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

In April 2016, the State-Owned Aviation Industry Corporation of China (thereinafter AVIC) together with Han’s Laser Technology Industry Group Co., Ltd., acquired 95 % of the 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, production and assembly lines of aeronautics and automobile manufacturers worldwide. The company  boasts major customers, including Airbus, Boeing and Audi. After the acquisition, the board of directors of the company was substituted with Chinese staff.

Aritex began with as a supplier of relevant components and products for the automotive sector and diversified to the aerospace sector in 2001. Additionally, the company is also engaged in the development of innovative systems for assembly processes and is active in the software intelligence field. Moreover, Aritex developed artificial 3D vision systems and customized 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 target for investment in Europe.

The Acquirer: The State-owned AVIC

Datenna’s data indicates that the Chinese company has a registered capital of 8.3 billion euro and a large portfolio investments in domestic investments, including many high-tech aviation companies. The company’s business scope description states the following: “support and services of military aircraft and engines, guided weapons, military gas turbines, weapon equipment supporting systems and products are included among the company’s main activities”.  Additionally, AVIC is a major defense conglomerate, active in China’s Military-Civil Fusion (MCF) framework.

As far as its ownership structure is concerned, the company is directly controlled by the State-owned Assets Supervision and Administration Commission of the State Council, the ad-hoc government agency that manages and detains the ownership of the state assets within China on behalf of the State Council.

The other entity involved in the acquisition, namely Han’s Laser Technology Industry Group Co., Ltd., is a private company listed on the Shenzhen stock exchange and is the largest manufacturer of industrial laser processing equipment in Asia and top three in the world. Despite the fact that Aritex is not strictly within the Spanish defence sector, due to its dual-use potential, as well as AVIC’s business scope, the Spanish company’s innovative technologies and assembly systems could be applied in AVIC’s military activities in China.

Given the importance of the industries in which both the acquiring and the target company operate, concerns arise whether, a similar transaction would have been prevented or, at least, would have been subject to a closer scrutiny under the current Spanish foreign direct investment mechanism that has been implemented since.

On 17 March 2020, the Spanish government issued the Royal Decree-Law 8/2020 reinforcing the country’s investment screening mechanism. The Decree mainly aimed at aligning Spanish regulations with the EU FDI screening framework which was issued by the end of 2019.

Prior to then, the Spanish government had a more liberal foreign direct investment (FDI) framework with restrictions only in the defense, energy, audio-visual and telecommunications sectors. In light of the corona crisis,  investment screening practices became tighter to better shield EU state members from strategic assets takeovers.

The regulation grants special veto power to the government regarding specific investments in which  the acquirer would own 10% or more of the target equity or that provides the acquirer with controlling stakes in the company. The veto power has also been extended to sectors such as critical infrastructure, critical technologies, dual-use goods and others. An important role is granted to the national Directorate-General for Investments within the Minister of Industry Trade and Tourism. The national Directorate-General will be entitled to examine suspect acquisitions which could threaten national public order, public safety, or public health.