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20 Aug, 2008 02:42

New German block on Russian investment may drive it to the east

Germany will block Russia buying its industry under a new law on 'national security'. But experts warn economic protectionism in the West is shoving Russia into the arms of China.

German ambassador to Moscow Jurgen Schmid calls Claas' involvement in Russia 'exemplary'. Europe's largest agri-machine maker recently rolled the 1,000th harvester off the lines of its Krasnodar factory, and will double production there within 3 years. Industry consultant Andrey Sizov says agriculture and machinery are high on the Kremlin's list of protected 'strategic' sectors but it generally welcomes Western investment and technology.

“The Russian market is the fastest growing market and the biggest, one of the biggest markets in the world. We don't feel any restrictions Claas machinery is required here.”

By contrast, the number of Eastern investors blocked by Western politicians is snowballing. The US stopped China's bid for oiler Unocal, and Dubai gaining New York ports.

The EU bars Gazprom buying its energy assets, while Chancellor Merkel's checked Russia boosting its share in planemaker EADS.

This week the German leader's expected to set those objections in stone. The law bans non-EU investors buying more than 25% of any company where quote “public order and security” are at stake.

It's widely seen as targeting sovereign wealth funds, which Russia, China and the Middle East have built into trillion-dollar state investment vehicles.

But Dr Konstantin Simonov, CEO of the National Energy Security Fund, cautions Moscow has other places to put its money.

“If you don't want to see Russia as part of Europe, soon you will see Russia as part of this alliance between Russia, China and India”

Germany's Chamber of Industry thinks the ban will ruin bilateral trade, but some insiders admit the Kremlin uses business to get political influence. Billionaire Russian MP Alexander Lebedev says quote “In Germany's place I wouldn't sell a Russian or Chinese state fund anything.”