MESSAGE
| DATE | 2020-10-01 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [Hangout - NYLXS] The Chinese Method of invading Europe and
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wsj.com
WSJ News Exclusive | Behind China’s Decade of European Deals, State
Investors Evade Notice
Daniel Michaels
11-14 minutes
China’s government has been deeply involved—often from behind the
scenes—in a wave of acquisitions across Europe over the past decade.
Of 650 Chinese investments in Europe since 2010, roughly 40% have high
or moderate involvement by state-owned or state-controlled companies,
including some in advanced technologies, according to new research by
Dutch consulting firm Datenna BV. The analysts combed through millions
of records in China’s company-registration databases.
In many of the European mergers and acquisitions, Chinese state
influence was effectively hidden by layers of ownership, complex
shareholding structures and deals executed via European subsidiaries,
Datenna found.
The extent of Chinese state involvement highlights European governments’
lack of a system as powerful or active as the Committee on Foreign
Investment in the U.S., known as Cfius, which can block international
acquisitions in the U.S. based on national-security grounds. European
officials increasingly worry this leaves companies exposed to unwanted
foreign influence, loss of critical innovations and an erosion of
cutting-edge industries.
The European Union aims to start filling that gap with new rules that
take effect on Oct. 11 and should flag potential security consequences
of foreign investments. China is a prime target. EU officials are also
pressing members to ensure their companies aren’t sold at fire-sale
prices amid the coronavirus economic contraction, as critics say
happened during the eurozone crisis a decade ago.
State-linked enterprises are critical to China’s top-down economy,
giving the government and the Communist Party outsize influence in
business. Western governments and executives have long accused Chinese
companies of predatory and anticompetitive behavior, often backed by
preferential financing, that distorts sectors from steel to solar panels.
A spokesman for the China Chamber of Commerce to the EU, founded by
large Chinese state-owned investors in Europe, said the bloc “is a
mature and open market and China is willing to open its door even wider.”
Now, China’s state-backed enterprises face increased international
scrutiny amid Beijing’s growing appetite for advanced Western
technologies, a hunger that has sparked concerns that China is buying
European know-how that it can use to leapfrog European companies.
Chinese government influence in technology giants including Huawei
Technologies Co., ZTE Corp. and TikTok owner ByteDance Ltd. has become a
tense political issue in the U.S., Australia and other countries. While
most European governments have avoided following the Trump
administration’s confrontational approach with Beijing, pressure for
action is rising.
Discerning state influence in Chinese companies has grown more difficult
as President Xi Jinping has tightened government and Communist Party
control over the economy and society. The party’s Central Committee
recently advocated greater work “to realize the party’s leadership over
the private economy.”
Beijing’s involvement in European acquisitions for years drew little
scrutiny. The European Court of Auditors, an EU watchdog, in a report
this month said official information on Chinese direct investment is
“not timely… fragmented and incomplete.” Chinese investment is “a black
hole for data,” said court member Annemie Turtelboom, who led the analysis.
The EU, in a report on foreign-direct investment published last year,
found 57 acquisitions by Chinese state-owned enterprises between 2010
and 2017. Datenna identified 160 deals over that period with what it
considers significant Chinese state influence, and 100 more with
moderate influence. The EU is currently updating its analysis, said a
spokeswoman.
European countries including Germany, France and the U.K., which this
year left the EU, have recently assumed powers to block deals. Alicia
Garcia-Herrero, chief economist for Asia-Pacific at French bank Natixis,
said Europe is enticing to China for its technology and because its
investment-screening mechanisms are lax compared with those in other
advanced economies.
Private researchers who track Chinese financial flows in Europe have
previously found that, measured by value, state enterprises are behind
more than half of announced acquisitions. China’s largest investments,
like China National Chemical Corp.’s $7.9 billion acquisition of Italian
tire maker Pirelli & C. in 2015, have been done by clearly state-owned
companies.
Less evident has been Chinese state involvement in hundreds of smaller
deals and those without an announced price. Many of the deals Datenna
analyzed had no published value. Roughly 15% were done through European
subsidiaries or earlier acquisitions, meaning they evaded scrutiny as
foreign investments.
In many listed Chinese companies that are apparently private,
significant blocks of shares are held by entities under state control,
Datenna found. Government links in many Chinese acquisitions have
therefore escaped notice.
Tracking Deals
Datenna found 650 companies in Europe acquired by Chinese firms from
2010 to 2020. In all, the Chinese state has a high level of influence on
161 of these firms.
2011: Chinese investors become big players in European M&A for the first
time, with deal value topping $10 billion.
2016: Chinese direct investment in European companies peaks in value and
number of deals.
2018: Deal flow slows significantly amid political pressure in Europe
and capital restrictions in China.
20102011201220132014201520162017201820192020
Filter by level of Chinese state influence
LowMediumHigh
Source: Datenna
Datenna, which specializes in investment screening and export-control
regulations, spent almost four years building its ownership database. It
grounded assessments of state influence on factors including the size of
government shareholdings in a Chinese buyer, the size and influence of
other shareholders and whether the government shareholder is a strategic
investor.
The China Chamber of Commerce to the EU spokesman referred questions
about the research to a report the group recently published, which plays
down concerns about state involvement. State companies “are independent
in decision-making,” most are listed on stock exchanges “and have a
healthy corporate governance structure.”
“The investment and development of Chinese enterprises in Europe are
market-oriented decisions,” the report said.
Datenna Chief Executive Jaap van Etten, a former Dutch diplomat, said
that while more than half of Chinese investments in Europe have little
state involvement, “when there is state influence, it’s often at a very
high level.”
State involvement emerges in many small acquisitions targeting advanced
technologies that Beijing seeks for economic independence, especially
amid trade fights with Washington that have crimped access to microchips
and other cutting-edge products.
Mr. Van Etten pointed to Anteryon Optical Solutions in the Netherlands,
a spinoff of Philips Electronics that makes digital equipment for
cameras and robotics. A subsidiary of Shanghai-listed Suzhou Jingfang
Semiconductor Technology Co.—also known as China Wafer Level CSP
Co.—last year took a 73% stake for €32 million (equivalent to $37
million) in Anteryon. The buyer is controlled through multiple layers of
interlinked shareholders who are ultimately in the hands of state
entities, Datanna concluded.
Channels of Influence
Dutch digital-optics equipment maker Anteryon was acquired last year by
a Chinese company that is ultimately controlled by state-linked entities.
Suzhou Industrial Park Finance Bureau
Anteryon
Suzhou IndustrialPark Finance Bureau
Suzhou IndustrialPark Management Committee
SuzhouIndustrial ParkAdministrative Committee
National Integrated CircuitIndustry Investment Fund
National Assemblyof the PRC
Source: Datenna
Anteryon’s Dutch CEO Gert-Jan Bloks said its new shareholders are very
professional. “From a strategic and operational perspective I do not see
any involvement from the Chinese government in our company” or in its
owners, he said.
Chinese investments in Europe have become increasingly controversial
following acquisitions of leading high-tech companies such as German
industrial-robot maker Kuka AG in 2017 and storied brands like Pirelli.
Europe hasn’t had a mechanism to intercede in deals like Northeast
Industries Group’s 2015 purchase of Germany’s Fuba Reception System for
an undisclosed price. Fuba, a spin-off of former General Motors Co. unit
Delphi Co., has long been a world leader in vehicle communications.
Northeast’s parent, giant defense contractor Norinco Group, is
controlled by an arm of China’s State Council, so Fuba “is now
controlled by the Chinese government,” Datenna concluded.
Fuba is one of several European companies that previously focused on
advanced civilian technologies and since their Chinese takeovers have
become part of groups making products with potential military
applications, known as dual-use technologies, Datenna found.
Fuba managers didn’t respond to requests for comment.
Europeans a decade ago welcomed Chinese-state investment. When the euro
crisis crushed southern European economies, leaders across the continent
urged Portugal, Greece and Italy to sell big-ticket infrastructure
assets such as power companies and ports to Chinese buyers.
As a result, it has long been evident that Chinese state investors
dominated deal value in Europe. Consulting firm Rhodium Group found that
56% of $188 billion in Chinese direct investments into the EU between
2010 and the first half of this year came from state companies.
Large investments by overtly state-owned Chinese enterprises have
dwindled in recent years as a result of capital restrictions placed by
Beijing and a cooler reception in Europe, according to a recent report
by Rhodium and Germany’s Mercator Institute for China Studies.
But shareholding structures of Chinese state-linked companies are
frequently complex, involving multiple investment funds, agencies and
layers of ownership, which can complicate determining where final
control sits.
The EU Chamber of Commerce in China said in a report last year that “the
continued mixing of politics and business, with the [Communist Party]
insinuating itself into the governance structures of private companies,”
is blurring the distinction between business and the state.
Write to Daniel Michaels at daniel.michaels-at-wsj.com
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