Chinese takeover of EU tech assets set for greater scrutiny

The new rules will prevent foreign investments from threatening national security, largely driven by unease over Chinese acquisitions

BRUSSELS • Chinese investors have renewed their billion-dollar shopping spree for high-tech assets in Europe, but new rules from the European Union (EU) promise greater scrutiny of such acquisitions.

The technology sector in particular has been an important target as China is intent on developing its own semiconductor production to lessen its dependence on foreign technology.

EU negotiators last week approved the first bloc-wide rules to prevent foreign investments from threatening national security, largely driven by unease over acquisitions by Chinese companies.

Under the new rules, authorities are likely to intensify their scrutiny of so-called dual-use technology that can be tapped by both the civilian and military sectors, according to Mikko Huotari, deputy director at the Mercator Institute for China Studies in Berlin. France and Germany in particular are likely to train their eyes more closely on acquisitions from China, he said.

Chinese acquirers have been behind US$4.4 billion (RM18.39 billion)-worth of European deals so far this year, up almost two times the volume for 2017, according to data compiled by Bloomberg.

Under the new law, EU governments will be allowed to request information and offer comments on a foreign direct investment in a particular member country. The nation in which the investment was planned would have to take any remarks and opinions into account when deciding on the deal.

EU officials hope the mechanism will provide a broader overview of Chinese investment in Europe amid concerns that companies with indirect ties to the state are snapping up strategically important businesses. Economy Minister Margarete Schramboeck of Austria, which holds the EU’s rotating presidency and negotiated the Nov 20 accord on behalf of the bloc’s national governments, called the 2016 acquisition of German robotics company Kuka by Chinese appliance maker Midea Group a “wake-up call” for the bloc’s politicians.

The attempted purchase of Aixtron SE, a German supplier of semiconductor equipment, by a consortium of Chinese investors also fanned concerns in both Europe and the US.

Schramboeck stressed that the EU mechanism isn’t aimed only at Chinese investments. Still, China appears to feel targeted by the measures.

In reaction to last week’s agreement, the Mission of China to the EU said investments in Europe by the nation’s companies aren’t part of a political strategy and that it hopes the EU can “steer clear of trade protectionism”.

The new rules still need official approval from the EU governments and the European Parliament. The legislation is on track to take effect at around the end of 2020.

While deals like Kuka and Aixtron sparked heated debate, many other Chinese acquisitions in Europe’s tech sector have flown through with little alarm. That could change under the future system, which is designed to raise awareness among officials about who is investing where.

“Step by step, we are creating a bloc-wide method for raising questions,” said Franck Proust, a French member of the European Parliament who helped negotiate the agreement. “We are determined under the new system to gain information about the ultimate investor and to understand the context of the investment.”

For many European companies, Chinese ownership has meant access to much-needed capital that is sometimes hard to come by in Europe. But greater regulatory scrutiny on such deals in the future could restrict those options. — Bloomberg