China Becomes Top Player in German M&As
China has passed the US to become Germany’s biggest foreign investor since last year. Chinese firms are currently involved in 20 mergers and acquisitions in Germany, a big increase over 15 in 2011 and six in 2008.
“China is the most important investor in Germany,” said Michael Pfeiffer, head of Germany Trade & Invest (GTAI), the government agency that promotes foreign business investments in Germany.
China’s M&A activity in Germany involves some industry leaders with revenues in the billion-plus-euro range. Chinese firms are currently more active in acquiring and investing in German firms than those of any European nation.
China made $68 billion worth of outward foreign direct investment (FDI) in 2010. From 2007 to 2008 FDI doubled from $23 billion to $52 billion, according to Karl Sauvant of Columbia University’s Vale Columbia Center on Sustainable International Investment. China will pump in another $1-2 trillion in FDI during the next decade, multiplying its portfolio of over $300 billion, projects Sauvant.
In 2011 Chinese firms launched 158 investment projects in Germany while the US had had only 110, Switzerland had 91 and France had 53. China accounted for €15.5 billion out of a total of €93 billion in net capital investment in Germany in 2010, according to data from Bundesbank.
Sanya Heavy Machinery, owned by China’s top billionaire, recently completed the purchase of German pumpmaker Putzmeister for €360 million euros ($472 million). Also during the past few weeks Auto parts maker Hebei Lingyun agreed to buy Kiekert and XCMG, China’s leading construction machinery maker, is finalizing an investment deal in concrete pump maker Schwing.
The aggressiveness of China’s M&A bidders has rivals from the US and Europe griping that they’re spoiling prices. That’s because the recent drop in the value of the Euro and the impact on stock prices of the sovereign debt crisis have made German firms a bargain for Chinese firms in search of talent, technology and globally respected brand names in the industrial machinery sector.
“We are expecting a wave of Chinese-German transactions. There are some very big deals in the pipeline right now; negotiations are ongoing,” said Yi Sun, Ernst & Young’s China expert.
Another reason for China’s aggressive bidding on German firms is that many can provide precisely what China needs to meet its 12th Five-year Development Plan. Beijing has pledged to invest $1.7 trillion to push the development of high-end manufacturing equipment, information technology, alternative energy, biotechnology, advanced materials and environment-friendly technologies — all areas in which Germany has many globally competitive mid-sized firms. That money will be funneled to China’s giant state-owned firms, as well as private firms with close ties to key officials, for the kinds of investments being made in Germany.
What’s more, Germany invites Chinese investments while the US, for example, has shown a high degree of xenophobia about having major firms being snapped up by Chinese firms.
“The Americans always fear that if they sell high-tech to China, we will build planes, tanks and guns to attack them,” says Sany manager Xiang Wenbo without being facetious.
“Chinese companies are very welcome in Germany,” German Chancellor Angela Merkel told China’s premier Wen Jiabao while visiting China in February.
Unlike the complex web of laws that keep US firms from selling to China anything that might be considered to have national security implications, German laws don’t single out China as a potential military threat.
Yet another factor is the booming trade between the two nations. In 2010 it soared 40% to 130 billion euros. About a third of China’s total trade with the EU was with Germany.
From Germany’s perspective China’s keen interest in acquiring German knowhow is a double-edged sword that can help transform China. A key component of what Chinese firms buy with their investment in German companies are the managers and technical talent. The only way China can entice German staffers to come work for the new owners is to make China an attractive place in which to live as well as work by expanding the protection of the kinds of personal rights for which is has drawn so much heat from the west.