In light of safety considerations, the German Cabinet on Wednesday (July 3) blocked Volkswagen’s plan to sell its gas turbine business to a major Chinese state-owned enterprise.
The German government made this decision as trade tensions between the European Union and China escalated. Germany and the EU are attempting to mitigate the risks associated with their economic relations with China.
According to Reuters, the plan to sell the German business to the Chinese state-owned enterprise CSIC Longjiang Guanghan Gas Turbine Co., Ltd. (GHGT) was announced in June 2023, with the price not disclosed. MAN Energy Solutions, a subsidiary of Volkswagen that owns the gas turbine business, stated in September of the same year that the government would conduct a thorough review of the sale plan.
Some German politicians are concerned that China may not use the gas turbines for civilian purposes but rather for military applications, such as providing power to warships.
During a press conference, when asked about the decision to stop the sale, Interior Minister Nancy Faeser stated that it was “welcomed” for safety reasons.
The German Ministry of Economic Affairs has the authority to review and block transactions deemed to have an impact on national security. Economic Minister Robert Habeck stated that Germany welcomes investments overall, but it is crucial to protect technologies that are essential for “public order”, which was the reason for halting the deal.
As part of the transaction, GHGT was set to take over MAN’s operations in Oberhausen and Zurich, focusing on developing a new line of gas turbine products.
GHGT primarily develops medium and small-sized turbochargers and manufactures engines for the Chinese Navy’s destroyers.
A spokesperson for MAN Energy Solutions told Reuters in an email statement, “We will conduct this phase of work with the utmost caution, taking into account the interests of our employees, customers, and partners.”
An insider told Reuters on Tuesday that the group would retain the lucrative turbocharger service business.
During a recent trip to China, Habeck discussed with Chinese representatives the increasing cautiousness in Germany and Europe regarding the export of goods that could be used for civilian and military purposes in China.
Concerns within Germany are growing over excessive reliance on China for the supply chain and the fear of critical infrastructure falling into the hands of Chinese-related companies. The lessons learned from Russia’s invasion of Ukraine and subsequent reduction in critical natural gas supplies to Europe have further heightened these concerns.
China is Germany’s most important trading partner, but it has now been surpassed by the United States.
The latest data from the Federal Statistical Office of Germany shows that in May, German exports to China decreased by 14.0% compared to the same month last year, amounting to 7.5 billion euros. German exports to the United States reached 13 billion euros in May, a 4.1% increase year-on-year. The United States has surpassed China in merchandise trade in the first quarter of this year.
The EU is also taking action to counter the unfair subsidies provided by China in the electric vehicle sector.