China Invests in European Machine Builders

At least since it has become known that the Chinese appliances giant Midea is going to fulfill its ambition to acquire the German industrial robotics company KUKA, everybody in Europe, especially in Germany, talks about the merger and acquisition (M&A) hunger of Chinese companies. China's policy liberalization is transforming the country from a small player to a driving force in global cross-border and foreign direct investments.

The Chinese interest in European machine builders is not new. We have seen the takeover of KraussMaffei Plastic Machinery by the China National Chemical Corporation (ChemChina) for about 1 billion dollars earlier this year, or the acquisition of the Kion-Group (former Linde Gabelstapler) for around 800 million dollars. Clearly Germany is an attractive market for Chinese companies looking for M&A targets, as well as other European countries. As an example serve the takeovers executed by Zoomlion in Europe. 2001 they bought the British company Powermole and got lots of attention in 2008 when they took over the Italian construction equipment manufacturer CIFA. For decades Zoomlion has been investing into strategic companies and markets worldwide. Therefore, it is a good example of how Chinese companies follow a growth strategy through acquisitions and cooperation.

The main motives of Chinese investments include access to technological know-how, as well as securing their own market position, both on the Chinese as well as on the European market. Furthermore, the expansion of their own product portfolios and securing strategic locations in Europe are to be listed as well.

Many argue that Europe is selling out its businesses to China. At least in regard to China and Germany this is not correct. The overall M&A balance between the two countries is equal according to the "Bundesverband Mergers & Acquisitions e.V." (German association of M&A). Until 2010, German companies had a surplus of acquisitions in China. Since 2011, Chinese acquisitions increased significantly and will lead to a surplus in the near future.

Nevertheless, critics are worried and gain more attention in the last months by highlighting that know-how and technology is being sold into Chinese hands. There are legitimate concerns relating to China's investment politics, which, if uncontrolled, could be a threat to Europe's key industries and security interests and may undermine public support for investment openness.

Since the EU has taken over the mandate of negotiating investment agreements, the European national states have to re-think their strategies and communication. In ARC's view it is important that especially the large EU member states stand behind and support current EU efforts to conclude an effective and fair bilateral investment agreement with China and other countries, e.g. the Transatlantic Trade and Investment Partnership (TTIP) agreement with the USA. It is important that Europe speaks with one voice, instead of following national interests.