6. Chinese Investment to Germany
6.1 Between Facts and Fallacies
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6. Chinese Investment to Germany
6.1 Between Facts and Fallacies
Germany is currently among the most important investment destinations for Chinese enterprises in Europe. Considering the volume of investment, Germany was only rivaled by the UK, France and Switzerland. (Nicolas et al 2008, 15) While being on the rise in Europe in general, the growth rates for Chinese investments realized in Germany in particular, are rather exceptional: From 2003-2008, the investment flows from China to Germany have increased by impressive 265 per cent. (Heidel 2010c, 24) In 2007, a record 1.7 billion US$ were invested in Germany by Chinese
companies or public funds, with quicker spikes in growth rates over time. As can be seen from the statistics of the German Central Bank Database, Chinese investment grew modestly between 2000 and 2005 and started to gain speed between 2006 and 2009, only to finally take off from the end of 2010:
Figure 9: Chinese FDI to Germany between 2000-2010
Source: German Central Bank 2011.
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The influx of investments from China is largely due to the special economic positioning of Germany as the largest economy in the EU and its role as one of the largest exporters globally. Germany further attracts foreign investors through its high technological standards, stable political system, sound legal protections, quality of workforce and location in the heart of the EU. For Chinese investors in particular, the positive reputation of the “orderly”, “punctual” German may play a secondary role- yet remains somewhat relevant for the choice of location. (Sohm/ Linke/ Klossek 2009, 13)
Given the current surge in Chinese OFDI to Germany, it may seem that FDI from China were a recent phenomenon. However this is by no means the case. Starting as early as the late 1980s, large State-Owned Enterprises set up subsidiaries in Germany.
A well-known example is Baosteel, which established its Baosteel Europe Holding in Germany in 1993. However, at that time Chinese companies in Germany were
exceptional. Today, Chinese investors seem to have discovered the German direct investment market for themselves, as many companies from the PRC are now drawn to Germany.
While it is impossible to say how many Chinese companies operate in Germany today, governmental estimates speak of 800 to 1000 Chinese holding companies and branch offices of Chinese companies. (BMWI 2009, 11) Some estimates range even higher and reach up to 2000 companies. Based on data analysis, this study finds it likely that a number of more than 2000 Chinese companies are currently present in Germany. Yet it remains difficult to determine a precise number, since the statistics of the German Central Bank only track those foreign investments into companies with total balance sheet assets of at least three million Euros and a foreign equity stake of more than 10 per cent.
The overall majority of Chinese companies entering the German market are SMEs, so called small to medium sized enterprises. These Chinese companies on average have less than 10 employees. This however is not unusual for the sectors in which they operate, as knowledge intensive industries- like engineering, services and
telecommunications- are in general less labor intensive. (Tirpitz/ Groll/ Ghane, 1)
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50,000€ threshold. It needs to be pointed out though, that Chinese investors usually employ a “crossing the river by feeling for the stones strategy” strategy. Their companies start out with a smaller strategic investment, later often followed by a complete takeover. (Nicolas et al 2008, 20)
There are two equally favored entrance strategies employed by Chinese investors to Germany. The first is the foundation of a branch office, which can later be grown into a subsidiary. The other is the acquisition or merger with an already existing German company. (Sohm et al 2009, 138) It can be said, that the two strategies are employed by two different kinds of companies.
While smaller companies tend to undertake a Greenfield Investment by setting up a local branch office, larger companies tend to use acquisitions of ailing companies to gain quick market access. (Tirpitz et al, 29) In this way, Chinese companies have been able to acquire not only small niche producers.
Recently Chinese Sany was able to target Putzmeister- a global market leader in manufacturing of cementation pumps. The deal led to public controversies, as the company is a traditional family-owned enterprise and was sold off to a Chinese competitor. Putzmeister was by far not an ailing company at the time of takeover, like many other acquisition targets, but market contraction and availability of funds for Chinese companies changed the game. This made it possible for an unlikely outsider like Sany to take over a market leader. (Klawitter/ Wagner 2012) An exemplary (and by no means comprehensive!) compilation of other takeovers between 2002 and 2011 can be found in the table below and shall exemplify Chinese M&A activity in
Germany. The information compiled below stems from a variety of media outlets, individual company homepages and the chambers of commerce.
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Figure 10: List of Chinese Acquisitions in Germany between 2002-2012
Year Holding Acquired Object Chinese Acquirer
2002 100 % Schneider Electronics AG TCL International 2003 100 % Boewe Textile Cleaning Sail Start Shanghai 2003 100 % Welz Industrieprodukte Huapeng Trading 2003 100 % Lutz Maschinenbau GmbH ZQ Tools
2004 94.9 % Dürkopp Adler AG Shanggong
2004 51 % Schiess AG Qinchuan Machine Tool
2004 Majority F. Zimmermann GmbH Dalian Machine Tool Group 2005 50 % Hoechst AG Research Sunstar Membrane Technology 2005 100 % Kelch GmbH & Co KG Harbin Measuring Cutting Tool
2005 100 % Grosse Jac Qingdao Hisun Garment
2005 100 % Waldrich Coburg GmbH Biejing No.1 Machine Tool Plant
2007 100 % NOI Nordhausen Sinoi GmbH/ CNBM Group
2008 70 % Vensys Energy AG Goldwind Windenergy GmbH
2008 100 % KSL Kuttler Automation Suntech Power GmbH
2009 100 % Assyst Bullmer New Jack Sewing Machine
2010 Voting stock Ermag Jiangsu Jinsheng
2010 20 % KHD Humboldt Wedag AVIC
2011 100 % KSM Castings Citic
2011 55 % Medion Lenovo
2011 100 % Saargummi CQLT
2011 74,9 % Preh Joyson Investment
2012 100 % Putzmeister Sany
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Still the overall transaction volume remained limited in all of the above cases, as most of the companies acquired faced serious financial troubles before the takeover.
However, as signaled by the takeovers of Medion, Saargummi or Putzmeister, this is not a standard procedure anymore. Chinese investors are increasing their spectrum into more complex and costly acquisitions. Pricewaterhouse Coopers estimates that such a development will necessarily entail the rise of Chinese OFDI flows to Germany to reach more than 2 billion Euros. (PwC 2009, 6) It is also to be expected that
Chinese investors will further narrow their focus to match the demands of the Chinese
‘outbound catalogue’ issued by MOFCOM and NDRC in order to access enough capital for costly acquisitions (Voss/ Buckley/ Cross 2009, 153). In this way they also benefit from Germany’s strength in engineering, telecommunications and energy sectors most effectively. (Fuchs 2007)
A warning example for the outcome of such strategic investment behavior can be seen from the experience of the German Solar Electricity Industries. German Sunways, a medium sized solar panel producer, was partly acquired by the Chinese LDK Solar in 2010. (Murphy 2012) Only a few years earlier, this move would have been unheard of, as the German solar industries were ahead in technological leadership and dominated the domestic and international markets. Yet as the Chinese government prioritized the growth of its own solar panel industry, China quickly accelerated growth by offering cheap capital and government support. (Lu/ Liu 2010, 28) In this way, German companies suffered subsequent loss of market shares, as they were not able to compete with the extremely low prices of Chinese producers (such as Yingli, Suntech, JA Solar or Trina). With crumbling market shares, German
companies faced financial troubles and became easy targets for Chinese M&A, although German companies still possessed technologic leadership. In this way, the German solar industries fell prey to Chinese investors- due to circumstances these investors had themselves helped to create. This is in fact the opportunity cost attached to Chinese FDI, as the solar industries employ roughly 150.000 people and its 15.000 companies pay roughly 1.5 billion € in taxes annually. The Chinese influence here does indeed create externalities on behalf of the host economy. (Solarbusiness 2012)
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