August 7, 2018 / 11:58 AM / 10 days ago

UPDATE 1-Germany considers tightening controls on buying strategic firms

(Recasts with source, adds comment from BDI)

By Michelle Martin

BERLIN, Aug 7 (Reuters) - Germany is considering tighter controls on foreign investments as concerns over Chinese takeovers of strategically important technology firms mount.

Berlin wants the power to investigate if an investor outside the European Union buys at least 15 percent of certain German defence-related or security-linked technology firms, an Economy Ministry source said on Tuesday.

Germany tightened controls on foreign investments last year after a series of high-profile takeovers by Chinese companies, making it possible for the government to intervene if a buyer amassed a shareholding of 25 percent.

And the German government last week signalled it was prepared to use a new power to veto foreign takeovers of German companies in the case of a Chinese bid for toolmaker Leifeld.

This came after Leifeld’s majority owner Georg Koffler said China’s Yantai Taihai had dropped its attempt to buy the company ahead of an expected veto by the German government.

The source did not name specific companies but said sensitive sectors included operators of critical infrastructure like cloud computing, drinking water suppliers and sewage disposal systems, systems of cash supply, hospital information systems, air traffic systems and local public transport.

Last month, a German state bank bought a stake in high-voltage grid operator 50Hertz to prevent China’s state grid acquiring the shareholding and promised to consider ways of better protecting companies from foreign acquisition.

The Economy Ministry should now be able to investigate if a non-EU investor acquires a shareholding of at least 15 percent of voting rights in the companies concerned, the source said.

German newspaper Die Welt first reported the proposal to change the German Foreign Trade Ordinance, said it was being coordinated with other ministries and added that a law that provides for more control could come into effect this year.

“Until now we’ve only been able to make checks when at least 25 percent of a company’s shares have been acquired. Now we want to lower this threshold so we can review more acquisitions in sensitive economic sectors,” Die Welt quoted German Economy Minister Peter Altmaier as saying.

In Germany and other countries including the United States, France, Australia and Britain, there are concerns that China and other rivals are gaining access to key technologies via takeovers.

Members of the European Parliament are nearing agreement on a proposal that would broaden the powers of the European Commission to scrutinize foreign investments amid rising concern about Chinese acquisitions on the continent.

Joachim Lang, managing director of Germany’s BDI industry association, sounded cautious about the plans, saying foreign investment was important for Germany and the investment climate needed to remain open.

He said the government needed to proceed in a “measured” way in amending the German Foreign Trade Ordinance but it was good that the government wanted to make conditions clear because investors needed legal certainty.

“Lowering the investigation threshold must be limited to sensitive security-related areas and must be strictly oriented towards protecting national security,” Lang added.

The head of Germany’s domestic intelligence service has said that Chinese state actors seeking trade secrets could be behind bids that nominally came from private firms, highlighting a seeming correlation between a decline in hacking attempts originating from China with an increase in bids. (Reporting by Michelle Martin Editing by Alexander Smith)

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