Chinese takeover of Empresarios Agrupados and Ghesa: pursuing domestic nuclear goals through FDI

Datenna continuously tracks and conducts research on China-EU joint ventures and acquisitions in Europe. In this series of articles, we highlight our research and data on interesting cases. This article analyses the acquisition of Empresarios Agrupados and Ghesa in Spain by a Chinese state-owned enterprise.

Short Read

The Sale of Empresarios Agrupados Internacional and Ghesa

The acquisition of engineering design companies Empresarios Agrupados Internacional (EAI) and Ghesa by China Energy Engineering Group Planning & Engineering Co., Ltd. (CPE) was concluded on 21 January 2020 — one of the largest Chinese takeovers of construction companies in Spain, with a transaction value of €78.3 million.

CPE purchased 100% equity in Empresarios Agrupados and Ghesa from the companies' original shareholders: Naturgy Engineering (75.8%), Iberdrola Ingeniería y Construcción (75.8%), and Técnicas Reunidas (48.4%). The Chinese engineering company is now the sole and full owner of both Spanish firms.

Both the targets and the acquirer focus on the design and construction of nuclear plants, thermonuclear plants, renewable energy production, and energy business in general. Due to their technical expertise in power facilities and infrastructure construction, both companies are relevant actors in the Spanish nuclear power sector, from which one-fifth of the country's total electricity derives.

The State-Owned China Energy Construction Group

The acquirer, China Energy Engineering Group Planning and Design Co., Ltd., is a conglomerate established in 2018 and headquartered in Beijing. CPE is owned by China Energy Engineering Group Co., Ltd., a Chinese public company of which 99.53% of shares are held by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), with a registered capital of €3.37 billion. The Chinese parent company — also known as Energy China Group — ranks 12th among the world's largest contractors in the energy plant construction field.

Due to the tight linkage with the State Council and its global business scope, the acquirer's activities are at high risk of being geared towards broader national ambitions. Chinese state-owned enterprises are key instruments for the implementation of industrial policy, allowing the Chinese leadership to put formal objectives into practice at both national and local level. CPE's outward investments into Europe are therefore indicative of Chinese ambitions in the energy and power sector.

Chinese Ambitions in Nuclear Power Production

By observing Chinese investment flows into Europe, trends in SOE acquisitions become visible. SOEs appear particularly interested in the European energy sector, with relevant investments made into renewables and, for countries that permit it, the nuclear power sector. This acquisition is not a standalone event — Chinese outward investments into European energy suppliers have also been registered in Portugal, with China Three Gorges' purchase of a 23% stake in EDP-Energias de Portugal.

This trend is consistent with recent statements from Chinese leadership on the energy sector. Four decades of fast-paced development have made China the second-largest economy in the world — and a global infrastructure giant. China currently accounts for almost two-thirds of the growth in global CO2 emissions. In this context, President Xi Jinping stated that China would strive to be carbon neutral by 2060, with CO2 peak emissions by 2030.

Beyond environmental concerns, China's energy transition is also driven by a growing focus on energy self-sufficiency, as stated in the 14th five-year plan. Chinese leadership is increasingly focused on maximising electric energy production, addressing power shortages, and reducing dependence on imports of natural gas and crude oil. In both efforts — neutralising coal emissions and improving energy security — nuclear power plays a central role.

Concerns About a Tilted Playing Field

Building expertise and technology in electric power production has been a historic ambition for China since its opening-up in 1979, absorbing technology from France, Canada, and Russia. Yet by examining EU-China bilateral investments in the energy sector, concerns about the level playing field emerge clearly.

The new Chinese Foreign Investment Law (2020) and negotiations on the EU-China Comprehensive Agreement on Investment (CAI) have lifted some limitations on foreign investment into China. However, nuclear power production remains a sensitive sector in which foreign entry is strictly scrutinised. China's Foreign Investment Negative List states that "Chinese control is required for investment by foreign investors in building or operation of nuclear power stations." The same restriction does not apply in reverse. As seen from this acquisition, China is increasingly present in the EU nuclear sector — and given its current energy transition ambitions, its footprint is expected to grow in the coming years.