Germany risks losing key technology in Chinese takeovers: spy chief

BERLIN (Reuters) - Germany’s head of domestic intelligency agency on Wednesday urged vigilance about increased moves by Chinese companies to invest in and acquire high-technology German companies, warning the loss of key technologies could harm the German economy.

Hans-Georg Maassen said intelligence officials had been initially puzzled by a sharp drop in Chinese cyber espionage activities about two years ago, but then realized Beijing was simply using other, legal tools such as direct takeovers, to gain access to German know-how.

“Industrial espionage is no longer necessary if one can simply take advantage of liberal economic regulations to buy companies and then disembowel them or cannibalise them to gain access to their know-how,” he told a cyber conference.

Maassen said Germany remained open to foreign investment, including from China, but steps were needed to safeguard key technologies. He said he had been particularly concerned about the takeover of German robotics maker Kuka by a Chinese firm in 2016 given the sensitive technology involved.

German concerns were stoked by news last month that Chinese grid operator State Grid Corporation of China tried to buy a 20 percent stake in German grid operator 50Hertz, and moves by China’s Geely to quietly build up a 10 percent stake in carmaker Daimler.

The German economy ministry is also reviewing a Chinese bid for aerospace supplier Cotesa, a move which could lead to Berlin blocking the sale.

Maassen said foreign investment could help secure jobs and profits in Germany. “But one also has to see that certain direct investments in certain technologies can also create a domestic security risk,” he said.

Allowing European firms in the sectors of critical infrastructure, resources, sensitive technologies and classified information to fall under foreign control “comes at the cost of technological advances and security, and public order in the European Union,” he said.

Karl Wendling, a senior official with the German Economy Ministry, said Chinese acquisitions of German firms had stabilized at a high level, around $14 billion, a huge increase from the $530 million value of deals seen in 2015.

Chinese investment in other European countries, including the Balkans, has also risen in the same period.

No comment was immediately available from the Chinese embassy in Berlin.

The European Union, under pressure from Germany, France, and Italy, is working to complete a new screening mechanism to better control Chinese and other foreign takeovers of sensitive technologies by the end of the year, he said. “We support foreign investment, but we’re not naive,” Wendling said.

Maassen said the issue was particularly worrying in China’s case, since private Chinese firms were required to share data with the Chinese government, and had to set up party committees that gave the Chinese government control over company decisions.

Additional reporting by Sabine Siebold; Editing by Richard Balmforth