy/utilities, 26, 9% Mechanical engineering/ fine mechanics, 55, 20%

Air-u. Space/marine/rail technology, 6, 2% Textile/clothing, 6, 2%

Electrical/medical engineering, 15, 5% Trade, 11, 4%

General services, 5, 2%

Transport and traffic, 8, 3% Insurance, 1, 0%

Fig. 3.5   M&A Deals China Germany by industry. (Own representation)

3.3 Company Size Small and medium-sized enterprises are primarily of interest for Chinese investments. For the categorization as a small and medium-sized enterprise, there are different approaches, which are summarized in Table 3.1. The German Commercial Code (HGB) distinguishes between micro-capital companies (§ 267a HGB), small, medium-sized and large capital companies (§ 267 HGB). The following classifications are used for the assignment to the respective size class:

32

M. Schmidt and T. Knie Number of companies* in Germany in 2018 by economic sector Wholesale and retail trade; repair of motor vehicles and motorcycles Provision of freelance, scientific and technical services Construction Real estate and housing Hospitality manufacturing sector Other service activities Other business activities Information and communication Art, entertainment and recreation Agriculture, forestry and fisheries Transport and storage Energy supply Health and social services Education and teaching Provision of financial and insurance services Water supply; wastewater, waste disposal, environmental services, etc. mining and quarrying Number of companies

Source Federal Statistical Office © Statista 2020

Further information: Germany; data from turnover tax statistics

Fig. 3.6   Number of companies in Germany by economic sector in 2017. (Statista 2019a)

The above thresholds always refer to the last annual financial statements performed The European Union has also developed a distinction between SMEs and large companies in EU Recommendation 2003/361/EC, which is largely similar to that of the German Commercial Code. It is presented in Table 3.2. According to Article 2 of EU Recommendation 2003/361/EC, companies are classified as follows:

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Table 3.1  Classification of companies according to HGB on the basis of company key figures in size classes (cf. § 267 f. HGB) Size class

Balance sheet totel in Milion EUR

Turnover in Million EUR

Number of employees

Micro Capital Comany At least two of the following three characteristics are not exceeded: 0,35 Small Capital Company

0,70

10

At least two of the following three characteristics are not exceeded: 6,00

Mid-size Capital Company

12,00

50

At least two of the following three characteristics are not exceeded: 20,00

Large Capital Company

40,00

250

At least two of the following three characteristics are not exceeded

Table 3.2  Classification of companies in the EU into size classes on the basis of company key figures (cf. Art. 2 of EU Recommendation 2003/361/EC) Size calss

Number of employees

Micro Capital Company

2,00

Or

>2,00

Small Capital Company

10,00

Or

>10,00

and either

>50,00

Or

>43,00

Mid-size Capital