China's acquisition of Aritex in light of Spain's new FDI screening framework

At Datenna, our China experts continuously track and conduct detailed investigations into the acquisitions of European and US firms by Chinese entities. Through a series of articles in our resource library, we highlight striking acquisition case studies, analysed based on Datenna's in-depth, unique data on China's techno-economic landscape. This article elaborates on the acquisition of Aritex.

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The Sale of Spain-Based Aritex

In April 2016, the state-owned Aviation Industry Corporation of China (AVIC), together with Han's Laser Technology Industry Group Co., Ltd., acquired 95% of Spain-based Aritex. Established in Badalona in 1961, Aritex is a leading company in the Spanish aeronautical sector, providing solutions for the development, manufacturing, installation, and production and assembly lines of aeronautics and automobile manufacturers worldwide — with major customers including Airbus, Boeing, and Audi. After the acquisition, the company's board of directors was replaced with Chinese staff.

Aritex began as a supplier of components for the automotive sector before diversifying into aerospace in 2001. The company is also engaged in the development of innovative systems for assembly processes and is active in the software intelligence field, including artificial 3D vision systems and customised open-source software to control robotic systems. As such, Aritex is active in a sensitive sector and manufactures dual-use products, making it an attractive acquisition target in Europe.

The Acquirer: The State-Owned AVIC

Datenna's data indicates that AVIC has a registered capital of €8.3 billion and a large portfolio of domestic investments, including many high-tech aviation companies. The company's business scope explicitly includes "support and services of military aircraft and engines, guided weapons, military gas turbines, weapon equipment supporting systems and products." AVIC is a major defence conglomerate and an active participant in China's Military-Civil Fusion (MCF) framework, directly controlled by the State-owned Assets Supervision and Administration Commission of the State Council.

The other entity involved in the acquisition, Han's Laser Technology Industry Group Co., Ltd., is a private company listed on the Shenzhen Stock Exchange and the largest manufacturer of industrial laser processing equipment in Asia, and top three globally. Despite Aritex not being strictly within the Spanish defence sector, its dual-use potential and AVIC's business scope mean that Aritex's innovative technologies and assembly systems could readily be applied in AVIC's military activities in China.

The Spanish FDI Screening Framework

Given the industries in which both the acquiring and target company operate, concerns arise about whether a similar transaction would be prevented — or at least subjected to closer scrutiny — under the current Spanish foreign direct investment mechanism.

On March 17, 2020, the Spanish government issued Royal Decree-Law 8/2020, reinforcing its investment screening mechanism and aligning Spanish regulations with the EU FDI screening framework issued in late 2019. Prior to this, Spain had a more liberal FDI framework with restrictions only in the defence, energy, audio-visual, and telecommunications sectors. The Decree grants the government special veto power over acquisitions where the acquirer would own 10% or more of the target's equity or gain controlling stakes. Veto power now extends to critical infrastructure, critical technologies, and dual-use goods. The national Directorate-General for Investments within the Ministry of Industry, Trade and Tourism is empowered to examine suspect acquisitions that could threaten national public order, public safety, or public health.

Recent Acquisitions in Strategic Sectors

The Royal Decree has overhauled Spain's investment screening regulation significantly, making it one of the strictest frameworks in Europe. However, relevant acquisitions carried out by Chinese investors directly linked to the Chinese State Council have still occurred in Spain. Notable examples include the acquisition of nuclear plant designer companies and the takeover of Grupo Puentes by China Road and Bridge — both in 2020. Both targets operate in key industries: nuclear energy and aviation. Existing links between the acquirers and China's military sector increase the risk of technology transfer, yet neither transaction was blocked or labelled as subject to review by the Spanish government.

With accurate and complete information on acquiring entities, national governments would be better equipped to perform risk assessments on foreign investors and ensure safe economic cooperation with China.