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Wolf Richter: China, the Number One Foreign Investor in Germany

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By Wolf Richter, San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from http://www.testosteronepit.com/home/2012/2/25/greece-the-bottomless-barrel-as-germans-say.html“>Testosterone Pit.

The latest success—I suppose you could call it that, at least for those involved on the financial end—was the acquisition of Kiekert AG last week. The company was founded in 1857 in Heiligenhaus, near Düsseldorf, Germany, and over time became the largest manufacturer of automotive door-lock systems, with customers like GM, Ford, VW, BMW, and other automakers around the world. It has facilities in Germany, the Czech Republic, Great Britain, the US, Mexico, and, since 2008, China.

In 2000, it was taken over by Permira, a European PE firm that loaded up the company with debt. By 2006, the game was over. Kiekert was turned over to its creditors, Bluebay Asset Management, Silver Point Capital, and Morgan Stanley, in a debt-to-equity swap. And last week, the consortium was able to exit by selling Kiekert to Hebei Lingyun Industrial Group Corporation (Lingyun Group), a subsidiary of China North Industries Corporation. Norinco, as it’s called, is a government-owned conglomerate that manufactures motorcycles, cars, trucks, machinery, and so on, plus weaponry, missiles, and ammo—with a troubled history in the US. Among other issues, the Bush administration slapped it with sanctions in 2003 for selling missile-related products to Iran.

Norinco, through its subsidiaries, is on a shopping spree. Kiekert, the leader in the niche of door lock systems, was an obvious target. With 4,000 employees, it sold over 41 million systems worldwide in 2011. Lingyun Group, which makes automotive door components for the Chinese market, is hoping to use the acquisition to get its foot in the door with Kiekert’s customers in the US and Europe. Perhaps to allay certain anxieties, Kiekert’s press release states that Lingyun Group is a “publically traded” company—though Lingyun’s own website states that it is a subsidiary of Norinco and that one of the ten joint ventures and limited companies in the group is publically traded.

Chinese companies have been on buying spree. In 2011, Chinese companies invested in 158 projects in Germany, according to Germany Trade & Invest (GTAI). It made China “by far the most important investor in Germany,” said GTAI CEO Michael Pfeiffer. The US has dropped to second place with 110 projects in Germany (based on number of deals, not size).

“Europe is a gigantic market, and investors are looking for the safest and largest location, and that is Germany,” Pfeiffer said to explain the phenomenon. On the other hand, the amount that German companies want to invest overseas dropped sharply from €100 billion in 2011 to €70 billion in 2012, according to a survey by the Association of German Chambers of Industry and Commerce (DIHK). They’re reacting apparently “to the slower pace of the world economy, the debt crisis, and the risk-averse banks.”

Chinese companies are following the government’s five-year plan to buy into strategic areas, such as IT, finance, and the auto industry. They’re buying turnaround situations, like bankrupt automotive component supplier Saargummi, or healthy companies such as concrete-pump maker Putzmeister whose pumps made history in Chernobyl where they were used to dump concrete on the reactor, and in Fukushima where they were used to douse the reactors with water. And perhaps this fame induced Sany Group, a Chinese construction-equipment maker, to acquire Putzmeister in January 2012. And in a different kind of deal, the State Administration of Foreign Exchange (SAFE), which manages China’s foreign reserves, quietly accumulated stock in Munch Re Group, whose largest single shareholder, with 10.2%, is Warren Buffet’s insurance empire. By August 2011, SAFE’s stake exceeded the 3% limit that triggered disclosure.

The question is still open if Chinese executives can adjust their management methods to German business culture—though this is probably no more difficult than what German managers have to do in their ventures in China. And the fear persists that Chinese investors only seek intellectual property and technologies, and once they have acquired and repatriated them, that they will close German production locations. But Chinese companies also invest in Germany in order to gain access to the European market, which would indicate a desire for a permanent presence.

And there has been a sea change in the auto industry. Not long ago, if a Chinese investor wanted to buy a German component maker, its customers—VW, BMW, or Daimler—would veto the deal and it would go nowhere. But now German automakers are investing hand-over-fist in China where they expect to make the majority of their worldwide profits in a few years. In return for this access, the Chinese government sees to it that Chinese companies can go shopping for component suppliers in Germany. And the Kiekert deal, unthinkable a few years ago, is the latest incarnation of that quid pro quo.

The Chinese, however, appear to have little appetite for the French auto industry, which is reeling from sagging sales as consumers are getting hammered by fuel prices that have been hitting one record after another. Read…. The $10-Per-Gallon Gas Has Arrived, In Paris.

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27 comments

  1. Harley Warren

    This is all great until the Chinese economy goes kablooey, remember all the noise about Japan? And unlike the Chinese, the Japanese ‘knew’ how to manufacture high quality products.

    1. vlade

      They didn’t. For a long time, Made in Japan had about the same connotations as Made in China has now as far as the quality goes (although I can’t remeber cases of actual toxic stuff being sold, unlike with China).

      But they learned – much faster than anyone thought possible which I still find unbelievable (that they didn’t think it possible, to be clear). All they had to do was to look at how incredibly quickly Japan industrialised in 19th century – going from 16th century feudalism to late 19th century industrialism rivalling europe in a space of a few decades.

      1. SidFinster

        At one time, “Made in Japan” was a synonym for “crap.”

        But by the time Japan, Inc. went on its shopping spree, the Japanese had mastered the art of mass production of well-designed, well-made, functional items in many sectors.

    2. Psychoanalystus

      Just in case you haven’t noticed, that low quality iPad of yours was Made in China.

  2. A Real Black Person

    Two words: peak oil. China cannot escape it. And whatever their state-owned companies are up to–buying up companies left and right probably in an effort to secure finite, especially hydrocarbon resources–yes, everything is about energy in our modern, high energy civilization–will put them on a path to armed conflict with America, which I’m sure they’re anticipating.

    1. Max424

      Agree.

      This German thing is just China tossing nickels into slot machines to see which ones pay off. It is something they like to do, and something they do very well (and they do it every day, all over the globe).

      Still, the really big plays for China –the true, costly but vitally necessary shopping sprees– from here on out, will always be related to oil and coal (and to a lesser extent, nat gas and fracked gas, too).

      When can China purchase the remaining portions of coal rich northern Australia that they don’t already own? Will Canada allow China to lay down two tar sands pipelines running from Alberta to the BC coast, if agreeable China offers to pay for them? How long will it be before Washington state builds coal port facilities at Bellingham and Port Westward, because China is willing to buy some 60 million tons of US coal annually, if US coal companies can figure out a way to deliver such massive quantities to the holds of Chinese ships.

      That type of thing –plays that will cost China/Inc tens of billions in the short run … and trillions over the long haul.

      Note: China is so rich, if they used just one/half of their foreign cash reserve, they could purchase outright: Exxon/Mobile, Apple, Microsoft, GE, several of the largest US coal companies, and all the Wall Street banks.*

      *Why would China want to buy insolvent US banks? Beats me. I just know their buying up pieces of them, for some reason.

      1. MyLessThanPrimeBeef

        China can buy coal and oil because she is on a low-calorie (low cosumption) and weight-lifting (manufacturing) lifestyle – also key to life/economic cycle longevitity.

        Like all other humans, she can now live long to cause havoc elsewhere in nature.

      2. different clue

        Perhaps China believes the insolvent banks presently own the American government? And buying up parts of the insolvent Overlord banks means buying up parts of their ownership of the American government? I’m not saying China is right or wrong to believe that, if that is what China believes. I am only suggesting that if they believe that the insolvent Overlord banks own the government, they might want to semi-buy the banks in order to semi-buy the government.

  3. psychohistorian

    Nice posting, thanks.

    I keep thinking China is very anxious to get rid of their dollar holdings in any way possible. I wonder if the deal had a currency aspect to it?

    1. Eclair

      Umm, let’s see. G ermany has universal health care. Really really strong unions. Lots of holidays and long vacations. High tax rates. Government policy to invest heavily in renewable energy. Closing down nuclear power plants. Government-subsidized higher education.

      Not socialist.

        1. Rotter

          France is a NATO security council member, and a long time cold war ally and partner of capitalist/imperialist U.S. Only in the fevered minds of the hyped up, emotional, chest thumping, rush limbaugh spewing american right could France be called “Marxists”

  4. Kiste

    I, for one, welcome our new Chinese overlords.

    Seriously, if I was a worker, I’d rather have my company being bought out by the Chinese than by a scummy US or European “PE firm” or some other finance industry locust.

    1. jsn

      It appears as though about half of the Chinese leadership is genuinely concerned with juicing domestic demand which means improving the conditions of workers. Whether this solicitousness towards labor will reach across borders is, it seems to me, doubtful.

      China wants access to markets and these purchases are a great way to put Euro reserves to use as a hedge against the demise of that currency. At least until that question is settled China will have an interest in maintaining the value on the ground in Germany.

      But both halves of the Chinese leadership probably agree that increasing the value added in the homeland is a long term plus so I suspect economic nationalism will win out if the Chinese can engineer the domestic demand they want before their own wheels come off.

  5. Conscience of a conservative

    It’s a smart strategy, by buying foreign companies they gain economic leverage, and have real assets over paper ones. Lastly they can transfer advanced technology back home. The Chinese make no secret of their desire to move their production upstream and not be reliant on commodity(low techn) products.

    1. Glen

      Yes, it’s smart policy. This is pretty much what China did (and still does) with the US until that well slowed down a bit.

      But we’re all dodging the real question here, is China’s economic miracle communism’s final take down of capitalism?

      Because it sure looks like capitalism is going down this time around.

      1. jsn

        It seems to me they’re all just forms of Capitalism: Corporatism here; State Capitalism in China; Ouroboros Psudo-State Capitalism in Europe.

        If you think of Capitalism as nothing but the systematic exploitation of change for money profits, you can see there are as many ways to set it up as their are civilizations to set it up in and that so long as both change and the use of money continue there is little chance Capitalism will vanish.

        Even if Europe manages to consume itself entirely, or the US manages to dis-employ everyone here or China collapses into civil war, change and money will rush in in some form to fill the void.

        1. Glen

          Would you agree that if you strip away the fact that one is nominally “government controlled” and the other is “corporate controlled” that the real power structure is essentially identical and non-democratic?

          1. Seth

            Bingo!

            China is becoming more American economically.
            America is becoming more Chinese politically.

            Nice fair exchange, don’t you think?

          2. James Sterling

            I forget which Chinese politician it was who waggishly described the new China as “socialism with American characteristics” :-)

            (to explain the joke, he’s punning on a more famous phrase; also, by “American” he meant corporate capitalism rather than the honorable history of social policy in America)

            British Chancellor George Osborne went to China a little while ago to do two things, pick up investments in China for British investors, and get Chinese investment in Britain. How can that make sense? Sometimes I think they just swap ownership of everything round so everybody’s absentee landlords are safely overseas and can squeeze with impunity.

  6. Susan the other

    China is looking less to acquire these companies in order to advance its exports than it is in order to develop its own consumer base. Not just in China, but all of Asia. With China becoming more nationalistic, it would be wise for the US to also turn back to North America. Not necessarily a trade war/currency war; but a move which makes the NAFTA population healthier and more self sufficient. Instead of its current totally moribund and virtually unemployed population.

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