Berlin, Brussels, Washington Federal Minister of Economics Robert Habeck wants to monitor the China business of German companies more closely. On Wednesday, the Green politician surprisingly spoke out in favor of introducing state controls on certain foreign investments. The US government is already working on such an “Outbound Investment Screening”. At a conference of foreign trade chambers, Habeck said that there was no outbound screening in Europe so far, and added: “I think we should do that.”
The Vice-Chancellor explained that the new instrument must be used to check whether a company’s knowledge “flows away” and then “allows the technology” to “only be developed in China”. China experts have been pointing out the danger of European know-how helping to strengthen the Chinese armaments industry for some time. In the high-tech sector in particular, China’s government is pushing ahead with the merging of the military and the economy.
Since controlling investments abroad would mean strong state interference, Habeck expects “interesting talks”. The companies would then certainly not say: “Oh, it’s great that you tell me that, then I’ll just go to India. They’ll say it doesn’t exist.”
Foreign investment controls would primarily target China. Habeck is known for his critical attitude towards China. But in recent months the Minister of Economics has always been skeptical about a copy of the American approach.
In particular, there had been a brake on the working level of the Ministry of Economic Affairs. Foreign investment control is not considered necessary there. The existing export controls in Germany already largely prevent the outflow of knowledge, according to the justification from ministry circles. In addition, Europe is in a different situation than the US because the volume of investments from the EU is much lower and the investments hardly help the Chinese economy.
Disagreements in the Ministry of Economy
Habeck’s proposal to demand the instrument anyway has obviously not even been coordinated within his house. At the same event on Wednesday, his responsible department head for foreign trade, Dominik Schnichels, spoke of concerns about foreign investment controls, although he is said to have been pushing the issue in-house so far.
In Brussels, the plans are already further. EU Commission chief Ursula von der Leyen initiated the debate on new investment controls at the end of March in a widely acclaimed China speech. The European Union must prevent the capital and expertise of European companies from contributing to “improving the military and intelligence capabilities of those who are also system competitors,” said von der Leyen.
“That’s why we are currently considering whether and how Europe should develop a targeted instrument for foreign investments,” von der Leyen continued. The controls should only apply to “a small number of sensitive technologies,” she stressed.
The Commission has not yet drafted a legislative proposal; it first wants to sound out the mood among the member states. From the point of view of the authority, however, there is a gap in the current control regime, as it only provides for export restrictions for sensitive goods, but ignores the transfer of technology and know-how associated with foreign investments. So far, there has only been an inward-looking investment control, which comes into play when a Chinese company wants to take over a European chip manufacturer.
In the federal government, outbound investment screening is controversial because it is difficult to reconcile with the idea of free trade, which has shaped the foreign trade policy of the Federal Republic. The Federal Ministry of Finance in particular is skeptical. The Federal Chancellery has not yet positioned itself.
In a speech in the EU Parliament in Strasbourg on Tuesday, Chancellor Olaf Scholz supported the Commission’s concept of risk reduction (“de-risking”) vis-a-vis China, to which von der Leyen counts foreign investment controls. But Scholz restricted that it had to be a “clever” de-risking. He did not explain what he meant by that.
US wants the EU as an ally against China
In the United States, the initiative is likely to meet with approval. The government of US President Joe Biden intends to present a law to review foreign investments in China in the near future. In the coming days, the White House could present an executive order introducing a screening mechanism for foreign investments.
For months, the US government has been campaigning for other countries to join the US. “It’s likely that Biden will take up his plans for an investment review mechanism at the G7 summit and try to get partners on board,” trade expert Inu Manak of the Council on Foreign Relations think tank told Handelsblatt.
“Biden definitely needs support for efficient action against China, especially from Japan and also from the EU. That’s very, very important to him.” On May 19, the industrial nations of the G7 meet in Hiroshima.
Originally, the US wanted to restrict the flow of capital and intellectual property to China in numerous high-tech industries: from chips to artificial intelligence, battery technology, biotechnology, aerospace, defense, fintech and pharmaceuticals. But the White House is now said to be leaning toward a “very narrow” pilot program focused on semiconductors, artificial intelligence and quantum technology, Washington said.
Industries that are “centrally related to national security” are affected, said Biden’s national security adviser Jake Sullivan recently. The US government is not planning “a complete technology blockade, but rather narrowly limited measures”. However, Congress could follow with stricter rules independently of the White House.
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