July 25, 2024


Delighting finance buffs

As global economies dwindle, world wakes up to China’s hostile takeovers amid pandemic

India is the latest country to join the move to resist hostile business takeovers by China.

Countries around the world have been tightening rules on foreign investments in critical sectors to ensure that their economies do not become vulnerable and exposed to foreign hands.

As reports suggest that Beijing is on a buying spree owing to the coronavirus pandemic-induced economic downturn that many countries are facing, the world as a whole, is reconsidering relations with China in the face of increased investment in critical sectors by Chinese state-owned enterprises.

The European Union was among the first to tighten foreign investment rules in the recent weeks. It also was followed by many of its member states announcing curbs of foreign investments to discourage “bargain hunting” by China.

Germany, France, Italy, and Spain followed suit.

The biggest warning was for acquisitions in the healthcare sector.


On March 25, 2020, the European Commission issued guidance that warned member states of increased risk of attempts to acquire healthcare capacities (e.g., for production of medical or protective equipment) or related industries such as research establishments (e.g., vaccine developers) via FDI.

Scope of the FDI Screening Regulation issued by the EU Commission said, “The Regulation applies to all sectors of the economy and is not subject to any thresholds. The need to screen a transaction may indeed be independent from the value of the transaction itself. Small start-ups, for instance, may have a relatively limited value but may be of strategic importance on issues like research or technology.”

The regulation empowers European Union members to review investments within its scope on the grounds of security or public order and to take measures to address specific risks.

It is also for the first time that the European Commission has called upon member states that do not yet have an FDI screening mechanism, to set up a full-fledged procedure.


On April 8, Germany’s government agreed to tighten rules to protect domestic firms from unwanted takeovers by investors from non-European Union countries.

Germany, which is Europe’s biggest economy, agreed to protect its companies from foreign takeovers amid the coronavirus pandemic that has engulfed the global economy and is making key industries vulnerable.

German Chancellor Angela Merkel’s cabinet approved the measures, which applied to takeover bids from United States and enterprises outside the European Union.

“We’re going to implement these rules so that we can protect our critical infrastructure more securely than we have before,” Germany Economy Minister Peter Altmaier told reporters in Berlin.


On March 17, the Spanish government enacted a royal decree amending a 2003 law, which makes it mandatory to obtain prior government authorisation on any FDI proposal.

Any FDI would require prior government approval for:

1. Non-EU investors to acquire 10 percent or more of, or acquire management rights in or control of, Spanish companies engaged in sectors such as utilities, data processing or storage, electoral or financial infrastructure and sensitive facilities and sectors with access to or ability to control sensitive information.

2. FDI where the investor is directly or indirectly controlled by a government of another country.


On April 8 the Italian government expanded what it calls the ‘Golden Powers Law’, meant to restrict foreign investment in sensitive areas to include a large number of other sectors, from transport and financial sector to data storage.

This was done over the worries that Italy’s distressed companies would be purchased by foreign players at cheaper price.

The Italian government enacted a series of measures to support companies’ liquidity and business continuity, as well as their resilience against hostile foreign takeovers in strategic sectors.

Interestingly, Italy has seen a steady increase in Chinese influence on their economy. It was in March 2019 that Italy had become an official member of the Belt and Road Initiative (BRI) of China, the first of the G7 countries. However, it did not go down well with other European partners as well as the United States of America.

And now when Rome is grappling with not only an epidemic, but also a serious economic crisis which has decided to look inwards and allowing Chinese companies to thrive.


On March 30, Australia temporarily tightened its rules on foreign takeovers on concerns that strategic assets could be sold off cheaply as a result of the coronavirus crisis.

The move follows warnings from the country’s backbench MPs that distressed companies in the aviation, freight and health sectors could become vulnerable to buyouts by state-owned enterprises in authoritarian regimes, including China.

On April 8, Prime Minister Scott Morrison in his address to the parliament said, “Today we act to protect our nation’s sovereignty. When Australian lives and livelihoods are threatened, when they are under attack, our nation’s sovereignty is put at risk and we must respond. The government knows that many Australian businesses are under pressure and we won’t allow a fire sale of Australian businesses to foreign interests. The treasurer has announced temporary changes to the foreign investment review framework to protect Australia’s national interest. This means all proposed foreign investments will now require approval, regardless of the value or nature of the foreign investor.”


On April 18, Canada also tightened its foreign investment rules, scrutinising direct investments in Canadian companies related to public health or critical supply chains during the pandemic, as well as any investment by state-owned companies or by investors with close ties to foreign governments.

The goal was to “ensure that in-bound investment does not introduce new risks to Canada’s economy or national security, including the health and safety of Canadians,” a policy statement from Innovation, Science and Economic Development Canada said.


Similarly, the UK government is screening acquisitions in the military, dual-use, computing hardware, and quantum technology sectors.


America’s Committee on Foreign Investments in the US (CFIUS) is now playing an active role in screening potential takeovers on national security grounds.


The latest addition to the list is India.

On April 17, the Government of India reviewed its FDI policy for “curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic”.

The decision came at the back of People’s Bank of China (PBoC) raising its stake from 0.8 per cent to 1.01 per cent in India’s largest non-banking mortgage provider HDFC. It came as a shock with many questioning the buying by Chinese entities at a time when the world is faced with its worst economic crisis.

Without naming China or any other country, the amendment to the FDI rule said, “A non-resident entity can invest in India, subject to the FDI policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the Government route.”

In addition, the Centre has made another significant change in the FDI policy by blocking indirect acquisition of investments by entities based in China. Now, change in ownership of the investment will also have to be cleared by the Union government.

The revised rule said, “In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview of the para 3.1.1(a), such subsequent change in beneficial ownership will also require Government approval.”

China on Monday raised objections to India India’s Department for Promotion of Industry and Internal Trade (DPIIT) revising its foreign investment policy, making it much “difficult” for companies from countries sharing land border with India, including China, to “invest” in the country.

Spokesperson of the Chinese Embassy in India Counselor Ji Rong in a statement said, “The additional barriers set by Indian side for investors from specific countries violate WTO’s principle of non-discrimination, and go against the general trend of liberalization and facilitation of trade and investment.”

Hoping that India would revisit its decision, she said, “Companies make choices based on market principles. We hope India would revise relevant discriminatory practices, treat investments from different countries equally, and foster an open, fair and equitable business environment.”

The Chinese embassy not only cited its investments but also the “donations” made by Chinese companies to help fight the Covid-19 pandemic.

“As of December 2019, China’s cumulative investment in India has exceeded $8 billion, far more than the total investments of India’s other border-sharing countries. The impact of the policy on Chinese investors is clear. Chinese investment has driven the development of India’s industries, such as mobile phone, household electrical appliances, infrastructure and automobile, creating a large number of jobs in India, and promoting mutual beneficial and win-win cooperation. Chinese enterprises actively made donations to help India fight Covid-19 epidemic”, she said.

As a result, while 80 percent of the around 2000 listed companies of China are believed to be state-owned, China has become a major threat in this challenging economic environment.

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