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Freshfields Transactions

| 3 minutes read

FDI in Germany: more protection for critical technologies

Following the announcement by the Chinese government of a Made in China 2025 strategy and plans to spend $1.3tn to promote domestic high-tech manufacturing, governments around the world have tightened foreign direct investment (FDI) screenings to protect certain advanced technologies.

According to the new EU framework for the screening of direct foreign investments into the EU, which shall apply from 11 October 2020, the effects on 'critical technologies' may be considered when determining whether a foreign direct investment is likely to affect security or public order. These include artificial intelligence, robotics, semiconductors, cyber security, aerospace, defence, energy storage, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies.

Germany’s Industrial Strategy 2030

The Industrial strategy 2030 – Guidelines for a German and European industrial policy announced by Germany’s Economic Minister Peter Altmaier today (29 November 2019) must be read in the light of this wider global trend. 

Germany is a promoter of a liberal market economy and the free movement of capital. However, according to the German Economic Minister, these principles have come under pressure in the last two decades. 

Globally, the influence of economic systems – in particular China’s – that rely on protectionism and state interventions is increasing. As a result, strengthening the protection of security-relevant technologies and critical infrastructure is one of the main strategies outlined in the strategy paper published today to cope with these challenges.

Protecting the technological sovereignty of Germany and Europe 

The acquisition in 2017 of Kuka, Germany’s biggest manufacturer of industrial robotics, by the Midea Group, a Chinese-listed home appliance company, marked a shift in approach from the German government. 

Growing concerns over granting access to certain technology and know-how to foreign investors is reflected today in the new industrial strategy.

The strategy paper recognises that German companies invest around the globe and that foreign investments have the potential to create jobs and promote growth and wealth in Germany. 

However, there is a limit to this liberal economic policy. The paper published today not only refers to the protection of 'national security and public order' as the standard for review in foreign investment screenings, but also refers to 'technological sovereignty' as a foundation for the functioning of our highly developed industrial society. 

The aim is to ensure that relevant industrial substance remains available and controlled in Germany and Europe. Concerns circle around the outflow of know-how and the preservation of autonomy in crucial fields of technology. 

Against this background, the paper asserts that there is a need for increased scrutiny of investments not only in the field of critical infrastructure and military companies, but also sensitive technologies. 

The instruments of the German government to protect the country’s technological sovereignty are to be modernised. These shall include the following:

  • Restrictions regarding the transfer of technology to third countries: rules applying to takeovers of companies whose technology has been state funded will be tightened.
  • Foreign investment screenings: in line with the EU framework, a mechanism to cooperate with other member states and the European Commission will be implemented. In addition, the relevant test for screening foreign investments will be amended and the scope of intervention of the state 'moderately' increased.
  • Private investors as 'white knights': where the outflow of sensitive and security-relevant technologies due to takeovers by third-country investors does not fall within the scope of the German foreign investment regime, private investors shall act as 'white knights' and acquire the companies concerned. The state will act as a 'moderator'.
  • State intervention as the ultima ratio: finally, as the ultima ratio, the state may intervene and (for a specific period) acquire shares in the company concerned, as it recently already did in the case of State Grid Corporation of China’s attempted to acquire a minority stake in 50Hertz, a German power grid operator.

In addition, improving cyber security (including for critical infrastructures such as energy grids) is considered a key element of protecting technological sovereignty.

Key takeaway

According to the Industrial Strategy 2030, Germany remains opposed to industrial policies that focus on protectionism and state interventions. Nevertheless, when it comes to 'critical technologies' and protecting the 'technological sovereignty' of Germany and Europe, investors will face increased scrutiny. 

While this may in particular target investors from China, it is likely that also investors from other jurisdictions outside the EU/EFTA will be affected where a transaction involves critical technology. 

Preparing for a potentially highly political review process from the outset remains therefore crucial for successful deal planning.


innovation, foreign investment, regulatory