
Germany’s Chinese investment problem - noir-york
http://www.politico.eu/article/germanys-chinese-investment-problem-sigmar-gabriel-eu/
======
timthelion
When the Czech republic and other ex-soviet states dropped communism and
started "moving west", the west greeted these countries with open arms and a
chorus of "opening your countries up to foreign investments will spur growth
and make your economies flower!" The Czech Republic responded, by allowing
foreign investments essentially without reservations. This lead to a highly
corrupt fire sale, called the "privatization process" in which state assets
were sold off for far bellow market price to foriegn investors. Czech people,
just comming out of communism, of course, could not afford to invest in their
own country. Now, most of the valulable assets have been sold off, and the
Czechs, to a large extent, live in a country which they do not own.

Now, when the Chineese do the same thing, but in much fairer circumstances
(Germany is hardly recovering from a repressive communist regeim), we're
crying foul? I do not like foreign investment, but a part of me is satisfied,
that the West is finally getting a taste of it's own medicine. Not that it
will reverse the damage done, and not that two wrongs make a right.

~~~
timthelion
At the same time, there is a similar smell of unfairness. Chineese companies a
free to invest in the west, but western companies aren't free to invest in
China. China is like "we're all for free trade, but no, Google can't buy
Baidu" or whatever.

~~~
dforrestwilson1
Firms in China also have massive state subsidies due to currency controls and
bank funding requirements.

In the 1980s Japan went on an international buying spree only to see its
economy crash in the late 80s/90s. Eventually even government supported
economies crash, and when that happens Chinese companies may regret being so
aggressively acquisitive.

------
simonh
"Oh woe is us. Who will save us from downing in all this Chinese money."

There were exactly the same concerns about Japanese investment back in the
80s. Now doing business with Japanese firms and companies like Sony owning
major American firms is just natural. They're not weird alien creatures from
space anymore, they're our business partners and investors. It's normal. The
same will happen with China.

~~~
stupidcar
This seems to ignore the main objection. It's not that Chinese companies are
investing in European economies, it's that these companies are run by the
Chinese state, and that China is not providing reciprocal access to its own
market to Western companies. This is not natural free-market activity, it is a
state-sponsored effort to take technology and expertise from European
companies and feed it into state-owned Chinese ones.

For all the fears raised recently about rising Western nationalism and
protectionism, the Chinese regime is blatantly and unashamedly nationalist and
protectionist as a matter of course. The state decides who wins and who loses,
and they will simply not allow foreign companies to gain a dominant market
position in any significant sector. All market activity, including foreign
investment, is tolerated only so long as it is subservient to the nationalist
goal of Chinese hegemony.

For years, Western politicians and businesses have turned a blind eye to
China's flagrant disregard for the basic rules of free global trade. Partly
out of greed for Chinese money and market access, and partly due to an
entirely wishful assumption that this is only a phase, and that China will
eventually start playing by the rules and acting like a "normal" free market
economy.

This delusion demonstrates a fundamental misunderstanding of how autocratic
regimes like China operate. Just as they cannot, and will not, tolerate any
significant internal competition to their own authority, they will, in the
long term, not tolerate any _external_ competition either, either political,
military or economic. The Chinese state will never be satisfied being one
powerful economic actor amongst others, all playing by the rules of a global
market. They will never accept being checked by laws of trade or other
country's interests, any more than they will tolerate being checked by
democratic accountability or rule of law.

~~~
Roritharr
> The Chinese state will never be satisfied being one powerful economic actor
> amongst others, all playing by the rules of a global market. They will never
> accept being checked by laws of trade or other country's interests, any more
> than they will tolerate being checked by democratic accountability or rule
> of law.

The same could be said about the US i guess. It's the EU that looks like a
naive child on the World Stage...

~~~
varjag
There are very few practical problems for foreign companies to establish,
operate, and sometimes dominate in the U.S. market.

~~~
Roritharr
Sure, but good luck trying to sue the USG for war crimes at the ICC in Den
Haag.

~~~
varjag
As opposed to "naive child" of EU? Was anyone from the UK tried at the ICC for
Iraq war? Anyone from Belgium held responsible for Congo yet? I mean, they
have Hague real close, shouldn't be a problem..

------
noir-york
China is practicing the economic equivalent of embrace (buy Western
technology), extend (their own 3G standards for instance), and eventually
extinguish (locking the West out of their market).

As private individuals, we don't mind being bought out by Chinese. As members
of societies, I believe it is important to know that there is a concerted plan
by China that is at best neutral, and at worst, hostile to Western economic
interests. Individual gain at the long term loss of the society we form part
is not really in anybody's interest.

We should still trade with China, obviously, and even sell companies, but the
terms of trade should not be one-sided: Western companies should get the same
market access as Chinese companies do.

~~~
tajen
Let's not forget the China has acquired this position by providing the world
with goods for 30 years, for a price that meant misery for their workers. It's
not entierly undeserved that they are now able to execute whatever grand evil
plan they imagined. We're free to prevent them from accessing our markets, as
long as we reimport manufacturing into free-market countries, which would mean
paying a bit more than $7 for a toy, clothes and electronics, or accepting a
minimum wage under $10/day for our Western workers. Serious question. is our
independence worth the effort?

~~~
noir-york
> or a price that meant misery for their workers.

Misery is relative. What is misery to us, was a god send to Chinese peasants
who flocked in their millions to work in factories that promised at least some
security as opposed to the utter misery of toiling in the fields. Those
exports to the West helped lifted hundreds of millions of Chinese out of
poverty.

------
kriro
As a point of reference: Chinese investors bought 37 German companies in the
first half of 2016 (39 in all of 2015)[0]. It's noteworthy that those
investments tend to be with the idea of a long term engagement. Also
interesting that some (most?) of the companies have been bought and
restructured and resold at a profit by funds. Buy, restructure and sell to the
Chinese seems to be a common strategy. I'm not a fan of the "we buy here, you
can't buy in our country" mantra but by and large I see these investments less
critically than most people I know. I think they are genuinely interested in
keeping the companies profitable and importing/improving the technology (and
not just strip mining for tech/ideas as many people claim).

[0, in German] [https://www.welt.de/finanzen/article157037250/Chinesen-
kaufe...](https://www.welt.de/finanzen/article157037250/Chinesen-kaufen-
deutsche-Unternehmenslandschaft-leer.html)

------
jakozaur
After the second world war, Soviet Union was growing so fast that many smart
people in western world that communism is superior to capitalism.

However, Soviet Union economic growth peaked in 1959. It was primarily based
on catch up growth: recovery from WW 2 and moving ppl from agriculture to
industry.

Is China similar story? [http://blogs.ft.com/beyond-brics/2015/12/09/like-
soviet-russ...](http://blogs.ft.com/beyond-brics/2015/12/09/like-soviet-
russia-in-1959-has-china-already-peaked/)

A good read on that: [https://www.amazon.com/Why-Nations-Fail-Origins-
Prosperity/d...](https://www.amazon.com/Why-Nations-Fail-Origins-
Prosperity/dp/0307719227)

I give 50/50 chance to China will avoid this fate, but not more.

~~~
noir-york
Russia had a ceiling: Russian population was less than that of Europe or the
US. Chinese population is larger than both combined.

Russia was wedded to an ideology; the Chinese are pragmatist and practicing
corporate capitalism. China will not only avoid the same fate, they will
almost certainly come to dominate by sheer force of numbers.

China is practicing the economics equivalance of embrace (buy Western
technology), extend (their own 3G standards for instance), and eventually
extinguish (locking the West out of their market)

~~~
varjag
Soviet Union had larger population than the USA in 1959. Russians comprised
slightly over a half of the overall Soviet population.

That's before you add any Warsaw Pact countries..

------
eb0la
The truth is EU companies are being sold to US and Chinese companies.

In the case of the US this is incentivized by the goverment (maybe indirectly)
because US-based companies have to pay taxes for money they move to the US: in
this case it is cheaper to use that money to buy invest overseas and get more
market share.

China might not have a plan, but they actually have cash in hand and they are
pushed to invest somewhere else because they cannot have that money at rest.
They need to _recycle_ that benefits and buying in europe makes sense because
is a big market that makes easy to keep money flowing in a global scale.

~~~
charlesdm
> In the case of the US this is incentivized by the goverment (maybe
> indirectly) because US-based companies have to pay taxes for money they move
> to the US: in this case it is cheaper to use that money to buy invest
> overseas and get more market share.

Actually, that is not entirely correct. US companies are incentivised to
invert and redomicile abroad (often in the EU), because that way they can
avoid the global taxation penalty the US imposes. More often than not, an EU
company acquiring a US competitor will be able to achieve more tax synergies
than a US company acquiring a US competitor.

~~~
jacobush
s/achieve more tax synergies/evade more tax

~~~
charlesdm
Evasion means you do not declare certain income, and that gets you in jail. I
think that's obvious. You want people declaring their taxes. Avoidance,
however, is staying within the law to achieve a beneficial outcome.

Given any company has freedom to structure transactions in any way they want,
it's only normal to go for the most tax efficient way of generating profits.
As if you would pay 35% corporate tax if there is a simple legal way to only,
say, pay 20%?

Let's say there are two ways to book a profit: royalty income is taxed at 15%
and normal corporate income is taxed at 30%. You develop a software product.
If the tax code allows you to book all of your (software) income as royalty
income, why wouldn't you?

Honestly, people frequently see evasion and avoidance in the same way, but
they are not. If a tax law framework exists, and you stay within it, I don't
see how you're doing anything wrong. Change the laws. Avoidance is only
possible due to bad legislating. It's all too easy for politicians to shame
companies while they are the ones doing a poor job.

Some countries are proactive in closing avoidance techniques, others are not.
This is entirely dependant on the politicians in charge and the policy set
out.

~~~
jacobush
Thank you for clarifying evasion vs avoidance. But in a larger context, there
is some friction. The companies are trans-national. Countries, not. So by
legal or illegal means, companies tend to shift their weight around to where
the money stays with them.

To companies, legality is just an expression of power. If the counter party
(the government) is strong, the company either focuses on legal avoidance (GM)
or avoids the reach of the strong party (Ericsson avoiding US jurisdiction).
If the counter party is weak (south american governments) they can be illegaly
manipulated (Ericsson). If the government has strong local enforcement but
little resources and incentive to go after international shady deals, the
country can be used as an operations base but with no illegal activity taking
place in THAT country. (Sweden and Telia Sonera, Ericsson.)

------
makomk
"help them secure access to the growing Chinese market" is a very euphemistic
way of referring to China's refusal to let non-Chinese-owned businesses
operate there. China, you see, does not actually believe in free trade and is
really rather keen on protectionism when they're the ones doing it..

~~~
witty_username
Same could be said to a lesser extent about the US.

------
TXV
[rant] I have first hand experience with this. In China there is a law which
states that in certain sectors and above a certain level of "security" (guess
who defines security) the supplier company must be Chinese and its legal
representative must be a Chinese national. Of course this law is loosely
enforced. It's not that they prevent you from doing business there. Simply
it's like a gun pointed to your head. When they decide it's time to pull the
trigger, you're out. You might think to buy a Chinese company or set up a
commercial partnership or found a JV and then sell your products through them.
One successful example of this is Blizzard. However this works up to a point-
the "security" level. When you're above the line, even the product must be
Chinese, and that's when you transfer your sources to the local counterpart or
give up and leave.

Concretely, this means that you can forget doing business with the Chinese
gov. Or prepare to be canned up any time.

Now couple this with the wild investments China is conducting on a cash-hungry
Europe. And of course it is state-driven, because outbound capital flows are
heavily restricted in China otherwise.

However it looks like Chinese acquisitions in EU not only play toward China's
long-term goals to rebrand their production (and eventually make money off of
our own market). You can also see it as a modern cold-war with the USA, where
the stake is industrial predominance and the means is influence over Europe.
Just like the old USA vs USSR times. The USA try to make deals with us, while
the Chinese outright buy us.

Europe has mainly two choices, take a side or become the third pole. I think
bot are politically valid choices, however what is really astonishing and
enraging, and the article conveys it very well, is that EU has the political
energy to do neither. It's not that our political agenda gets crushed by
either side. Is that we have none. And this to me means that the European
Union at the end of the story will be the only one true big loser, and we as
Europeans will follow along. [/rant]

~~~
zhte415
For those interested in more about the legal representative /'fa ren'
(literally, legal person) there's a good overview here: [http://www.china-
briefing.com/news/2011/08/11/roles-and-resp...](http://www.china-
briefing.com/news/2011/08/11/roles-and-responsibilities-of-the-china-legal-
representative.html)

TXV: Not a law about the role of legal representative in general, right, but
that industries that are defined as 'protected' are not open to foreign owned
companies?

The role of the legal representative is to represent the company in civil law.
The legal representative also has a supervisor or board of supervisors, so
their actions can be kept in check. This in indeed one of the main roles of
the supervisor/board of supervisors: to make sure the legal representative
does not run away with the company's cash.

~~~
TXV
Correct, it's not about the role of the legal representative.

I agree that the terminology is not very clear, as customary of Chinese laws.
It states that the physical person or the legal entity investing in the
company must be Chinese, where the term you cited /'fa ren' 法人 refers to the
legal entity (e.g. a company) and the legal representative I cited is the
physical person investing in the company (the president or the owner, which if
I'm not mistaken is the same guy who represents the company before the law).

Terminology aside, it goes even further. It even states that 工作人员仅限于中国公民 the
workers of that company must be Chinese nationals!

------
shanwang
I doubt the EU has any plan of anything. With rise of nationalism and
protectionism, the EU is fighting for its own existence.

China was never a equal trade partner to the west. In fact, I don't think any
of the developing countries can be equal trade partners to the developed
countries. When you are weak, open your market completely to western
multinational companies with huge capital and technology advantage is
economical suicide, and it will benefit no one but the rich and powerful at
the very top on both sides.

------
legulere
Maybe China is just showing us that the ideology of free market with no
protectionism at all might in fact not be the best thing after all.

------
Annatar
Europeans won't buy Chinese goods because the quality is horrible, and they
understand that by buying them, they would be making themselves poorer and
jeopardize their own jobs and economy, even if they are the cheapest. So the
only way for the Chinese to make inroads was to start buying European
companies, and then infiltrate their goods into Europe that way. At least they
will try, and in the long term, nothing short of major political interventions
will stop them from eventually moving those jobs to China, where the labor is
cheaper... cheaper for now.

I for one don't want to support oligarchs in People's Republic of China
exploiting people who have to work 16 hour days for six days per week for low
pay. We had that in Europe in the 19th century, and we learned that it leads
to really low standard of living. It's exploitation.

------
bogomipz
>"“To have a major Chinese shareholder is a huge benefit in opening doors,”
Gordon Riske, CEO of Germany-based Kion, parts of which were acquired by
Chinese state-owned Weichai Power in 2012, said during this week’s Hamburg
Summit, a conference on EU-China economic relations."

My concern is that those doors might only open in one direction though from
China into another country. Will any of these acquisitions result in Germany
having an easier time doing business in mainland China?

~~~
dilemma
> Will any of these acquisitions result in Germany having an easier time doing
> business in mainland China?

That's obviously what your citation says.

------
carapat_virulat
After all, communists are the best managers of capitalism.

~~~
clydethefrog
*State capitalists are the best managers of capitalism, the government does control the means of production, not the people themselves.

------
forgottenacc57
China is buying the world.

------
paradite
I am surprised to see Hacker News turning into China News recently.

~~~
JBiserkov
Warning: Gross oversimplification and misrepresentation of facts ahead

There is an apparent trend of Planet Earth turning into Planet China recently.

Whether this trend is real, whether it will continue, whether you or I believe
in it - who knows.

~~~
meira
> There is an apparent trend of Planet Earth turning into Planet China
> recently.

Not planet earth, Planet US.

