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Germany blocks another big business deal with China

By Hanna Ziady and Nadine Schmidt, CNN

London/Berlin (CNN) — Germany has blocked the sale of a Volkswagen subsidiary to China on national security grounds, delivering a fresh blow to the already tense relationship with its biggest trading partner.

MAN Energy Solutions, part of the Volkswagen Group, said in June 2023 that it planned to sell its gas turbines business to Chinese state-owned CSIC Longjiang GH Gas Turbine Co (GHGT). But a German government review, initiated in September, raised concerns that China might use the gas turbines to power warships, according to Reuters.

The decision to block the deal comes just weeks after the European Union hiked tariffs on electric vehicles from China, sparking a trade dispute with Beijing, which days later launched an investigation into prices of EU pork.

During a press conference Wednesday, Germany’s economy minister Robert Habeck said that Berlin welcomes investments from foreign companies, but technologies relevant to “public security” must be protected from countries “which maybe do not always have a friendly relationship with us.”

At the same press conference, Interior Minister Nancy Faeser said she welcomed the government’s decision “for security reasons.”

Germany and China traded goods worth €255 billion ($275.3 billion) last year, according to German government figures. But Berlin’s relationship with Beijing has come under strain in recent years, as Germany tries to protect local manufacturers and reduce its dependence on China.

It was burned badly by its close economic ties with Russia after the invasion of Ukraine — in particular a heavy reliance on Russian natural gas — and wants to reduce the risks of something similar happening in future.

In November 2022, Germany blocked the sale of one of its semiconductor factories to a Chinese-owned tech company, also citing security concerns.

A spokesperson for China’s Ministry of Foreign Affairs said Thursday that China opposes the “politicization” of “normal commercial cooperation.”

“We hope that Germany will provide a fair, just and non-discriminatory business environment for companies from all over the world, including Chinese companies.”

MAN Energy Solutions said it respected the government’s decision. “(We) will now initiate a structured process to close-down the gas turbine division, which will take place over the coming months,” the company added in a statement shared with CNN.

The additional EU tariffs, which could add as much as 38% to the cost of importing an electric car from China, will take effect from Friday for an initial period of four months. The EU must decide by November whether to adopt the tariffs for five years.

In a statement Thursday, the European Commission said that “consultations with the Chinese government have intensified in recent weeks,” with a view to resolving the dispute.

Volkswagen, Europe’s biggest carmaker, reiterated earlier comments that the timing of the EU decision is “detrimental to the current weak demand” for EVs in Germany and the region.

“The negative effects of this decision outweigh any potential benefits for the European and especially the German automotive industry,” the company added in a statement.

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