7. Governmental Stakeholders
7.2 Government Intervention in FDI
7.2.3 State Capacity in Foreign Direct Investment
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(Menke 2010) The Federal Ministry of Economics and Technology is the sole body responsible for assessing investments with regards to possible infringements of security and order. Thus its power is comprehensive. Yet, as mentioned above, it only uses these powers in a very limited way. To date no bans on investments have been issued and no applications been rejected. Only a fraction of the investments are actually reported to the ministry, with a large share simply taking place without approval. This is not only due to the soft stance of ministry in the issue, but also due to basic questions of capacity. The ministry may simply not possess the necessary numbers of personnel to look into each and every transaction.
On the other hand, Germany also tries to win investors through investment promotion.
On national level, the ministry of Economics has established a national investment promotion agency: GTAI- Germany Trade and Invest. The organization has come to exist from a merger of different investment promotion agencies at national level since 2003 and informs about investment opportunities in Germany. Its services are also provided in Chinese, which suggests the importance of this target group. The GTAI provides comprehensive services to investors and advises on all matters of investment.
It does however “(…) not provide target lists of companies that are looking for strategic business partners or financial investors.“27 The GTAI thus fulfills mostly an informative function with little aim to regulate or influence investment flows. While the GTAI devotes particular attention to providing information on investment locations in East Germany, this does not constitute much of a pronounced influence on investment flows, as such information is equally available for all federal states alike.
7.2.3 State Capacity in Foreign Direct Investment
Germany is a federal republic, meaning that the country is subdivided into sixteen federal states (Bundesländer). The sixteen German states differ in size and include 13 territorial states and the three states of Hamburg, Berlin and Bremen. These city-states are both federal city-states and municipalities alike. The German federal city-states are partly sovereign and the constitution (Grundgesetz) provides them with far-reaching
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competencies in education, culture, police, public order and control of radio and media (GG Art.7) Furthermore they share a set of competences with the federal government, including economic legislation, immigration law, public housing, roads and waterways and various environmental regulations.
Each of the federal states has own legislative powers and administration, including state ministries of
• Employment and Social Welfare,
• Interior and Sports,
• Finance,
• Justice,
• Integration and Europe,
• Education, Academia and Arts,
• Economy and Transportation,
• Environment and Energy.
The state administration closely resembles that at federal level, while not including such ministries as foreign affairs or defense, which are federal competences only. The federal states nevertheless possess considerable influence in the realm of directing economic policy and finances, while lacking the right to confining FDI flows from China through issuing legislation. Their most efficient means of influence therefore focus on the issue of positive investment promotion. This is also due to their interest as federal states, which have a vital need for economic growth and investment.
For Germany as a whole, investment opportunities are marketed through the “GTAI- German Trade and Invest” Agency. On state level, we find a similar network of investment promotion agencies. The federal states have developed an expansive array of such agencies, in order to attract investors to- and inform about the investment opportunities in the respective state. These investment agencies operate in all German states and largely cooperate with regional- or municipal investment agencies on lower levels. Thus we can find an intricate web of investment promotion institutions on various levels, which are connected to each other more or less casually. The
investment promotion agencies are organized as private companies, in which the only shareholder is usually the respective federal state. While de facto being a state
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institution, the employees of such agencies are not state officials. To exemplify such arrangements, three examples for such investment promotion activities and respective networking with other agencies were selected based on overall inflow of investment and role as primary investment destination for Chinese investors. To guarantee a balanced representation, two territorial- and one city-state with the largest inflow of FDI respectively were selected: North-Rhine Westphalia, Hesse, and Hamburg.
Figure 17: Investment Flows to German Federal States, in billion Euro 2009
Source: German Central Bank 2011.
NRW Invest, the Investment Agency of North-Rhine Westphalia closely resembles the model described above. The Agency supports foreign investors throughout their entire investment and settlement process in the federal state of North-Rhine
Westphalia. It has a particular focus on Chinese investors, maintaining a website in Chinese and offering services through its representative offices in Nanjing, Beijing and Shanghai. Again, the investment promotion agency is a private company, with the
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main stakeholder being the federal state. It further represents all 200 local investment agencies on regional and municipal level.
Figure 18: Structure of Investment Promotion North-Rhine Westphalia
Source: NRW Invest 2012.
The agency provides advisory on tax and company regulations, while also offering an extensive array of services for the settlement process. For this end, NRW Invest offers a database with geo-information on available commercial sites and the respective contact persons. (Handwerksblatt 2007) During and after investment, the agency acts as intermediary between the investor and local institutions. NRW Invest particularly markets those areas of investment to foreign investors, where the federal state would like to upgrade its industry through new investment. Therefore, the services focus on high-end production and knowledge intensive sectors such as Healthcare, Innovative Materials, Microsystems Technology, Nanotechnology, Biotechnology,
Environmental Technology, Chemicals and Energy. In its “Investment Guide to NRW”, the agency further offers information and services for obtaining financial subsidies on European, national and local level, with a particular focus on funding for R&D projects. (NRW Invest 2012)28 Additionally, the state bank offers funding,
28 Particularly refer to p.67 in NRW Invest (2012)
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which can range to up to 5 million Euros. The state’s investment agency is thus positively influencing investors by catering and marketing specifically to knowledge intensive industries and R&D investments. In its report it emphasizes several possible options of financing derived from either European, national or state level for such projects.
In Hesse, the structure of investment promotion is somewhat more fragmented between different actors. While there is a Webpage targeting foreign investors (particularly Chinese) on state level, and an investment Agency called “Hessen Agentur”, there appears to be no centralized structure of investment promotion as is the case in North-Rhine Westphalia. While the state agency offers a variety of settlement services, the same services also are provided by the more regional and municipal investment promotion agencies. To underline this observation: The Rhine- Main metropolitan region is marketing itself through its very own investment agency and a second municipal investment promotion agency only for Frankfurt.
Figure 19: Structure of Investment Promotion Hesse
Source: Hessen Agentur 2012; FRM 2012.
Just as the state agency, this regional agency is funded indirectly by the state Ministry of Economics as well as other municipalities. One of its main stakeholders is the state investment promotion agency Hessen Agentur- creating a direct link between both
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agencies. The regional agency is providing a similar range of services- covering advice on company foundation, information on tax and laws, settlement guidance, networking and integration and after-settlement services. The agency markets commercial sites within the respective Rhine-Main region, within the urban cluster described in chapter 6.2.2. (FRM 2012) It also markets primarily value added
industries to investors, with the range including ICT, Automation, Creative Industries, Pharmaceuticals and Biotech, Greentech and Finance. The regional agency closely cooperates with the state bank through the Hessen Agentur, opening possibilities of financial subsidies in these fields. Nevertheless, the expert interview with the ministry of Economics in Hesse underlined the limited availability of such funds: “There are no financial means to support Chinese investments to date. This is not expected to change in the near future.”(Kern 2012, for transcript see appendix)
In Hamburg, investment promotion is organized through the HWF- Hamburg Business Development Corporation. As Hamburg is a city-state there are no other regional investment agencies. However, the HWF cooperates with a variety of stakeholder in providing its services.
Figure 20: Structure of Investment Promotion Hamburg
Source: HWF 2012.
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Given that the city has largest harbor and hosts an Airbus development site, it aims to further investments into Logistics, Media, Creative Industries, Renewable Energy, Healthcare, Aviation, Technology, Maritime Industry and Life Science. (HWF 2012) Overall, the city cooperates with stakeholders from those eight different industry clusters. To help it structure its limited resources effectively it cooperates closely with the industry clusters to make use of their respective industry- and international know-how (Matz 2009). The industry clusters are represented through a host of
organizations and companies, representing a cross-section of value-added sectors.
Furthermore, Hamburg investment promotion is among the only to have a distinct regional focus in its investment promotion activities- particularly reaching out to Chinese investors from the Beihai Bay, Pearl River Delta, Jiangtze River Delta and the region around Chongqing. (Matz 2009) For this end, the HWF established foreign representative offices in Hong Kong, Guangzhou and Shanghai.
It appears, that all state-based investment promotion activities focus on value-added activities tailored to improve the productive structure locally. The system of
investment promotion differs from state to state, as can be seen from the examples described above. The commonality between all examples is their focus on guiding Chinese investments into high-end, knowledge-intensive industries. While the
national GTI agency provides services for all German investment locations and across all industries, the states use investment promotion activities to further industrial upgrading and direct investment into selected locations and commercial sectors. Their respective means of influence are however limited financially and by accessibility. It is interesting to note, that for some states (as is the case for Hamburg), the chambers of commerce serve as representative offices for their investment promotion activities.
However this has not played a decisive role for investment promotion on state level in the promotion of Chinese investments.