Germany halts the planned sale of VW’s gas turbine business to China

The planned sale of the German business to Chinese state-owned CSIC Longjiang GH Gas Turbine Co (GHGT) was announced in June 2023 at an undisclosed price, but MAN Energy Solutions said last September that the government would take a closer look.

The decision comes at a time of rising trade tensions between Europe and China. It is being seen as part of the strategy to prevent Chinese access to sensitive EU technology, especially those which might be used for military or artificial intelligence purposes.

The sale has been vetoed by the German cabinet, with the defence and foreign ministry both objecting, due to security concerns that this gas turbine technology could potentially be used in fighter jets and drones as well, along with warships. 

The country’s economic ministry has also been given additional powers to halt any Germany-China deals that may have a questionable national security impact, especially as tensions heat up between the two nations. This usually concerns deals which involve critical infrastructure or technology, with the government having the power to veto even foreign stakes as low as 10% in those deals. 

The decision will come as a disappointment to MAN Energy Solutions, which has spent several months trying to convince the German government that its turbines were mainly designed for civilian purposes, such as for power generation, industry and pipelines, with very little military or warship value. 

After the collapse of the deal, the company is likely to restructure its turbine business and reposition it in the market. 

How could this move impact Germany’s competitiveness in the international market?

Although the decision to monitor Germany-China trade and business deals more closely has been made to protect German businesses and technology, it could also put the country’s exports at risk or threaten its competitiveness in international markets. 

China is one of Germany’s biggest trade partners, having imported approximately $89.1 billion (€82.52 billion) worth of goods from China in 2022, according to the Observatory of Economic Complexity. Electric batteries, computers and broadcasting equipment made up the bulk of imports. 

On the other hand, Germany exported goods worth about $95 billion to China in 2022, with packaged medication, cars and motor vehicle parts being some of the most exported items. As such, if Germany decides to reduce its trade dealings with China without being able to increase trade with other partners, it could potentially be detrimental to the country’s export standing. 

Due to the EU considering tariffs on Chinese electric vehicles (EVs) in order to support European car manufacturers, China has also revealed that it is likely to impose counter-tariffs on pork, dairy and luxury goods imports from the EU. 

Not only that, but German car manufacturers such as BMW, Mercedes-Benz and Audi, who have huge manufacturing operations in China could be at risk of losing their many benefits which currently include cheaper land, tax breaks and a relatively relaxed regulatory environment.

In a regular news briefing on Thursday quoted by Reuters, China’s foreign ministry said it was opposed to the politicisation of normal business cooperation and establishing “artificial obstacles”.

A spokesperson Mao Ning added: “We should strengthen economic and trade cooperation based on common interests and market rules in the spirit of mutual benefit and win-win results.”