Few Illusions Left

For decades, Germany accepted a trade-off of technology for market access when its multinational corporations invested in China. What has changed in recent years is that China’s model of political authoritarianism and state capitalism is reaching out to the world. Increasingly competitive in China, Chinese multinationals have busied themselves with entering overseas markets and buying foreign corporations. China’s aim is to climb the global competitiveness ladder through its “Made in China 2025” policy and lead production in higher-value goods and services in the automotive, aviation, machinery, robotics, and other industries. Standing in direct competition with German industry, this set off alarm bells in Berlin. China’s investment restrictions and controls at home, coupled with its targeted investment abroad, antagonized relations in Berlin and other European capitals. New policies to protect German and European corporations from foreign takeover, and efforts to reform the World Trade Organization, have grown as this lack of reciprocity has been exposed.

EU state aid plans will concern some trade partners

Subject EU state aid. Significance The European Commission has approved more than EUR2.1tn (USD2.4tn) in state aid since March. This significant relaxation of state aid rules -- aimed at preventing businesses from collapsing and protecting them from foreign takeover -- could last for another year or two. At the same time, the Commission is preparing to bolster its scrutiny of aid by non-EU states which gives their firms a competitive advantage over EU ones. Impacts After aviation, those sectors most in need of state aid are other transport sectors, hospitality and tourism. Richer EU countries’ ability to provide much more state aid to its firms will fuel a disjoined economic recovery across the euro-area. The EU’s crackdown on foreign subsidies will likely make it more difficult to reach a trade and investment partnership with China.

South African investment climate faces further hurdles

Subject South African competition legislation concerns. Significance Draft amendments to South Africa’s 20-year-old competition legislation have been tabled in parliament, adding a new section that introduces a national security test for potential foreign takeover bids. The legislation is out for public comment and parliament will debate the new measures later this year. The government is aiming for them to be in place by end-2018. Impacts Recently trumpeted foreign investment deals secured by Ramaphosa are largely ‘pledges’ and may prove underwhelming. An above-inflation pay deal for Eskom workers will undermine investor confidence in Ramaphosa’s reform drive. Ongoing corruption allegations against key officials, including the deputy president, will undermine the government's anti-graft rhetoric.