Chinese media noted the 'coincidence' between what they called de facto German protectionism and EU-US moves this week to avert a trade war. Meanwhile, some in Germany want a tougher trade stance on China.
The German economy and finance ministries said in a joint statement on Friday that the German government would buy a 20 percent stake in electricity network firm 50Hertz, in effect blocking Chinese investors from taking a majority stake in the strategic company.
China's State Grid had been in talks to acquire the stake, which was put up for sale by Australian infrastructure fund IFM. Its first attempt was blocked after 50Hertz's majority shareholder, the Belgian power transmission system operator Elia, expanded its holding to 80 percent.
"On national security grounds, the federal government has a major interest in protecting critical energy infrastructure," the statement read. A public bank will step in to take the stake as a temporary measure.
China's acquisitions across Europe have triggered concern about the forced transfer of technology and production.
Is a foe's foe a friend?
In response the Chinese state-run Global Times wrote that the US is now expected to reduce its trade conflicts with the EU and focus on China.
In early July, German Chancellor Angela Merkel and Chinese Prime Minister Li Keqiang stressed a common commitment to a multilateral trade system and signed deals worth €20 billion ($23.6 billion), but Merkel also demanded Beijing ease barriers on foreign investment.
China's ambassador to Germany, Shi Mingde, accused Germany then of protectionism. "China is opening itself further, but we are concerned that the door to Germany that has been opened will be closed again," Shi told the Stuttgarter Zeitung newspaper.
"Blocking investment may have legitimate reasons, such as national security or even competition," Linda Yueh, author of The Great Economists, told DW.
"But because of the current trade tensions, where it appears that China has scuppered an M&A deal by US tech firm Qualcomm after the US initially blocked China's ZTE, any measures to restrict investment by multinational companies will look like it's part of escalating trade tensions, even though the German action is unlikely to be part of the current tit-for-tat," Yueh went on.
To add to the negative visuals, earlier this week the German government said it would prevent Chinese investors from buying the machine tool manufacturer Leifeld Metal Spinning. The veto would be the first time Germany has prevented one of its firms being sold to Chinese investors.
Current German legislation allows the government to block investment from a non-EU country if the investor wants to take 25 percent or more. In the case of 50Hertz, the government thus had to find the cash itself in order to stop foreign investors.
Amid concern that its most successful businesses could lose vital technical know-how, last year Germany modified rules to allow the government to examine a wider range of proposed tie-ups. These include companies that provide critical infrastructure or those considered to be developing key technologies.
Berlin's move follows the Trump administration unveiling of measures to curb Chinese companies buying stakes in US firms in June, alongside imposing tariffs on some Chinese goods. The Treasury Department imposed restrictions that would block firms with at least 25 percent Chinese ownership from buying US companies with "industrially significant technology.”
Chinese-German mutual interest
But in non-strategic sectors things are looking rosy. A study by consultancy EY found Chinese companies bought 54 German firms last year and invested $13.7 billion (€11.8 billion) in Europe's largest economy.
The number of acquisitions and shareholdings of Chinese investors in German companies, according to EY, increased significantly between 2010 and 2016, but fell in the first half of this year to only 22. The total investment amounted to $530 billion (€450 million) in 2015, $12.6 billion in 2016 and $13.7 billion in 2017.
Chinese companies have been buying airports, harbors and engineering firms across Europe.
Companies such as BASF, BMW, Volkswagen, Daimler, Siemens and Bosch announced deals and partnerships with Chinese partners earlier this year.
German Chancellor Angela Merkel and Chinese Prime Minister Li Keqiang review the guard of honour in Berlin on July 9
Calls for a more assertive China policy
Some in Germany have welcomed the spat as a way of recalibrating German policy in relation to China.
The Mercator Institute for China Studies, Merics, in Berlin for example argued recently that Europe needs to be cautious about seeing China as a partner in supporting a rules-based international trade regime.
"In light of China's strategic industrial policy, now is the time to establish a more assertive position towards China," it wrote.
China, it continued, is becoming a global competitor in high-tech industries.
China's ambitions to ramp up productivity by moving away from labor-intensive industries towards high-tech and innovation are legitimate at its current stage of economic development, Merics argued.
But China is using whatever competitive advantages it can and has subscribed to an economic system that combines firm control of the state with elements of a market economy.
"The industrial policy emanating from the 'Made in China 2025' strategy is a state-led effort to becoming a global tech leader. The domestic strategy is complemented by strategic acquisitions of foreign high-tech companies," Merics writes.