China Threat

Siemens and Alstom Form European Train Giant to Beat Chinese Competition

By JACK EWING and LIZ ALDERMAN

Siemens Alstom would make systems and equipment for two of Europe’s high-speed rail lines, Germany’s ICE and France’s TGV, which can zip between cities at about 185 m.p.h.

FRANKFURT — Once, the merger of two iconic European companies might well have been derailed by regional political rivalries. 

But in the case of a deal between Siemens and Alstom, those concerns have receded in the face of a larger threat: China.
The proposed merger of Europe’s two largest train makers, one German and one French, demonstrated on Wednesday that economic imperatives are pushing the Continent together even as populist politicians try to pull it apart.
Siemens, a German electronics and engineering giant, and France’s Alstom, a maker of the high-speed TGV, said late Tuesday that they will merge their units that make trains, streetcars and signaling systems. 

The deal is backed by the French government, and the two companies provided details of the deal the following day.
The new company, to be called Siemens Alstom, is a response to intensifying competition from China Railway Rolling Stock Corporation, the state-backed train maker that has been winning contracts in the United States and emerging markets where mass transit is a fast-growing business.
The company’s success is emblematic of China’s increasing economic power, which, combined with a more isolationist American foreign policy, is forcing European leaders to violate old taboos in order to improve the functioning of the European Union and its economy.

“The message of this merger is that the European spirit is alive,” Joe Kaeser, the chief executive of Siemens, said at a news conference in Paris on Wednesday. 

“That’s a powerful message in times that are marked by populism and nationalism and social and political divides.”
The announcement comes just days after a far right party won seats in the German Parliament for the first time since World War II. 

On Tuesday, Emmanuel Macron, the French president, called for “the rebuilding of a sovereign, united and democratic Europe” that would include stronger border controls but also a European budget large enough to help countries in economic trouble.
Competition from China has already been a factor in other big European mergers. 

Last week, the German steel giant ThyssenKrupp said it would merge its European steel operations into a joint venture with Tata Steel. 

And last year, Nokia of Finland acquired Alcatel-Lucent, a French maker of telecommunications equipment, in part to address intense competition from China’s Huawei.
Other sectors, like shipbuilding or semiconductors, could also be ripe for mergers.
Mr. Macron has made competition from China a central focus of his European policy drive. 

This year, he proposed Europe-wide scrutiny of any new major stakes by Chinese companies in European industrial jewels, but was met with resistance by small countries like Greece and Hungary, which are eager for new investment.
The French president and other European leaders have grown increasingly alarmed that the E.U. is ceding control of advanced technology to China. 

In a recent speech in Athens, Mr. Macron called for strengthening the bloc into a “power that can face the U.S. and China.”
Those concerns deepened after a state-owned Chinese chemical company, ChemChina, bought the Swiss pesticides and seeds group Syngenta this summer for $43 billion. 

The Chinese state-backed shipping conglomerate Cosco recently took a majority stake in Greece’s Piraeus port to anchor China’s New Silk Road through Europe. 

Germany itself has been no stranger to takeover bids by Chinese state-backed firms.
Just weeks ago, Chancellor Angela Merkel of Germany tightened rules to limit takeovers of German strategic assets, a move aimed at Beijing.
Chinese competition was a driving factor in Mr. Macron’s backing to seal a deal between Alstom and Siemens, despite outcries from political opponents in France that he was handing over a French icon to the Germans.
“The big story here is the French willingness to let this happen,” said Mikko Huotari, director of the international relations program at the Mercator Institute for China Studies in Berlin. 

“Alstom is one of the crown jewels of French industry.”
The Siemens-Alstom deal is in part a bid that being bigger may be a better way to counter China Railway Rolling Stock, known as CRRC, which has grown into the world’s largest and most competitive maker of railway equipment. 

The European company could yet grow further: Ahead of Tuesday’s announcement, there had been speculation that Siemens could link up with Bombardier of Canada. 

On Wednesday, Mr. Kaeser of Siemens did not rule out that Bombardier could later become part of the combined company.
Still, with sales of over $33 billion last year and 180,000 employees worldwide, CRRC is bigger than the train businesses of Siemens, Alstom and Bombardier combined.
Last year, the Chinese company secured contracts to build 64 subway cars for the city of São Paulo, and sold more than 800 railway cars to Chicago for $1.3 billion, winning the deal by submitting a cheap bid with good technology.
“Of course CRRC is extremely strong, and has changed a little bit the picture of the market,” Henri Poupart-Lafarge, the chief executive of Alstom, told reporters Wednesday.
Mr. Poupart-Lafarge will be chief executive of the new company, which will have its headquarters in Paris. 

The Mobility Solutions unit of Siemens Alstom, which provides systems to control rail traffic and is more profitable than the unit that makes trains and streetcars, will be based in Berlin.
The new company will have annual revenue of €15.3 billion, an order backlog valued at €61.2 billion and more than 62,000 employees worldwide.
Alstom in particular is a symbol of national technological might for the French, with high-speed TGV trains racing across the countryside, and Eurostar trains connecting Paris to London in just over two hours through the Eurotunnel.
While populist parties such as the National Front are hostile to closer political ties in the European Union, they are less likely to oppose corporate mergers that protect European companies from foreign competition.
Pro-European political leaders like Mr. Macron have themselves not been averse to government intervention to protect jobs at home.
Despite pledges to be less protectionist than his predecessors, Mr. Macron has shown a willingness to involve the state in industrial policy by getting involved in big deals. 

Last month, he temporarily nationalized one of France’s biggest shipyards, STX France, to prevent it from being taken over by an Italian competitor.
As France’s economy minister, he pushed through a government plan last year to order €630 million worth of new TGV trains — most of which were not calibrated to run on faster tracks — from an Alstom factory in the eastern town of Belfort to prevent hundreds of jobs there from moving to another plant.
The Alstom deal with Siemens also reflects, however, a willingness to be flexible to protect broader French interests.
On Tuesday, the country’s finance minister, Bruno Le Maire, said the French government welcomed the deal with Siemens, characterizing it as one that protected French jobs at Alstom.

Chinese Peril

France's newly elected president wants to curb Chinese takeovers in Europe's strategic industries
Reuters
French President Emmanuel Macron attends a ceremony marking the 77th anniversary of late French General Charles de Gaulle's appeal of June 18, 1940, at the Mont Valerien memorial in Suresnes.

French President Emmanuel Macron vowed on Thursday to convince China’s closest allies in Europe that curbing foreign takeovers in strategic industries was in their interest, warning EU governments not to be naive in global trade.
Smaller eastern and southern European economies that are dependent on Chinese investment have rejected any steps against Beijing, even going as far as to block EU statements criticising China’s human rights record.
But Macron, at his first EU summit, said being an attractive destination for investment did not mean exposing Europe to what he termed “the disorder of globalisation”, as he seeks to make good on a campaign pledge with a so-called protective Europe.
“Things are changing because we see the disorder of globalisation and the consequences in your own country. I want to build an alliance around this idea,” Macron told a news conference during the summit of EU leaders. 

“I am for free trade ... but I am not for naivety.”
State-owned ChemChina’s US$43 billion purchase of Swiss pesticides and seeds group Syngenta, Beijing’s biggest overseas sale to date, has deepened concerns in Europe that the bloc is ceding control of its advanced technology, EU diplomats said.
Macron, who defeated the anti-Europe, far-right leader Marine Le Pen last month, said that he had always been a defender of globalisation and free trade during his time as minister but that leaders should hear from workers hit by globalisation.
The issues of globalisation and “social dumping” took centre-stage in France’s campaign after Le Pen used the relocation of a Whirlpool factory in northern France to Poland to paint Macron as a globalist who did not care about workers.
A free-trade advocate, Macron let several national corporate champions be taken over by foreign firms as a minister. 

But since his election he has sought to drum up support in Europe for what he calls a “protection agenda”.
Logo of Syngenta on it's plant in Muenchwilen.

He has found some support from Germany and Italy. 

EU leaders will agree on Friday to allow the European Commission to explore ways to limit foreign takeovers in areas such as energy, banking and technology, where China seeks Europe’s know-how.
In a statement, leaders will ask the Commission “to examine the need and ways to screen investments from third countries in strategic sectors, while fully respecting members states’ competences,” a reference to national sovereignty on the issue.
Berlin, Paris and Rome are upset that the Commission, the bloc’s competition regulator, approved ChemChina’s purchase of Syngenta while China maintains restrictions on EU investment.
Chinese direct investment in the European Union jumped by 77 per cent last year to more than 35 billion euros (US$38 billion), compared with 2015, while EU acquisitions in China fell for the second consecutive year, according to the Rhodium Group.
But free-trade advocates such as Sweden want to avoid any measures that might contradict the bloc’s rejection of the protectionism promoted by US President Donald Trump.

Enough is enough: Germany gets tough on Chinese takeovers

By Michelle FITZPATRICK

Economy Minister Sigmar Gabriel
Germany's economy ministry says it has withdrawn its approval for Chinese Grand Chip Investment's 670-million-euro purchase of Aixtron, citing security concerns
Alarmed by a raft of Chinese takeovers, Germany is putting the brakes on the Asian giant's shopping spree as it sends out the message that not everything is for sale.
The more assertive noises coming out of Berlin are likely to dominate Economy Minister Sigmar Gabriel's trip to China in the coming days, putting to the test the oft-vaunted "special relationship" between the top export powers.
Germans have watched with unease as Chinese enterprises have swallowed up a record number of homegrown tech companies this year, sparking fears of German knowhow and intellectual property being sold off to the highest bidder.
The wave of acquisitions has also stoked grumbles over China's easy access to the country's open markets, often through state-backed companies, while foreign investors there face tight restrictions.
"Germans seem to be growing more and more sceptical about China, and consequently more willing to pursue a tougher approach to Beijing," said analyst Hans Kundnani from the German Marshall Fund.
In the clearest sign yet that Berlin could be squaring up for a battle, the German economy ministry this week said it was taking a closer look at two planned Chinese takeovers -- effectively stalling both deals.
The moves have not gone unnoticed in Beijing and Gabriel will likely face some prickly questions when he leads a 60-strong business delegation on a five-day trip to China and Hong Kong from Tuesday.
Germany's first punch came last Monday when the ministry said it had withdrawn its approval for Grand Chip Investment's 670-million-euro ($730-million) purchase of chip equipment maker Aixtron, citing security concerns.
German daily Handelsblatt said the surprise reversal came after US intelligence services warned that Aixtron products could be used for military purposes.
The deal is now back under review, a process that could last three months.
Days later, the economy ministry said it was also reviewing the mooted sale of German firm Osram's general lighting unit to a Chinese buyer.
So far there has been little official reaction from Beijing.
But a bylined commentary carried by the official Xinhua news agency was scathing, accusing Germany of "protectionist moves" that called into question "Berlin's sincerity in securing an open and transparent investment climate".
"It is time for Berlin to let go of its delusional "China threat" paranoia," it added.

- Call for EU action -
Chinese firms spent over 11 billion euros on German companies between January and October, a new record, according to accountancy firm EY.
Included in that is the 4.6-billion-euro purchase of leading robot maker Kuka by Chinese appliance giant Midea, a deal that sparked particular alarm and which Gabriel had sought to thwart.
Gabriel, also Germany's vice-chancellor, has since drawn up a list of proposals to give European Union governments greater powers to block takeovers by non-EU firms in strategic industries.
Crucially there has been no word yet on whether Chancellor Angela Merkel -- who has championed close economic ties with Beijing -- approves of the idea.
But Gabriel is likely to get a sympathetic hearing from at least some European peers.
The new British government recently delayed the controversial Hinkley Point nuclear project over concerns about China's involvement, before eventually giving it the go-ahead.
In Brussels, an in-depth EU antitrust probe is holding up state-owned ChemChina's proposed mammoth takeover of Swiss seed maker Syngenta.

- Level playing field -
Observers, however, say Germany is not about to close the door on China, one of its most important trade partners.
Rather, the latest manoeuvres should be seen as part of a growing debate about how "to get a level playing field" with China, Kundnani told AFP.
Gabriel himself told reporters this week foreign investment with China could not be "a one-way street".
"We would like reciprocity," he said.
Foreign investors have long complained of the obstacles to doing business in China, such as the requirement to team up with local partners, while some sectors are completely off-limits.

China's Dirty Money

U.S., EU Say 'No' To China Buying The World
By Gordon G. Chang

Regulators on both sides of the Atlantic, acting as if on cue, are moving to block acquisitions of local businesses by Chinese companies.
Berlin, long open to Beijing’s investments, has just retracted its clearance of the $729 million purchase of chipmaker Aixtron by Fujian Grand Chip Investment Fund.
The move came just days before Berlin proposed EU rules giving member states the authority to stop Chinese takeovers in strategic sectors, especially when the potential acquirers are state entities. “We need to have the powers to really investigate deals when it is clear that they are driven by industrial policy or to enable technology transfers,” said Deputy Economics Minister Matthias Machnig.
Current German law permits the government to stop acquisitions of only defense companies, IT security firms, and businesses handling state documents.
German officials are not the only group worried. 

China’s largest foreign acquisition looks like it might run aground in Brussels. 

EU antitrust regulators have started a review of China National Chemical Corp.’s bid to buy Syngenta, the Swiss agribusiness giant, for $44 billion.
Even not counting the Aixtron and Syngenta deals, European regulators have blocked almost $40 billion in Chinese takeovers of businesses since the middle of 2015 according to Grisons Peak, an investment bank.
The blocking of acquisitions comes after a wave of Chinese investment. 

Grisons Peak puts the highpoint of China’s purchases at $95.6 billion in the first quarter of this year. Since then, takeovers have trended down, with just $49.4 billion in Q2 and $46.1 billion in Q3.

In the U.S., this month it was reported that, due to concerns raised by the Committee on Foreign Investment in the United States, Blackstone Group called off the sale of Hotel del Coronado to China’s mysterious Anbang Insurance Group.
CFIUS, as the Federal interagency body is known, was also thought to be responsible for the killing of the sale of the lighting-components business of Royal Philips NV to a Chinese group led by GO Scale Capital for $2.8 billion in January.
So far, the U.S. has welcomed Chinese capital. 

As the Rhodium Group has reported, Chinese entities invested $18.4 billion in the U.S. in the first half of 2016, almost three times the $6.4 billion in the same period a year earlier and more than that invested all last year.
That upward trend—Rhodium calls it “tripling down on America”—may not last long. 

Ali Meyer of the Washington Free Beacon, the online news site, reports that the U.S.-China Economic and Security Review Commission, in its next annual report, will recommend that Congress give CFIUS the authority “to bar Chinese state-owned enterprises from acquiring or otherwise gaining effective control of U.S. companies.”
“The Chinese Communist Party continues to use state-owned enterprises as the primary economic tool for advancing and achieving its national security objectives,” notes the “final draft” of the Commission’s report. 

“There is therefore an inherently high risk that whenever a state-owned enterprise acquires or gains effective control of a U.S. company, it will use the technology, intelligence, and market power it gains in the service of the Chinese state, to the detriment of U.S. national security.”
There are many reasons for the concern in the EU and America over Chinese investment, but a common theme, as Commission member Larry Wortzel notes, is fairness. 

“There is no reciprocity,” he told the Free Beacon. 

“While Chinese companies can buy U.S. or Western companies, American and other Western companies are barred from buying key sector state-owned enterprises, if not all state-owned enterprises.”
And in Berlin the business community, which is skeptical of new curbs on Chinese investment, has expressed the same general concern. 

“The European economy must be allowed to do in China what the Chinese are allowed to do in Europe,” said Ulrich Grillo, head of BDI, a German industry association, to the Financial Times.
For decades, Washington, Brussels, and other capitals have not insisted on fair treatment for their companies, largely because of the lure of the Chinese market, but now that market is showing signs of softness in most segments.
Perhaps the best proof of the softness in China is the rush by Chinese entities to buy foreign assets. Although some acquisitions by state and private enterprises seem to be at the direction of the state, many deals are evidently not.
Last year, net capital outflow could have been as much as the $1 trillion reported by Bloomberg. Beijing has tried to staunch the outbound flow with drastic measures, but this year the outflow could be close to that staggering figure.
The outflow will undoubtedly pick up as the renminbi continues its decline.

So far this year, the Chinese currency is down 4.4% against the greenback. 

The yuan will almost certainly weaken further when American interest rates go up, as Fed Chair Janet Yellen signaled in September, and as the Chinese central bank decreases support.
The fall of the renminbi tells us the Chinese people have lost confidence in their economy and society. 

A study just released by Hurun Report states over 60% of China’s rich plan to invest in overseas residences in the next three years.

China's overseas takeover spree meets growing resistance

Associated Press

HONG KONG – Corporate China's global shopping binge barreled on this week with more multibillion dollar deals, but Beijing is starting to discover that there are limits to what its money can buy.
In recent days German and European Union officials have moved to tighten up scrutiny or even block high-profile acquisitions in the latest sign of growing opposition to Chinese purchases of companies in key industries due to national security or competition concerns.
Swiss chemical giant Syngenta said Tuesday that EU regulators examining its proposed $43 billion takeover by state-owned ChemChina have "recently requested a large amount of additional information," which will drag the approval process out into the first quarter of next year.
At about the same time, the German government withdrew clearance for a Chinese company to buy semiconductor equipment maker Aixtron in a $670 million deal over unspecified security-related concerns — a decision that threatens to complicate German Economy Minister Sigmar Gabriel's trade visit to China next week.
"The surge in Chinese acquisitions of high-tech companies certainly has policymakers on high alert, especially in Germany," said Bjorn Conrad, vice president of research at the Mercator Institute for China Studies in Berlin, which tracks China's overseas investment. 

"That is because China is not playing by the rules."
He said some of the deals reflect a political strategy in which state-owned Chinese companies, spurred by an aggressive outbound industrial policy, unfairly exploit Europe's open markets to gobble up companies with core technologies to speed the country's technological advance.
European policymakers "are not naive when it comes to government-driven acquisitions. They will apply a much higher level of scrutiny in the future," Conrad said.
Chinese companies have invested nearly $200 billion so far this year in overseas firms, almost double the amount for all of 2015, according to Dealogic. 

The transactions have included a German robot maker, a Finnish video game company and an American appliance maker.
Just this week, HNA Group paid $6.5 billion for a 25 percent stake in the Hilton hotel chain, after one of its units earlier this year bought Carlson Hotels, operator of the Radisson and Country Inns & Suites brands. 

Meanwhile, Beijing-based China Oceanwide Holdings Group agreed to buy U.S. insurer Genworth Financial for $2.7 billion.
However, about $40 billion in proposed Chinese purchases has been cancelled since the start of 2015, reflecting resistance to such deals, according to Dealogic.
In Australia, the government blocked a Chinese group from leasing a Sydney electricity grid in an unusual turnaround, citing classified national security reasons. 

The deal involving state-owned State Grid Corp. and Hong Kong-based Cheung Kong Infrastructure group would have earned the government more than 10 billion Australian dollars (then-$7.6 billion).
The August decision was unusual in that the government had initially invited the companies to bid and only rejected them at the last minute on general security concerns unrelated to any specific country, said Hans Hendrischke, a professor at the University of Sydney Business School who specializes in Chinese investment in Australia.
However, "overall, certainly, I think the political outcome is clearly that the perception is created as if all of these are somehow directed against Chinese acquisitions of assets in foreign countries."
The concerns mirror those in the U.S.
Last month, 16 lawmakers wrote to the Government Accountability Office calling for a review of the Committee on Foreign Investment in the U.S., a federal inter-agency panel also known as CFIUS, saying it should be updated or expanded to keep pace with the surge of foreign acquisitions in strategically important sectors.
Specifically, the letter said the committee's powers might need to be widened in light of Chinese conglomerate Dalian Wanda's recent purchases of U.S. theater chains and the Hollywood studio Legendary Entertainment, citing fears about Beijing's censorship and propaganda efforts.
Tighter scrutiny by CFIUS or the prospect of it has already thwarted some high-tech deals.
State-owned Tsinghua Unisplendour in February scrapped a plan to buy a 15 percent stake in disk drive maker Western Digital, which would have made it the biggest shareholder, after the committee decided to investigate the $3.8 billion investment on national security grounds. 

A month earlier, electronics giant Philips aborted the sale of a majority stake in its LED components and auto lighting business to Chinese investor GO Scale Capital.