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Communist Party-backed Geely wants major Daimler stake

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Reuters  /  February 5, 2018

Zhejiang Geely Holding Group [the largest shareholder of Mack brand parent Volvo Group] plans to take a major stake in Daimler, German weekly paper Bild am Sonntag reported, citing sources.

Geely could become Daimler's biggest shareholder, the paper said.

Sources had said in November that Daimler turned down an offer from Geely to take a stake of up to 5 percent via a discounted share placement. Daimler said Geely was welcome to buy shares in the open market.

Geely, which owns Swedish automaker Volvo, is keen to access Daimler's electric car battery technology and wants to establish an electric car joint venture in Wuhan, China, sources with knowledge of Geely’s thinking said at the time.

Daimler’s truck brands include Freightliner, Western Star, Mercedes-Benz, FUSO and BharatBenz.

Currently, Daimler’s largest shareholder is the Kuwait Investment Authority with a 6.8 percent stake, followed by BlackRock with 6 percent.

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Could be interesting.  I hear that after Dieter Zetsche retires as CEO there will be a major restructure with Daimler Trucks being spun off as a separate entity.  I wonder if Geely's interest is in the car or the truck business.

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Don't take this at face value. Geely is merely a means with which to gain more advanced technology. The actual interested parties are China's NDRC and SASAC.

NDRC - National Development & Reform Commission

SASAC - State-owned Assets Supervision & Administration Commission of the State Council

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Communist Party-backed Geely buys $9 billion stake in Daimler

Reuters, Bloomberg & Automotive News  /  February 23, 2018

Li Shufu, the chairman and main owner of Chinese carmaker Geely, has amassed a stake of 9.69 percent in Daimler AG, the German company said in a regulatory filing Friday.

The stake, worth nearly $9 billion at the current market price for Daimler shares, makes Li the biggest single shareholder in the maker of Mercedes Benz cars, trucks and vans.

Sources told Reuters this month that Geely was buying Daimler shares as it seeks an alliance in electric vehicle technology -- a response to Chinese requirements for more clean cars to be put on the road to cut pollution.

A Daimler spokesman called the stake purchase a private investment by Li.

"We are delighted, with Li Shufu, to have won over another long-term investor who is convinced of Daimler's innovative prowess, strategy and future potential," the spokesman said in response to a request for comment.

"Daimler knows and respects Li Shufu as a Chinese entrepreneur of particular competence and forward thinking."

Geely has been building up a stake of just under 10 percent through purchases of Daimler’s shares in the stock market in recent weeks.

Zhejiang Geely owns Volvo and last year acquired a 49.9 percent stake in Malaysian automaker Proton.

In addition, last December Geely spent $3.9 billion to become the biggest shareholder of Volvo AB, which is the world's second-largest truck maker.

Last year Geely also won control of British sports car maker Lotus while in 2013 it purchased Manganese Bronze Holdings, rescuing the maker of London's iconic black cabs after it entered administration.

Geely also plans to introduce to Europe its new brand Lynk & CO, which started sales in its home country last year.

Following the potential deal, Zhejiang Geely would surpass Kuwait Investment Authority, as Daimler's top shareholder.

Kuwait's sovereign wealth fund owned about 6.8 percent of Daimler's shares as Sept. 30, according to Thomson Reuters data.

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Backlash grows over Chinese deals for Germany’s corporate jewels

The Financial Times  /  March 13, 2018

Geely’s investment in Daimler crystallises fears about a loss of engineering knowhow and expertise

When Geely announced last month that it had acquired close to 10 per cent of the shares in Daimler, owner of Mercedes-Benz, the gasps of shock in Berlin were almost audible. Politicians and commentators were in uproar. MPs wanted to know how the Chinese carmaker had managed to inveigle itself into a German industrial icon.

“What’s disturbing is the way Geely just crept up on Daimler out of nowhere,” says MP Kerstin Andreae, the Greens’ expert on economic policy. “One fine day Daimler’s CEO [Dieter Zetsche] woke up to find he had a new principal shareholder, and that’s a huge change in the company’s ownership structure.”

The latest in a series of controversial forays into German industry and financial services, the deal crystallised longstanding fears about Chinese intentions. The way some in Germany see it, China is on a mission to suck the country dry of its technological know-how and engineering expertise, and supplant it as one of the world’s leading industrial powers.

It is, from Germany’s perspective, a process that is driven and directed by the Chinese government. Even purely private investments like Geely’s in Daimler are suspect. “The fear is that the state is somehow behind this deal, that geopolitical as well as economic interests are tied up in it,” says one senior German official.

Geely chairman Li Shufu insists he is a private entrepreneur with no ties to the authorities. Speaking to German tabloid Bild am Sonntag earlier this month, he said he had not taken a “single cent” from Beijing to buy the Daimler shares. And his intention was not to siphon off German technology, but to co-operate on electric and self-driving cars so the two companies could better fend off Silicon Valley disrupters such as Elon Musk. “We can’t just abandon the field to him,” he said.

Yet to Chinese state media he conveyed a somewhat different message. Speaking to CCTV, he said the investment was designed to “support the growth of the Chinese auto industry” and “serve our national strategies”. Reports that Geely was eyeing Daimler’s battery technology for electric cars — the company’s crown jewel — only heightened the sense of alarm in Berlin.

Indeed, the concern in Germany is that Mr Li’s Daimler deal is all of a piece with Made in China 2025, President Xi Jinping’s 10-year plan to transform the country from a low-cost manufacturer into a high-tech power dominant in 10 advanced industries, including electric vehicles. It is a strategy that Germany sees as a direct threat to its commanding position in the car industry.

“If Made in China 2025 succeeds, German industry might as well just pack up and go home,” says Thorsten Benner, director of the Global Public Policy Institute in Berlin.

Germany is not the only country to see a backlash against Chinese acquisitions. In the US, a bill working its way through congress would significantly increase scrutiny of inbound investment, particularly in “critical” technologies such as artificial intelligence or robotics that are part of the Made in China 2025 strategy.

But the anxiety is particularly acute in Germany. It specialises in precisely the area that Chinese companies are looking to move into as their labour costs rise — high-end manufacturing.

The disquiet in German boardrooms has coincided with a huge shift in the political elite’s thinking on China. “You increasingly have the feeling that Germany and China are moving from being partners, to rivals, to adversaries,” says Dirk Schmidt, an expert on Chinese foreign policy at the University of Trier. “The change in mood is astonishing, considering how quickly it’s happened.”

The Geely kerfuffle is only the latest example of a Chinese investment making waves in Germany. The most controversial was Chinese appliance maker Midea’s €4.5bn acquisition of Kuka, Germany’s largest maker of industrial robots, in 2016.

Then in February last year, Chinese conglomerate HNA Group snapped up a 3 per cent stake in Deutsche Bank, which it later raised to 9.9 per cent — becoming the bank’s largest shareholder.

The forays triggered a backlash. After the Kuka deal Berlin abruptly withdrew its clearance for Fujian Grand Chip Investment’s takeover of German chip equipment maker Aixtron. The company later dropped its bid after the administration of then US President Barack Obama stopped the deal on national security grounds because of Aixtron’s American subsidiaries.

Then last year Berlin tightened its law on overseas investment, enhancing ministers’ powers to block foreign acquisitions of 25 per cent or more of companies operating in “critical infrastructure”. The change also gave the government longer to investigate takeovers, expanding the timeframe from two to four months.

That sent out an important signal, says Björn Conrad, head of the China-focused consultancy Sinolytics. “Four months can be an eternity for an M&A deal,” he says. “It means a longer period of uncertainty.”

Germany’s protectionist drive moved up a gear a year ago when it teamed up with France and Italy on a joint initiative to introduce more rigorous screening of foreign takeovers of EU companies, especially those with suspected state backing. The move could be the first step towards an EU-wide mechanism similar to Washington’s powerful Committee on Foreign Investment in the United States, or Cfius.

The backlash has in part been fuelled by anger at what is seen as a lack of reciprocity in dealings between China and Germany. “It’s irritating how little China has implemented the principle of openness, which it rightly demands from other states, in its own backyard,” says Dieter Kempf, head of the BDI, Germany’s main business organisation.

Berlin’s new coolness towards Chinese investment has led to a marked drop-off in deal activity. China itself has contributed with a regulatory clampdown on outbound deals, amid fears that the foreign acquisitions were draining the country’s foreign exchange reserves. HNA is one of a number of Chinese groups which are now under pressure to sell overseas assets: last month it revealed it had cut its stake in Deutsche Bank to 9.2 per cent.

Yet the Geely deal bucked that trend, and revived fears of Chinese encroachment. “The public reaction was huge because Daimler is the German economy, even more so than Deutsche Bank,” says another German official.

Mr Li also raised eyebrows by building up his $9bn stake in a way that allowed him to circumvent strict German disclosure rules. Normally investors must tell the authorities if their share of voting rights exceeds 3 per cent. Geely got around that with a clever combination of derivatives, bank financing and share options.

Some German politicians felt Daimler and BaFin, the country’s financial regulator, had been tricked. “The whole operation looks very engineered,” says Hans Michelbach, an MP and finance expert from Chancellor Angela Merkel’s CDU/CSU bloc. Geely had apparently “exploited legislative grey areas” to sidestep the law, he says. Ms Merkel herself said there could be legal “loopholes” that needed to be closed.

Some politicians worried about a potential conflict of interests: the Geely holding company also owns a minority stake in Volvo Group, which competes with Daimler’s heavy trucks division.

Brigitte Zypries, economics minister, says Mr Li could now claim a seat on Daimler’s supervisory board: “If competitors are represented [there], then that’s a problem.” Mr Li told Bild that a Daimler board seat was “not a priority” for him, and has said he has no plans to increase his stake — “for the moment”.

German mistrust of China’s economic motives is part of a broader cooling in the Berlin-Beijing relationship. Worries about the Chinese corporate advance are merging with concern about the growing centralisation of power and more assertive foreign policy under Mr Xi, a trend that was underscored by the Communist party’s move to scrap presidential term limits this week.

The number of irritants is multiplying. Late last year, Germany’s internal security service revealed that Chinese intelligence agencies were setting up fake profiles on social networks such as LinkedIn to establish contact with — and potentially recruit — German politicians and officials.

Berlin is also worried about China’s leadership of the “16+1” group, which embraces 16 central and eastern European countries, 11 of them members of the EU. “The impression is gaining ground that China is succeeding in splitting Europe,” says Mr Schmidt. “It’s getting harder to co-ordinate common positions on things like human rights.”

Ms Merkel addressed the issue last month during a press conference with Zoran Zaev, the prime minister of Macedonia. Was China using the 16+1 group to influence Balkan states, a reporter asked her. “The question is: are economic relations being linked with political issues?” she said. If they were, this would not be in the “spirit of free trade”.

Linked to that, Germany is highly suspicious of China’s Belt and Road Initiative, one of Mr Xi’s signature projects. It is worried that European countries, perhaps even a big EU economy such as Italy, will cave in to Chinese pressure to sign a bilateral memorandum of understanding supporting the project, which aims to finance and build infrastructure in about 70 countries in Eurasia, the Middle East and Africa.

At the Munich Security Conference last month, Sigmar Gabriel, the German foreign minister, long seen as a hawk on China, warned that the initiative was “no sentimental evocation of Marco Polo”, but “an attempt to establish a comprehensive system for moulding the world in Chinese interests”.

China is the only country “with a truly global, geostrategic idea”, he said. The west, Mr Gabriel added, had no strategy of its own to offer in response.

Back in Berlin, authorities are still wrestling with how to respond to Geely’s investment in Daimler. Officials are angry at being blindsided but conscious that they lack the tools to intervene. Some MPs talk of changing the foreign investment law again: currently, deals can only be blocked if non-EU companies try to acquire more than 25 per cent of a German entity. That has left the government powerless to become involved in another controversial transaction: State Grid of China Corp’s attempt to buy a 20 per cent stake in 50 Hertz, a German electricity grid operator.

“My view is that the 25 per cent threshold is not working,” said deputy economics minister Matthias Machnig last week. “It has to be changed.”

Meanwhile, in some quarters there is resignation. Chinese influence in the global economy is growing, and no company, not even household names such as Daimler, is immune. “There’s a legitimate argument that Daimler will ultimately [only] survive by becoming a little less German and a little more Chinese,” says one German official.

Authorities in Berlin say they will continue to keep a close eye on Geely’s actions at Daimler. “If it was really a corporate decision, then that’s fine,” says the senior official. “But with China, you never know.”


Investing in China: German businesses bemoan party role and data laws

China is Germany’s largest trading partner, with imports and exports between the two reaching €187bn last year. Some 6,000 German companies are now active in China, which has received a total of €60bn in direct investment from Germany.

For Daimler, the Chinese market is critical. It sells more S-Class Mercedes-Benz models in China than anywhere else and its largest production facility is in China. Last month the company had to issue a grovelling apology for posting an inspirational quote from the Dalai Lama on its Instagram account.

But German business organisations complain that the environment for foreign groups operating in China is deteriorating. Dieter Kempf, head of the BDI business lobby, spoke out in January against the “Communist party’s increasing influence” on companies. “International investors should have the last word on business and investment decisions, not the party,” he said.

At issue is Beijing’s demand that internal Communist party cells in joint ventures of foreign companies and state-owned Chinese entities be given an explicit role in decision-making, including investment plans.

For the Mittelstand — the small and medium-sized enterprises that are the backbone of the German economy — “this sets all the warning lights flashing,” says Hubert Lienhard, head of the Asia-Pacific Committee of German Business, a trade body. “That’s the holy of holies for any company — how I deploy my own capital.”

Another big worry is China’s cyber security law, which gives the government legal controls over the encryption and flow of data. The law “poses the risk of involuntary technology transfers and the loss of intellectual property rights, says Hanna Müller, the BDI’s top representative in Beijing. “You have to disclose a lot of data, and there is the risk that commercial secrets are just no longer protected.”

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