Chinese investments in Poland: screening procedures and controversial cases

 1.       Legislation

Poland, confronted with Russian attempts to acquire some of its strategic assects, decided to legislate in that area to protect its industries and businesses against foreign hostile takeovers that could threaten its state and public security. This legislation, however, is not meant to screen the whole spectrum of foreign business activity in the country. The legislators chose to act in a very limited way.

The Polish Act of 24 July 2015 „on the Control of Certain Investments” is aimed at screening investments in sectors of strategic importance for the economy, in particular for energy security, as well as defence industry. The lawmakers authorized the Polish government to specify, by a way of regulation, a list of entities subject to protection. Such a list may – but doesn’t need – to be issued every year. Polish Parliament, granting authorization to issue a regulation with a list of protected companies, obliged the government to take into account: the significance of the share of a given foreign business organization in the market, the scale of the conducted activity, a real and sufficiently serious threat to fundamental interests of the state, as well as the lack of other options to introduce less restrictive measures. [1] What is of critical significance, the protection can be activated already prior to the acquisition and it allows the State authorities to control transactions that could threaten public security and public order. [2]

 The mechanism in question was designed to work in a very specific way: a business organizationthat is going to acquire a „material stake” of 20% or higher in a company specified in the government’s regulation is obliged to inform the government. The Minister of Energy or the Prime Minister may raise objections and veto the purchase. The failure, however, to notify the government bodies may result in the transaction being declared null and void and a fine up to 100 million PLN to be imposed on the purchaser. Additional penalty is six months to five years of imprisonment.

It is worth noting that according to the U.S. Department of State, the mechanism in question „does not appear to constitute a de facto barrier for [foreign] investment”.[3] The operation of the Act of 24 July 2015 is also limited by the Bilateral Investment Treaties (BITs) Poland is party to, including the Poland-China agreement concluded in 1988. On the other hand, the real issue is the proportionality or whether the Polish regulation might be in breach of the European Union’s primary legislation, in particular the Treaty on the Functioning of the European Union (TFEU) in its part concerning „means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments” (TFEU, Article 65). The opinions vary in this regard.

 2.       Polish experience with blocking of Chinese investments

While the Act of 24 July, 2015 is well-suited to protect large companies of strategic importance for the country and its economy, the most controversial case with the blocking of a potential Chinese investment in Poland involved a simpler solution. The Polish central city of Łódź has envisioned itself as a Belt and Road logistics hub for Central Europe, benefiting from a cargo railway connection with the Chinese city of Chengdu. In its proponents’ eyes, constructing a container terminal could well bring more opportunities for exporting Polish food to China, and more development prospects to the city as such. The project itself was reportedly discussed on the visit of the Chinese President Xi Jinping to Poland in June 2016. The piece of land satisfying the project’s needs was owned by the Military Property Agency. They were seeking an investor anyway, and finally they agreed with a Chinese one. The project was worth roughly 80 million PLN. Eventually, however, the tender was withdrawn by the Agency with media speculations on a direct involvement of the defence minister who allegedly decided himself to block the sale citing security reasons. Some observers believed there were also American suggestions to make such a decision. [4]

On the other hand, there are such Chinese investments in Poland where the government’s decision was very different to the abovementioned one. The best example is a world-famous high-tech company Nuctech, in Poland functioning as Nuctech Warsaw Company Limited sp. z o. o. Its scanners already work on the road and rail border crossings, in seaports and airports, including the largest train scanner in Europe in Terespol, on the Poland-Belarus border enabling simultaneous scanning on three tracks.[5] The company is planning to produce X-ray cargo scanning devices, among them mobile, railway and stationary models, and luggage scanners „based on the latest computed tomography scanning technology”.[6]

No doubt, the Nuctech investments have been under a meticulous control of relevant Polish authorities. The company’s new research & development space as well as its continuous efforts to create new valuable jobs are remarkable. However, the highly sensitive and public security-related sort of business activity and production the company is involved in Poland is rather unique taking into account the Chinese investments in the European Union.

 3.       Conclusions

Poland has well-working legal and administrative mechanisms for screening and blocking possibly undesirable purchases or takeovers in its sensitive industries. The Act of 24 July, 2015 is one of them. Foreign investments, including greenfield projects are also under the scrutiny of respective state services. There are, however, investments where it seems reasonable to ask questions about the considerations on the part of the Polish Government which had caused it to approve of them, as so far, there are no convincing explanations available.