Surging investments made by Chinese firms in EU high-tech industries is fueling conflict between Beijing, Berlin and Brussels, reported The Politico.

The EU and Germany have been slow to react to Chinese government’s execution of meticulous plans to acquire advanced technologies the country lacks through Chinese company takeovers of foreign firms.

Trade experts warned recent spending sprees by Chinese companies, many financially supported by Chinese government, will harm European business competitiveness in the long haul, but Germany and the EU are still working on a political response.

German Minister for Economic Affairs and Energy Sigmar Gabriel shaking hands with Vice Chancellor, Russian Minister of Foreign Affairs, Sergey Lavrov at Munich Security Council 2015. (Photo courtesy of MSC viaFlickr)

“As we don’t have EU-owned companies we cannot [behave] the same [as China],” European Commission Vice President Jyrki Katainen told Politico.

European businesses also are disinclined to halt the billions of dollars of investments from China, which provides the needed short term capital and helps them secure access to the growing Chinese market.

“To have a major Chinese shareholder is a huge benefit in opening doors,” said Gordon Riske, CEO of Germany-based Kion, parts of the company were acquired by Chinese state-owned Weichai Poweri n 2012, during the Hamburg Summit, a conference on EU-China economic relations.

European officials, business leaders and lobbyists met with Chinese counterparts at the Hamburg Chamber of Commerce for two days of talk last week, reaffirming Chinese investments were still welcomed in Europe. In spite of warnings last month from German Economy Minister Sigmar Gabriel that Germany was sacrificing “its companies on the altar of free markets.”

Made in China 2025 spurs technology grabbing spree

China’s aggressive takeover of European companies is part of its plan to achieving “Made in China 2025,” which is aimed at transforming the country into a manufacturing superpower.

One of the aims of the policy is to replace foreign technology with Chinese developed technology.

Despite Chinese Premier Li Keqiang reassuring German Chancellor Angela Merkel at a press conference last June in Beijing that China had no intention of starting a trade war that would not benefit anyone, conflict has been growing in the background.

Germany has become the top battleground in Europe because of its leading position in the region.

“Germany is the center of Europe,” Nan Cunhui, chairman of Chinese electrical company Chint Group, told the audience in Hamburg. “Brands, manufacturing technologies, in every aspect Germany is the leader. Other countries, they need to learn from Germany. Germany is the big brother of Europe, and it needs to play a leading role.”

About 17% of China’s foreign investments since 2010 were targeting German industries.

China’s recent investment spree has raised concerns in Germany, reported The Diplomat. In the first half of 2016, Chinese investment funds acquired more than 40 German companies, and also made six minority-stake investments. In fact, during the first six months of 2016 alone, Chinese business investments in Germany surpassed the last five years combined, according to accountancy company EY statistics.

China has invested about EUR 11.3 billion (US $12.1 billion) in Germany during first half of 2016, a significant chunk of the EUR 72 billion it invested in EU in total during the same period, wrote The Diplomat.

Although, in general foreign investments have been beneficial for EU as a whole, and Chinese capital is creating new industrial companies is a positive thing,

Overall, Chinese investment in Europe could top €27 billion this year, the European Commission estimates. Katainen, who is the commissioner for jobs, growth, investment and competitiveness, stressed that, in general, foreign investment is positive for the European economy.

“Where Chinese capital is creating new industrial companies or things like that, it is a completely positive thing,” he said.

However, critics have noted China has been distorting competition with its recent investments.

“China uses an outbound industrial policy, using government capital and highly opaque investor networks to facilitate high-tech acquisition abroad,” a report by the Mercator Institute for China Studies, to be published in December stated.

In an earlier report from The Diplomat this month, it noted Germans felt they were being taken advantage of despite reaping certain benefits from China’s investments in German jobs and R&D funding.

“Fair rules” that that “regulate investment, market access, and competition that all parties adhere to are a precondition for trade growth,” wrote German Economy Minister Sigmar Gabriel. While preventing protectionism is important it could not be achieved “by accepting and adapting to unfair and aggressive trade practices,” he added.

State-sponsored Chinese company takeovers over German companies and others often provide unfair financing advantages that make it difficult for European or American counterparts to come up with better or even similar offers.

Moreover, Chinese government has strict foreign investment regulations that prevent German companies from taking over Chinese companies or require they form joint ventures with Chinese companies. German companies cannot choose their joint venture partners, such as the automobile industry, which are delegated by the Chinese government, The Diplomat added.

German Economic Minister has limited say in Aixtron and Grand Chip investment deal

Even though Gabriel voiced his concerns and even withdrew approval for Chinese investor Grand Chip Capital to takeover German company Aixtron, his ability to block the merge is limited.

Gabriel’s hands are tied under Germany’s Foreign Trade Act, the government may only intervene if an investment threatens national security.

His intention is to elaborate the scope of the definition of threat, but the proposal will have to be implemented at the European level.

Gabriel will need the receive backing from other EU countries if he is set on taking on the Chinese, but it will be no easy task. Many Central and Eastern countries rely on Chinese investments to support their faltering economies.

The European Commission will not support Gabriel’s stance.

“We cannot interfere with these sensitive issues, so we just try to create the general rule base,” said Katainen.