Year in review: Foreign investment regulation in Germany

All questions

Year in review

In 2024, the BMWE examined 261 cases imposing restricting measures in only eight cases.²

While the overall number of cases remained at 306 in 2021 and 2022, followed by a decline to 257 in 2023, there has now been a slight increase in cases.³ The percentage of cases subject to restrictions has remained relatively stable at around 4 per cent since 2021, with only 18 Phase II cases in 2024 in total.⁴ Since 2022, there have been a few landmark cases, some of which have recently been dealt with by court, including the proposed acquisitions of Elmos and Siltronic (both active in the semiconductor area), Heyer Medical (a manufacturer of ventilators and other medical devices), Kleo-Connect (with activities in the satellite space) as well as the proposed acquisition of a German refinery.

Increasing its scrutiny of semiconductor investments, the BMWE prohibited the indirect acquisition of a chip factory of semiconductor manufacturer Elmos by a Chinese (state-owned) company in 2022. The BMWE also considered prohibiting the acquisition of ERS Electronic, another German semiconductor company, by an unknown Chinese investor,⁵ but the application was withdrawn before the prohibition was authorised.

In relation to Elmos, the BMWE issued a press release in which the Federal Minister for Economic Affairs and Energy emphasised that Germany's technological and economic sovereignty was of great importance, especially in the semiconductor sector, and that mitigation measures were therefore not suitable to remedy the identified concerns.⁶

In early 2022, the BMWE retroactively prohibited the acquisition of medical device manufacturer Heyer by a Chinese acquirer. Respiratory equipment such as the ventilators manufactured by Heyer were of considerable importance during the covid-19 pandemic. In light of this, the BMWE argued that Germany's independence from non-European manufacturers of respiratory equipment was of utmost importance.⁷ While the goal of maintaining security of supply is understandable, public information suggests that Heyer neither was an important supplier (de minimis sales following insolvency proceedings) nor owned know-how on special or new technologies. There also appeared to be various alternative European suppliers.

Following a prohibition in 2022, the Chinese acquirer of Heyer Medical sought judicial relief with the Berlin Administrative Court. In November 2023, the Court repealed the prohibition based on procedural grounds and took issue with the lack of due process afforded to the purchaser (in particular proper consultation). It also ruled that the authority’s review period had already expired when the decision was issued.⁸

Against the backdrop of possible restrictions, investors from China must continue to carefully review FDI filing obligations and clearance prospects when investing in sensitive targets. Even if recent case law sees investors come out victorious, these results have no indicative effect beyond each individual case.

The year 2023 saw only one prohibition issued by the BMWE in the case of the satellite start-up Kleo Connect. The Chinese-owned majority shareholder (whose majority of 53 per cent had been approved after a review in 2018) tried to collect the shares of the German minority shareholder after a corporate dispute. Upon notification of the minority shareholder, the BMWE intervened, prohibiting the collection of shares. This case represents the first time that the federal government has prohibited the further acquisition of shares in an already controlled company.⁹

In July 2024, the BMWE prohibited the acquisition of MAN’s gas turbine business by a Chinese investor, presumably due to potential military use of the target’s technology, even though it was unclear whether the target business would be continued without the Chinese investment. In a statement after the decision was taken, the German Minister of Economy confirmed that 'technologies that are relevant to public order and security must be protected against information leakage'.¹⁰

The past two years have brought only minor changes to Germany’s FDI rules. In October 2023, the AWV’s procedural provisions were changed to comprehensively digitise the notification process.¹¹ While these changes probably serve the BMWE’s interest to simplify the process, they have made the process more complex for applicants. Instead of submitting a prose-style letter application, they must now complete a standardised form. Furthermore, there has been one change in a different legal instrument that has an impact on foreign investment. An amendment of the legislative order broadening the definition of critical infrastructures (BSI-KritisV)¹² entered into force on 2 March 2023. More specifically, liquefied natural gas terminals as well as cable landing points for submarine telecommunications cables are now also considered critical infrastructure in the energy and information technology (IT) and telecommunications sectors.¹³ With effect from 1 January 2024, the municipal waste disposal sector was added to the list of critical infrastructure.¹⁴ As mentioned above, the acquisition of critical infrastructure as defined in the BSI-KritisV can trigger mandatory filing obligations. Thus, the amendment also has an indirect impact on whether investments are notifiable.

The previous administration under Chancellor Scholz had planned to introduce a comprehensive Investment Screening Act (Investitionsprüfungsgesetz, IPG). Since 2023, the German government has been holding internal consultations on a new investment screening law based on a key issues paper by the previous government. The IPG aimed to consolidate the regulations contained in the AWG and the AWV into a single law. This may also have involved significant changes: these would have concerned, among other things, modifications to the scope of application and clearer regulations for atypical acquisitions. Most significantly, the industry sectors that currently exist under the law and that have been classified by the legislator as being particularly relevant to security would have been reviewed and specified. Furthermore, the applicable thresholds, as well as the existing procedural rules and the rules concerning penalties and fines, were going to be revised.

The Scholz administration ultimately did not manage to agree on the IPG before its premature end. At least in part, this was because the introduction of a new law in the FDI space may have been viewed negatively by the business community. The new administration’s coalition agreement does not mention far-reaching legislative changes, but emphasises the political endeavour to protect critical infrastructure by preventing foreign investment that conflicts with German interests will generally be maintained. The coalition parties also agreed to amend the AWG to speed up and simplify review procedures.¹⁵ It is therefore not clear whether the Merz administration will focus on smaller changes to the existing legislation or whether they are still working on a major overhaul of the German FDI rules.