German Government prohibits Chinese acquisition under foreign direct investment rules
On 2 December 2020, the German Government prohibited on public security grounds the sale of the German Institut für Mobil- und Satellitenfunktechnik (“IMST”), a specialist in satellite and communications technologies, to Addsino, a subsidiary of State-owned defence group China Aerospace Science and Industry Corp (“CASIC”). This is only the second time that the German Government has decided to prohibit a transaction on the basis of the Foreign Trade and Payments Ordinance, and is technically the first prohibition to take effect as the first transaction had been abandoned once it became clear that the prohibition was imminent.
Under the German Foreign Direct Investment (“FDI”) screening rules, the Government has the power to assess whether an investment by a foreign entity in a German company is likely to affect public order or security or endangers the country’s essential security interests. If the assessment reveals concerns, the Government usually approves the transaction subject to conditions addressing such concerns. However, in this case, remedies were deemed insufficient to address the Government’s concerns with regard to IMST’s activities in the fields of (i) military applications and (ii) 5G technology. More specifically:
(i) Military applications: IMST developed a key component for the German earth observation satellite TerraSAR-X. The Federal Ministry of Defence used the satellite’s data to generate a high-precision 3D elevation model for military purposes (reconnaissance, command and control, simulation and weapons systems). The Government was concerned that if the acquisition by CASIC had been allowed, such know-how would leak/be transferred to China.
(ii) 5G technology: IMST has been involved in commercial radio technology for 25 years and was found to be one of the world's leading research companies in radio communications. Since 5G technology represents a key digital technology, there were concerns that the acquisition would endanger Germany’s technological sovereignty in the field of future communication systems.
Another key reason behind the prohibition appeared to be the fact that IMST, a spin-off of the University of Duisburg-Essen, received significant public funding in the last 10 years, which made up approximately 40% of IMST’s revenue.
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