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Germany’s deputy chancellor, Robert Habeck, has presented proposals to increase oversight of Chinese investments amid rising geopolitical risks associated with its largest trading partner.
The proposed measures would strengthen restrictions on foreign direct investment in critical sectors such as semiconductors and artificial intelligence. The move comes after Berlin raised concerns about China’s increasing repression internally and aggression externally.
While the proposals have been confirmed by a government official, they could create tensions within chancellor Olaf Scholz’s coalition and with business groups. The West has criticized China for its authoritarianism, saber-rattling towards Taiwan, and close ties with Russia despite its invasion of Ukraine.
The legislation is currently in circulation for consultation across various government departments. This follows the release of Berlin’s China strategy, which includes an evaluation of existing investment screening.
Scholz, a member of the Social Democrats (SPD), is more cautious about taking actions that could severely impact economic ties with Beijing. He fears negative consequences for political and trade relations with Germany’s largest trading partner.
Already, there are divisions within the ruling coalition over various issues. For instance, Scholz has clashed with Green ministers, including Habeck, regarding Chinese conglomerate Cosco’s acquisition of a stake in a Hamburg port terminal.
The new measures do not target outbound investments in China’s technology industries, which have recently faced new restrictions by the White House. Germany is participating in EU discussions on how to respond to these measures.
Non-EU businesses and investors already undergo a screening process when acquiring assets in Germany. The government has the right to veto such acquisitions if they pose a threat to public order or national security.
Habeck’s proposals aim to simplify and consolidate existing rules, particularly focusing on sectors where Chinese dominance or influence is seen as a threat to western economic security, such as semiconductors, AI, and quantum computing.
Habeck also aims to address China’s attempts to circumvent rules by expanding the definition of investments subject to screening, including those involving the acquisition of intellectual property through licensing agreements.
Noah Barkin, an expert on Europe’s relations with China at US-based research firm Rhodium Group, believes that Habeck’s economy ministry wants to use the momentum of the China strategy to adjust policies and limit the chancellor’s flexibility. The response from Scholz is anticipated.
The German officials emphasize that the country remains open to investments and welcomes international investors. However, they stress the importance of ensuring German and European economic security in the face of foreign direct investment.
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