Germany tightens FDI controls in infra following 50Hertz saga

The lowering of the ownership threshold from 25% to 10% has received a lukewarm response from industry and the Chinese government.

The German government has strengthened its foreign investment controls on infrastructure less than 18 months after they were first introduced.

The cabinet approved on Wednesday changes to the German Foreign Trade Act to ensure an acquisition of a company can be examined by the government if at least 10 percent is being acquired, amended from the previous 25 percent threshold introduced in July 2017. The law applies to non-EU investors in the infrastructure and defence sectors.

Germany has been working on plans to change the threshold since the summer after the government found itself powerless to stop China State Grid buying a 20 percent stake in regional transmission system operator 50Hertz from IFM Investors. State development bank KfW was eventually used to buy the stake on “national security grounds”. Peter Altmaier, Federal Minister of Economics and Energy, had initially proposed a 15 percent threshold for the new law.

“Companies like to invest in Germany and that’s how it should stay,” Altmaier said. “But we have to be able to look closely at sensitive infrastructures, who buys them and what the consequences are. After all, companies that supply us with electricity, gas, drinking water or our telecommunications are of paramount importance to our coexistence. This will strengthen our national security.”

The law drew criticism from Germany’s Green Party, members of which accused Altmaier of showing “almost schizophrenic features” in defending German infrastructure. The party believes the law to be contradictory because it limits brownfield investments but does not cover construction projects such as Germany’s upcoming 5G network trials, in which Chinese firm Huawei is allowed to take part.

A spokeswoman for the Chinese foreign ministry acknowledged that the new measures do not specifically mention China but issued a warning to Germany about restricting free trade.

“In the face of the complicated situation where protectionism and unilateralism are surging, all relevant parties, when rolling out relevant policy measures, should avoid sending out the wrong signal to the outside world,” she stated. “We hope that Germany can create a fair and open market access environment and stable system framework for the investment of Chinese enterprises and other foreign enterprises there.”

The Federation of German Industries said it was opposed to the tightening of the law and said it should be more clearly limited to national security interests.

“Foreign investors in Germany expect legal certainty just as German companies demand it abroad,” it added.