Sweden to tighten foreign takeover rules amid security worries

By Simon Johnson

STOCKHOLM (Reuters) - Sweden plans to tighten its rules to enable the government to block takeovers of important firms by foreign companies amid increasing concerns over the threat to national security from China and Russia.

The outbreak of the novel coronavirus has heightened fears that hard-hit Swedish companies could be easy prey to foreign investors looking to gain access to cutting-edge technology or firms linked to crucial infrastructure.

"Sweden will continue to be a country that is very attractive for foreign investors," Home Affairs Minister Mikael Damberg told Reuters. "But there are areas where we see a need to protect businesses in Sweden."

He said the government hoped to put forward a bill to give it greater powers to stop takeovers after the summer.

While Damberg said the tighter rules were not aimed at any specific country, the move comes against a backdrop of growing international concerns over Russian and Chinese influence.

"If you ask what the threat picture looks like today, then naturally, it is two countries, according to the security police's report, that are easy to identify, and that is the People's Republic of China and the Russian Federation," said Hans Wallmark, deputy chairman of the Foreign Affairs committee of Sweden's parliament and an opposition party lawmaker.

The Swedish move follows an announcement by Japan earlier on Friday of a list of its companies subject to tighter foreign ownership rules, as Europe and the United States intensify scrutiny of industries key to national security.

BIOTECH, LASERS AND SPACE

The United States has led a campaign to block China's Huawei from supplying technology for 5G telecom infrastructure over worries that the firm is an extension of the Chinese state and that it helps Chinese intelligence steal secrets - an allegation denied by Huawei.

Russia's Nord Stream 2 project, which runs through Swedish waters, has also run into heavy opposition from the United States which says the pipeline would make Europe too reliant for energy on Russia, leaving it in Moscow's political grip.

Sweden's security police (SAPO) said in March that the two countries represented the biggest threats to the Nordic country's national security.

While Russia and Sweden have squared off over military influence in the Baltic Sea region, China's interest in Sweden has mainly been economic.

Chinese firms have bought or invested in 65 Swedish companies since 2002, according to a report at the end of last year by the Swedish Defence Research Agency (FOI), including multi-billion dollar deals such as Zhejiang Geely's acquisition of Volvo Cars and purchase of a stake in truckmaker AB Volvo.

The FOI report said China's targets included biotechnology firms, the semi-conductor sector, lasers and space, and was closely related to the state's industrial development strategy.

With shares in some companies in these sectors at knock-down prices, foreign investors could swoop.

"There is a risk they could be a target for certain countries to get hold of companies with high level technology, innovations or which are of strong interest to Sweden's national security," Wallmark said.

(Reporting by Simon Johnson; editing by Niklas Pollard and Emelia Sithole-Matarise)