Germany slaps controls on critical infrastructure ownership

Germany yesterday moved to protect its critical infrastructure with new controls and restrictions on foreign ownership.

The government has extended its Foreign Trade Regulation Act – which previously covered the defence industry and cyber-security matters – to critical infrastructure sectors including energy, water, telecoms, transport and financial services.

The new measures will allow the German government to scrutinise acquisitions from outside the European Union for up to four months, up from the previous two, when buying at least 25 percent of a company. The law will also clamp down on those foreign investors seeking to avoid such inspection through indirect acquisitions by establishing companies inside the EU.

While the effect this might have on British inward investment into German infrastructure is unclear at this stage, countries in the European Free Trade Association – Iceland, Liechtenstein, Norway, and Switzerland – will not be subject to the new regulations. Germany has launched an initiative alongside France and Italy to extend similar measures across the EU.

“Over the last few years, company acquisitions have increased significantly in number and complexity,” said Brigitte Zypries, Federal Minister for Economic Affairs and Energy. “Our existing test instruments must react to this. That is why we broadened the scope of sector-specific testing and included certain critical infrastructures. We remain one of the most open economies in the world, but we also pay attention to fair conditions of competition.”

While Zypries did not specify any countries that may have prompted the rule change, it is believed to be connected to the widespread public concern generated last year by the acquisition of Kuka, the German robot manufacturer, by China-based Midea.

“We owe this to our companies,” Zypries added. “They often compete with countries whose economic order is not as open as ours. In the future, reporting requirements and sufficient testing intervals will ensure critical protection and reciprocity for critical infrastructure companies.”

The Federation of German Industry criticised the measures, saying it makes Germany a less attractive investment location. However, while the German Chamber of Industry and Commerce said that “open borders, protection of property and freedom of capital are essential for our economy”, it understood the government is operating “in a difficult global economic situation”.

Shi Mingde, China’s ambassador to Germany, launched a stinging rebuke of the county’s protectionism in an article for German newspaper Faz last year, accusing it of closing its markets and arguing that it is “currently sending the wrong signals to China and to the outside world”.