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Government is concerned an aggressive new investment-screening law could clash with plan to attract foreign capital

BERLIN—Germany is considering scaling back plans to step up government scrutiny of Chinese investments, the latest example of how a country deeply intertwined with—and increasingly conflicted about—China is pulling its punches as others get tougher on Beijing.

People familiar with the plan said a decision to defang a planned foreign investment-screening law had become likelier because of fears that it could hurt Berlin’s parallel efforts to re-energize Germany’s stagnating economy.

The backtracking could raise concerns among Western allies that Beijing is whittling down Western support for increasingly aggressive U.S. and European Union efforts to rein in China’s global influence. After hosting German Chancellor Olaf Scholz in Beijing this month, Chinese leader Xi Jinping is preparing to visit France, Hungary and Serbia in May.

The diplomatic rapprochement comes despite mounting alarm in Germany about the extent of Chinese espionage. This week alone, German prosecutors detained four alleged spies for China as a result of two separate intelligence investigations.

“We are seeing a rise in clandestine interference in politics, companies and scientific institutions,” Sinan Selen, deputy head of Germany’s domestic intelligence agency, said at a conference on China’s growing security threat in Berlin this week. “Companies are no longer just facing industrial espionage from unfair competitors, but the full power of the [Chinese] state.”

After Scholz’s election in 2021, Berlin started pushing back against Chinese influence, marking a departure from years of friendly policies under former Chancellor Angela Merkel, who saw China become Germany’s largest trading partner.

As part of this pivot, the government tightened export controls for sensitive technologies, capped state guarantees on German foreign investments and exports, and banned a number of Chinese investments in the country on security grounds.

Last summer, the government unveiled Germany’s first China strategy document, which called the country a “partner, competitor and systemic rival” and urged Germany to “derisk” by reducing its dependence on the Chinese market and imported components and raw materials.

Around the same time, Berlin started work on a new investment-screening bill.

The plan, described last summer in an economics ministry paper seen by The Wall Street Journal, proposed giving the government new powers to screen foreign investments for security risks and to extend its purview to new types of investments. While China was only obliquely mentioned, officials and analysts said it was the implicit target.

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New investment types that could come under scrutiny included greenfield investments—which go into creating new businesses rather than acquiring existing ones—in “quantum technology, sophisticated semiconductors, artificial intelligence and critical infrastructure,” the paper said.

The ministry also suggested adding a catchall provision allowing the screening of cooperation projects between German research institutions and foreign partners in critical areas.

Now, people familiar with the discussions say that while no final decision was made, both ideas will likely be dropped. Some officials said the government might not draft a new bill but rather amend the broader rules that currently define the government’s investment-screening powers—a more commonplace exercise.

While less ambitious, the officials said this approach would likely still give the government new powers, for example, to scrutinize certain internal corporate restructurings or the transfer of patents to foreign investors.

A German government spokesman declined to comment on the deliberations but said “investment screening is designed to avoid risks to security and public order in Germany. At the same time, it is important to remain open to foreign investments.”

A spokesman for the economics ministry, which is shepherding work on the legislation, said that while current screening rules were effective, “recent experience has shown that [they] should be reformed to reflect the changing security situation…This work is currently under way.”

The change of mind comes despite intense fretting in Berlin—and in German boardrooms—about increasing Chinese competition that is beginning to rival even Germany’s most advanced engineering goods, from cars to industrial machines, often bolstered by subsidies from Beijing.

German security officials say China has intensified its spying efforts against the country, especially those aimed at extracting know-how in areas such as advanced chipmaking and military technology that are shielded by strict export controls.

Members of a suspected spying cell detained this week had transferred to China a high-powered laser without authorization and collected sensitive scientific information that could be used to build engines for military vessels, the prosecutors said.

In its latest annual report, Germany’s Federal Office for the Protection of the Constitution, the country’s domestic intelligence agency, named China as Germany’s “biggest economic and scientific espionage threat.”

One central argument driving Berlin’s pared-back approach is mounting concern in the chancellery that a new investment-screening law could be seen by foreign companies and governments as a discouragement to invest in Germany, these officials said.

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Berlin is planning a high-profile conference this fall to woo international investors, officials said. Scholz’s government has also pledged more than €15 billion, equivalent to around $16.1 billion, in incentives to draw investments from chip makers such as Intel and Taiwan Semiconductor Manufacturing.

Economists say greenfield investments are generally beneficial and welcomed by governments since they can bring capital, jobs and in some cases technical know-how.

Chinese greenfield investments in Europe are rising fast and now make up a growing proportion of total Chinese foreign direct investment, which, as a whole, has fallen in past years. In 2022, Chinese greenfield investments in Europe overtook M&A investments for the first time, according to a report by consulting firms Rhodium Group and the Mercator Institute for China Studies.

“It can be difficult to make an argument that greenfield investment presents risk,” said Gregor Sebastian, a senior analyst focused on China-EU economic relations at Rhodium Group. “It depends on how narrow or broad your definition of national security is.”

Examples of greenfield investments that pose direct security risks are rare. Last year, local officials in North Dakota stopped the sale of farmlands near Grand Forks Air Force Base to a Chinese company that had planned to build a corn-milling plant there after the Pentagon expressed concern about the spying risks.

Under a broader definition of national security, however, even a heavily subsidized Chinese battery plant, for instance, could increase European dependency if it priced local producers out of the market, Sebastian said.

Separate from its work on a new investment-screening law, German officials said Berlin remains skeptical about an EU proposal to screen outbound investments by European companies because of the extra red tape it would create for business.

Berlin’s fading ambitions on confronting China could put it at odds with the European Commission, which has intensified its economic pressure on Beijing and is going after subsidized Chinese companies by threatening to prevent them from bidding on European government contracts and is considering tariffs on imports of Chinese electric vehicles.

Berlin has emerged as an opponent of plans to seize frozen Kremlin funds for reconstruction and military support of Ukraine

BERLIN—The specter of World War II is haunting Western attempts to seize Russian assets and funnel them to Ukraine’s defense against Moscow.

Berlin has emerged as one of the fiercest opponents of the U.S.-led push to commandeer some of the nearly $300 billion of Russian central-bank assets that were frozen at the start of Russia’s war on Ukraine. Germany fears that seizing, rather than freezing, the funds could create a precedent and inspire new claims against them for WWII-era crimes.

The misgivings risk the fate of the initiative. The U.S. and U.K. say its success is crucial for a Ukrainian victory, but there is little chance of progress without wider European support. The funds, several times the size of the recently approved $61 billion U.S. aid package for Ukraine, would bolster Ukraine’s ailing armed forces and help rebuild the country.

Two-thirds of the Russian money at play sits in Europe’s clearinghouses and, two years into the war, Germany has only just backed using the windfall profits to fund Ukrainian arms. Paris, Rome and the European Central Bank also are hesitant, in case taking hold of the reserves hits international confidence in the euro and single-currency assets.

The Group of Seven is divided on whether to confiscate Russia’s assets, with Japan, which faces reparation claims of its own from South Korea and other neighbors, opposing the move. The Japanese Foreign Ministry said it would continue to discuss the issue with its G-7 partners.

Demands for further WWII reparations have dogged Germany for decades, at times souring relations with its neighbors. After WWII, Berlin paid the Allied powers and the then Soviet Union compensation for Germany’s war of aggression. Since 1952, Germany has also given more than $90 billion to Holocaust survivors and their families, according to Jewish organizations.

Recently, calls for further reparations have re-emerged. Poland, which Nazi Germany invaded and occupied throughout the war, has sought $1.3 trillion in compensation from Berlin since 2022, while Greece since 2019 has asked for more than $300 billion.

Germany says its initial postwar payments, and a 1990 treaty that anchored the country’s borders following its reunification, settled the issue. The then Soviet Union and the U.S. were signatories to the treaty; Poland, Greece and Italy weren’t involved.

In 2004, when Poland joined the European Union, Berlin agreed not to support claims against Warsaw from millions of Germans expelled and expropriated. Poland in turn dropped its compensation claims. But the issue has remained an irritant.

“When we talk about executioners, victims, punishment, suffering…we demand not only memory, not only the truth. We demand compensation,” then Polish Prime Minister Mateusz Morawiecki said in September, on the 84th anniversary of Germany’s invasion.

Courts in Italy—which the Nazis invaded after the fascist regime of Benito Mussolini collapsed in 1943—have in recent years awarded restitution payments to families of victims of the occupation. Some Italian courts then attempted to seize German state assets, including real estate in Italy belonging to German schools and cultural, historical and archaeological institutions.

Germany took Italy to the International Court of Justice, or ICJ, where a ruling on the matter is pending. Italian authorities have refused to stop the cases, saying that would infringe on the independence of the courts.

Berlin argues international law prohibits individuals from making claims against states in foreign courts and that state assets are immune from seizure. Violating this principle in Russia’s case would undermine Germany’s longstanding legal position, Berlin officials said.

Russia’s Foreign Ministry has said that confiscating Russian assets would be “21st-century piracy.” Some Russian officials have warned they would retaliate.

The Polish state received little compensation after WWII. During the Cold War, its then Soviet rulers transferred looted German machinery and ships in lieu of compensation. Germany later paid $270 million to individual claimants in Poland, after causing the country’s widespread destruction and leaving between five million and six million people dead, roughly three million of whom were Jewish.

The Communist Polish government dropped its compensation claims against its East German Warsaw Pact ally in 1953. But the issue returned to prominence after the fall of the Berlin Wall in 1989. Helmut Kohl, Germany’s then-chancellor, sought to link a denial of Poland’s reparations claims to the recognition of Poland’s postwar borders, which included swaths of prewar Germany. Kohl eventually backed down under international and domestic pressure.

Andreas Rödder, professor of contemporary history at the Johannes Gutenberg University Mainz in Germany, said the Italian and Polish claims against Germany are valid—as is Berlin’s refusal to honor them in full. Yet successive German governments made a mistake by taking a legalistic approach and refusing to consider a compromise, he added, leading the problem to fester.

“Germany was comfortable in its erroneous assumption that the problem had been resolved and deliberately avoided the issue for decades, so it shouldn’t be surprised that Poland and Greece now say they have unfinished business,” Rödder said.

Germany also argues that Russian assets should be left intact to use as leverage in any talks to end the war and induce Russia to cede some of the Ukrainian territory it occupies.

Slawomir Debski, head of Pism, a think tank, said another motivation for Berlin’s refusal to seize Russian assets could be that it shields German companies still operating there from retaliation. The Leave Russia group, which campaigns for Western companies to exit from the Russian market, says 272 German companies still operate there.

Within the G-7, a complicated compromise may be starting to emerge. The U.S. has proposed that the group front-load 10 years of profits—essentially interest payments on matured assets—from the frozen funds. That money would act as collateral for a bond issued by a special-purpose vehicle set up by the G-7 to raise money for Ukraine. G-7 countries would guarantee the debt.

Europeans have their own plan to use the interest generated by frozen Russian assets to pay for weapons and reconstruction for Ukraine. That is likely to go ahead soon, although EU officials say Europe could join the U.S. plan in 2025. Discussions are still at an early stage.

President Biden this week signed into law legislation that authorizes his administration to seize Russian sovereign assets under U.S. jurisdiction. The U.S. holds $5 billion-to-$6 billion of Russian assets, congressional officials say.

“We’re looking at a series of possibilities ranging from actually seizing the assets to using them as collateral,” Treasury Secretary Janet Yellen said last week.

The U.S. argues that under international law, countries can take otherwise unlawful countermeasures against a country violating its international obligations. While lawyers and policymakers say Russia’s invasion of Ukraine appears to fit the principle, there are disagreements over whether any country other than Ukraine is entitled to apply countermeasures.

Initially, U.S. officials also worried that confiscating Russian assets could backfire against Washington and allies such as Israel. The U.S. has since argued that only directly affected countries, such as Ukraine’s main backers, whose security is threatened and who are paying for some of Kyiv’s defense, would be entitled to confiscate assets.

Bart Szewczyk, an associate at U.S. law firm Covington who previously advised the European Commission and worked at the ICJ, said that Berlin’s concerns about setting a precedent for reparations cases were unwarranted.

“The logic behind countermeasures clearly applies only to current and ongoing violations of international law, rather than those that occurred 80 years ago,” he said.

German Chancellor Olaf Scholz, a jurist who once managed his own legal firm, is unwilling to take the risk, according to German officials. One of the officials said the move could open other European capitals to claims over slavery and colonialism.

Ukraine Aid Lifts Defense Industry as Debate Over Profits Reignites

Long-delayed $95 billion package supports shells, missiles and drones for three countries, boosting defense companies, as scrutiny grows on share buybacks

Refilling the U.S. armory to replace weapons sent to Ukraine—and tens of billions in new aid confirmed last week—means big business for the U.S. defense industry for years to come.

Lawmakers’ approval of a long-delayed $95 billion aid package frees up funding that had been frozen in Congress for four months. Two-thirds of it will go toward new military equipment for Ukraine, Israel and Taiwan, estimated analysts, as well as expanding U.S. production. U.S. military jets started flying fresh supplies from Pentagon stocks to Ukraine on Wednesday, within hours of President Biden signing the funding into law.

Lockheed Martin and RTX RTX -0.29%decrease; red down pointing triangle, formerly known as Raytheon Technologies, have been the biggest beneficiaries of the $30 billion in federal contracts already awarded to supply Ukraine and refill U.S. weapon stockpiles. Other contractors including General Dynamics GD -0.17%decrease; red down pointing triangle and L3Harris LHX 3.46%increase; green up pointing triangle last week reported strong quarterly sales as they delivered on deals awarded over the past two years.

Strengthening results have also led defense contractors including Lockheed and RTX to increase share buybacks, drawing criticism from some lawmakers and military officials.

The U.S. has already provided around $44 billion in military assistance to Ukraine over the past two years, spending that goes beyond the Pentagon’s normal budget. Companies typically don’t book the majority of sales until weapons are delivered, and are just now beginning to generate sales from prior military aid.

More than $60 billion of the newly approved aid package is expected to turn into new business over the next two or three years, said defense executives, a significant bump to the Pentagon’s latest $320 billion procurement budget.

Almost half of the new money will replenish U.S. stocks, which often involves purchasing newer, more expensive weapons than those being sent to the front in Ukraine. The $1 million Cold War-era ATACMS long-range rockets provided from the U.S. arsenal will be replaced with Lockheed’s more sophisticated PrSM missile, priced at $2.4 million apiece.

The Pentagon on Friday detailed a $6 billion package of new weapons, training and spare parts that will be sent to Ukraine over the next several years.

Industry and Pentagon officials said the newly approved aid funds will unlock more orders for air-defense systems, artillery shells and technology to knock out drones. Frank St. John, Lockheed’s chief operating officer, said the extra spending approved last week will sustain factories for years to come.

Lockheed said annual output of GMLRS missiles fired from its Himars rocket launchers is expected to rise to 14,000 next year from 10,000 at present. With a range of around 50 miles, the rockets have been a key part of Ukraine’s front-line fighting.

“Tactical and strike missiles is where we really saw a lot of sales activity,” said Lockheed finance chief Jay Malave. Lockheed’s missiles unit reported a 16% rise in revenue during the latest quarter.

RTX makes the Patriot air-defense system and the Stinger antiaircraft missile. Neil Mitchill, the company’s chief financial officer, said the company didn’t pause production or efforts to expand capacity when the Pentagon said in January that additional funds for Ukraine had run out. He said RTX had opportunities to win contracts in about $40 billion of the extra aid earmarked for Ukraine.

L3Harris reported an 11% rise in sales at its unit that makes radios and night-vision goggles widely used by Ukraine. CEO Chris Kubasik said on an investor call Friday that the supplemental funding would boost L3Harris as well as hundreds of small and medium-size suppliers.

Ukraine is facing acute shortages of 155mm artillery shells. The U.S. Army plans to boost monthly output to 100,000 next year from around 40,000 currently, an effort that had stalled awaiting the new aid but now is back on track. That includes a new shell plant in Texas run by General Dynamics.

Pentagon and White House officials have spent months stressing that the aid package will support domestic jobs and bolster U.S. defenses through expanded capacity to produce weapons. “We are going to help Ukraine, but we have to help ourselves, too,” said Army acquisition chief Doug Bush at an industry conference last month.

It has also translated into buoyant cash flow for defense companies. The fierce debate over the latest funding round has also reignited criticism over how profits from elevated weapons sales are used as companies direct billions into share buybacks.

Lockheed and RTX bought back $19 billion in stock between them last year. Lockheed repurchased another $1 billion in the first quarter, with Northrop Grumman NOC -1.56%decrease; red down pointing triangle buying back almost $350 million and General Dynamics more than $100 million.

The S&P aerospace and defense subindex gained around 2% in the week ended Friday, overtaking the S&P 500 year to date after lagging behind the index in 2023.

A group of lawmakers including Sen. Elizabeth Warren (D., Mass.) last month called for an end to what they called “war profiteering.”

Some senior Pentagon officials have also weighed in. Navy Secretary Carlos Del Toro directly tied delays in all of the Navy’s major ship and submarine programs to defense companies’ investment priorities.

“You can’t be asking for the American taxpayer to make greater public investments while you continue to goose your stock prices through stock buybacks, deferring promised capital investments, and other accounting maneuvers,” he said at an industry conference in January.

Industry executives said they have increased investment spending, even while contracts were delayed by the budget morass, and that it isn’t being curtailed to pay for stock buybacks.

“I don’t see one being made at the expense of the other,” said Lockheed’s Malave. RTX said it is boosting capital spending to $10 billion this year from $9 billion in 2023.

Pentagon leaders have long recognized the tension created by rising military spending and elevated corporate buybacks. They have said that incentives are needed to encourage more investing.

“It has to be attractive for people to do business with us,” Pentagon acquisition chief Bill LaPlante said. “Unless they’re billionaires and they’re stupid, they’re not going to just throw their money away.”

US and EU have raised alarms about Beijing’s plans to use manufacturing to boost lagging growth

Factory profits in China have retreated from a two-year high, according to official data, highlighting concerns that industrial overcapacity is complicating Beijing’s efforts to revive momentum in the world’s second-biggest economy.  

Industrial profits at large Chinese companies declined 3.5 per cent in March from a year earlier, the National Bureau of Statistics reported on Saturday. Across the first quarter, industrial profits rose 4.3 per cent compared with the same period in 2023.

The March reading was a blow to Beijing after industrial profits in the January-February period jumped 10 per cent to hit a 25-month high, raising hopes that the downturn in the industrial sector was bottoming out.

Goldman Sachs analysts said both industrial profits and revenue fell “notably” in March and highlighted lower margins as a problem for Chinese industry.

The latest signs of stress in the Chinese economy come as officials in the US and Europe have raised alarms about Chinese policymakers’ plans to use the country’s manufacturing heft, including via exports, to boost growth.

On a three-day trip to China last week, US secretary of state Antony Blinken warned President Xi Jinping’s administration against heavy state subsidies for industry, saying there was already a “clear mismatch” between China’s production and global demand.

Below-market prices for Chinese products could have “potentially devastating effects” on workers, communities and businesses overseas, Blinken said.

China’s foreign ministry said on Friday that officials had “refuted” Washington’s narrative on overcapacity in meetings with Blinken, and dismissed criticism of Chinese industrial policy as another example of US protectionism and suppression of Chinese development, according to state media.

China set a growth target of about 5 per cent for 2024, the same as last year — the lowest in decades — but analysts have cautioned that the figure remains ambitious amid widespread deflationary pressure and would require increased stimulus support.

“Benign supply chain conditions, plentiful inventories and industrial overcapacity in China will help to keep a lid on core goods inflation,” Capital Economics analysts Simon MacAdam and Ariane Curtis wrote in a research note.

Analysts from Westpac, the Australian bank, said that steel industry exports have been an important “release valve” for overcapacity, noting that China is approaching record levels from 2015 in steel exports, despite a rising global backlash to dumping excess products overseas.

The NBS struck a more positive tone on Saturday, reporting that in the first quarter, electronic industry profits were 82.5 per cent higher year on year, while auto manufacturing profits were up 32 per cent for the same period.

State media also expressed confidence in Beijing’s plan to further boost consumer spending by subsiding trade-ins of older cars and household appliances.

Global carriers ask Brussels to weaken landmark plans to require monitoring and disclosure of all emissions

Global airlines have privately lobbied the EU to weaken plans to require the industry to monitor and disclose its impact on global warming from non-carbon dioxide emissions, including the vapour trails that criss-cross the skies, in a letter seen by the Financial Times.

Airlines have faced years of scrutiny over their contribution to climate change through CO₂, but the impact of other emissions, including aircraft condensation trails, or contrails, nitrogen oxides and sulphur, is less understood or monitored.

In response, the EU is introducing landmark rules to require all airlines to quantify and report the non-CO₂ emissions of flights taking off from within the bloc from January 2025, sparking a backlash from within the industry.

Willie Walsh, the director-general of the International Air Transport Association, the airline lobby group, wrote to EU politicians this month to warn of “growing concern across the airline community”, in the letter seen by the FT.

The former boss of British Airways called on Brussels to make participation in the scheme voluntary, and to significantly lessen its scope by only applying the rules to flights within the EU.

In particular, Walsh said airlines were concerned that non-CO₂ emissions cannot be calculated with the same “high certainty” as CO₂, and the proposed methodology “is feared insufficiently mature to measure non-CO₂ emissions accurately, or to help address their mitigation effectively”.

“The proposal risks creating a regulatory burden that will require airlines to provide large amounts of data for all flights, with an insufficient potential for positive environmental impact,” he said.

The EU already requires airlines to disclose their CO₂ impact and levies a charge on intra-European emissions.

Environmental group Transport & Environment said Iata is using scientific uncertainty as a way to stop the full climate impact of flying from being disclosed.

Given that the worst impact from non-CO₂ emissions is thought to come from long-haul flying, excluding global airlines from the scheme would be counter-productive, it added.

“Non-CO₂ emissions were recognised as a climate problem 25 years ago. But with delay tactics such as these, airlines are attempting to kill off any action that would allow them to address the issue,” said Jo Dardenne, aviation director of Transport & Environment.

In a statement, Iata confirmed it was “very concerned” with aspects of the EU’s move to monitor non-CO₂ emissions, and added that “the science around non-CO₂ impacts is highly uncertain and evolving rapidly”. It pointed to a recent Royal Society of Chemistry paper that called for “better quantification of the actual effects” of non-CO₂ emissions before “definitive courses of action” are taken. 

The EU have been approached for comment.

Interference with navigation signals blamed on Moscow has forced two Finnish flights to turn around mid-journey

Baltic ministers have warned that GPS jamming blamed on Russia risks causing an air disaster after the interference with navigation signals forced two Finnish flights to turn around mid-journey.

The foreign ministers of Estonia, Latvia and Lithuania all warned separately at the weekend of the dangers of GPS jamming across the Baltic Sea region, which has increased in recent weeks.

On Thursday and Friday, two Finnair flights from Helsinki to the Estonian city of Tartu were forced by the GPS jamming to turn around and return to Finland as they were unable to navigate safely to their planned destination.

“If someone turns off your headlights while you’re driving at night, it gets dangerous. Things in the Baltic region near Russian borders are now getting too dangerous to ignore,” Gabrielius Landsbergis, Lithuania’s foreign minister, told the Financial Times.

Margus Tsahkna, Estonia’s foreign minister, added: “We consider what is happening with GPS as part of Russia’s hostile activities, and we will definitely discuss it with our allies.

“Such actions are a hybrid attack and are a threat to our people and security, and we will not tolerate them.”

Tens of thousands of civilian flights have been affected by the GPS jamming in recent months, according to experts. The jamming, which affects all GPS users in the area when it is in operation, has also impeded signals used by boats in the Baltic Sea, leading to warnings from the Swedish navy about the safety of shipping.

GPS jamming is easy to conduct with relatively cheap equipment, according to experts.

No country has acknowledged being behind the interference with signals in the Baltics, but officials in the region said there was little doubt that Russia was behind the jamming both from its mainland and its exclave of Kaliningrad, nestled between Poland and Lithuania on the Baltic Sea.

A senior official said one theory was that Russia was trying to protect Kaliningrad from potential attacks by Ukrainian drones.

The Kremlin did not respond to a request for comment.

The UK confirmed in March that a government plane carrying defence secretary Grant Shapps had its GPS signal jammed near Kaliningrad while flying home from Poland.

Dana Goward, a GPS expert, said: “The chance of an accident is rising.” Goward, who is president of the Resilient Navigation and Timing Foundation, an advocacy group for GPS users, added that while back-up systems were available, crews have had less training on these than on GPS: “When you take away GPS, aviation becomes less efficient and less safe.”

However, Juho Sinkkonen, head of flight operations at Finnair, who has 22 years’ experience as a pilot, said that GPS interference had been increasing since 2022 and was “a nuisance with no imminent safety impact”.

Most airports had equipment to allow planes to land without GPS, Sinkkonen added, but Tartu “is one of the few airports where the approach procedures require a GPS signal”.

Baiba Braže, Latvia’s foreign minister, said: “We take these incidents seriously. Our relevant institutions are in touch with colleagues in other countries.”

Experts say there are several different sources for the GPS jamming, with one seemingly based in Kaliningrad, another responsible for the disturbances in Estonia and Finland, and a separate source affecting the far north of Norway and Finland.

Baltic officials are discussing the GPS jamming with allies, and are urging Russia to stop putting civilian aircraft at risk.

Marko Mihkelson, head of the foreign affairs committee of Estonia’s parliament, said: “Allies should not look indifferently at Russia’s jamming of the GPS signal and thereby endangering international air traffic.”

This week, Prada and Miu Miu reported strong sales as LVMH slowed and Kering retreated sharply. In fashion’s so-called “quiet luxury” moment, consumers may care less about whether products have logos and more about what those logos stand for.

Call it the Prada Exception.

So far, the luxury slowdown has followed a pattern: Stalwarts of top-end, logo-free fashion like Hermès, Zegna and Brunello Cucinelli have surged ahead in recent months while brands dependent on fashion-driven, entry-level luxuries, from Burberry to Kering’s Gucci and Balenciaga, struggled.

This week’s sales were no different. Hermès outperformed expectations as enthusiasm for its iconic Kelly and Birkin bags continues to mount, with many customers willing to buy deeply into the brand across categories. Ultra-luxe, so-called “quiet luxury” propositions outperformed for Italian companies, too: Zegna’s first-quarter sales climbed by 11 percent while Brunello Cucinelli surged 18 percent, defying predictions for a slowdown across the market.

Meanwhile, Kering confirmed its forecast for a 10 percent year-on-year drop in first-quarter sales, and warned investors first-half profits would likely fall by 40 to 45 percent. “Gucci is not in the sweet spot for positioning — it’s seen as not enough high-end, not enough affordable,” chief financial officer Armelle Poulou said.

And yet Prada, which deploys its triangle logo heavily on products which tend to be priced closer to Gucci than Hermès, is also in the winner’s camp. This week, the brand said retail sales rose 7 percent. Trendy sister brand Miu Miu, which has also applied its bubbly logo across collections, fared even better with sales popping by 89 percent.

Prada’s outperformance challenges narratives about quiet luxury and top-end items dominating the current market. Where customers are putting their money may be less about logos or not, but about what those logos stand for.

Gucci, of course, is coping with brand-specific challenges as it seeks to move on from former designer Alessandro Michele’s maximalist vision and build a new story with Sabato de Sarno, a first-time creative director with a more subtle, sartorial aesthetic.

But Prada also outperformed Louis Vuitton-owner LVMH, which is used to leading the pack during luxury results season. Fashion and leather goods sales at LVMH grew by 2 percent on an organic basis in the first quarter, less than a third the rate of Prada’s.

In an era where seemingly every label is trying to be “cultural brand,” Prada is the original: For decades, Mrs. Prada and her husband, executive chairman Patrizio Bertelli, have worked to position their company at the intersection between commerce and the cutting edge of contemporary art, cinema, design and architecture. Initiatives include art foundations in Milan and Venice, facilities designed by Renzo Piano or Rem Koolhaas and campaigns featuring of-the-moment stars.

“They’ve been very good at telling the world that art is fashion, and fashion is art,” Citi analyst Thomas Chauvet said.

Prada’s longstanding involvement in those arenas, as well as the unfussy, sporty quality of many carry-over items means the brand’s logo is less of a badge of ostentatious wealth than one of cultural curiosity and style. “While both Miuccia and [co-creative director] Raf [Simons] love to weave social and cultural commentary into their collections, they are also product-first designers who create clothes that people really love to wear,” Mytheresa’s chief commercial and sustainability officer Richard Johnson said.

As such, Prada has continued to do big business in entry-level, logoed luxuries like nylon card holders and rucksacks even as demand from aspirational shoppers broadly cools off in the face of slowing growth in real wages and industry-wide price hikes. For now, being a part of Prada’s universe still feels worth it — a dynamic that’s particularly true at the moment for the group’s Miu Miu label, where viral runway shows featuring a twisted take on youthful street style have spawned a global fashion sisterhood.

Aspirational clients are just one piece of the puzzle. While Prada’s colourful, design-first aesthetic may have little overlap with the conservative look of luxury houses like Hermès or Brunello Cucinelli, the businesses have more in common than meets the eye. Prada’s ready-to-wear collections (co-designed by Mrs. Prada and Raf Simons) have attracted a loyal following of wealthy shoppers over the years, who continue to buy heavily into the brand. Hefty price hikes in recent seasons and a push by stores to get fashion-driven clients to place orders in advance (rather than keeping too many complex seasonal pieces in stock) has limited the margin risk from having a high exposure to ready-to-wear.

A healthy dynamic in luxury ready-to-wear seems like a key theme this quarter: coatmaker Moncler Group also reported strong growth. On the other end of the spectrum, LVMH’s sluggishness could be largely attributed to its dependence on pricey handbags (not all of which have the customer clout to command record prices).

“The big conglomerates could certainly be feeling some fatigue in handbags. The category might be suffering due to a lack of affordability … And it’s a harder category to differentiate yourself in than ready-to-wear or shoes,” Chauvet said.

To be sure, one quarter’s sales won’t make outperforming luxury’s biggest groups — which have an edge on competitors for everything from real estate to marketing, logistics and talent acquisition — a structural trend for Prada Group. The Miu Miu craze is sure to slow eventually, and Prada is not immune to downturns either. The company took 10 years to get back above its 2013 peak after a China-fuelled surge in revenues fizzled.

But for now, fashion’s most “cultural” brand is flying high.

The Spanish beauty and fashion conglomerate’s smart acquisitions and diverse portfolio could be a big draw for investors. Plus, Adidas is set to confirm its stellar first quarter.

This week, we might get that rarest of things: a successful initial public offering.

Puig, the Spanish, family-owned conglomerate that counts Charlotte Tilbury, Paco Rabanne, Byredo and other brands in its portfolio, is scheduled to go public in Spain on May 3. The company is angling to raise €2.6 billion ($2.8 billion) at a €13.9 billion valuation, Bloomberg reports. While anything can happen, most signs point to the Puig family, which will retain a controlling stake, getting what they want.

Fashion and beauty don’t have a great track record when it comes to IPOs lately. Birkenstock and Amer Sports had bumpy receptions in the market despite owning red-hot brands. The consensus forming around Puig is that it may fare better than either of those companies. As The Business of Beauty executive editor Priya Rao recently laid out, the conglomerate’s focus on prestige beauty, its diversification and a sterling track record of acquisitions all bode well for a warm reception from investors. A demonstrated willingness to give non-family executives wide latitude to direct the business is also likely a factor.

The biggest question facing Puig is whether it’s large enough to compete with the big conglomerates that dominate luxury fashion and beauty. A $15 billion market capitalisation only sounds big until you consider that L’Oreal is nearly 17 times bigger. Having an extra €2.6 billion to spend on acquisitions and further scaling its brands will go a long way towards closing that gap.

Ferragamo

Why did the Ferragamo family reappoint Marco Gobbetti this week as CEO of the Florentine brand for another three years? Ferragamo’s performance did not live up to expectations in the two years he’s been in charge. Sales are in freefall, and so is the share price. The brand’s identity is blurred. The Italian executive keeps promising things will improve and is handsomely paid - between €8 million and €10 million a year - but you wonder when Ferragamo will actually take off and where it’s going.

The Milan-listed company has been unofficially for sale for several years now, banking sources say. Nobody wants to buy it. Industry players LVMH, Kering and Richemont have not expressed any interest. They know how hard it is to bring back its former glory, particularly with the Ferragamo family so entrenched and constantly fighting to get back the power it’s given the CEO.

Bankers say the family want at least €3 billion. On the stock market, Ferragamo is worth €1.61 billion, or 30 percent more than its 2023 net annual sales of €1.12 billion. Last year, revenue was down 8.1 percent at constant exchange rates and operating profit fell 44 percent to €72 million.

The company’s share price has lost 40 percent in the past year. On Friday, Ferragamo shares closed at €9.52. In January 2022, when Gobbetti started as CEO, they stood at €22.77. While many luxury brands have seen their sales and share price double or triple in the past decade, Ferragamo’s turnover never went beyond its 2016 peak of €1.438 billion and its share price is now worth less than a third of its April 2015 record of €31.85.

To be fair to Gobbetti, revamping a fashion house in a downturn is challenging. He’s also had to offload old stock at discounted prices through outlets which artificially boosted sales but harmed image. So what happens next? Gobbetti needs to decide who is Ferragamo’s target customer. Is it the young fashionista or the affluent buyer looking for timeless and high-quality products.

Gobbetti made Ferragamo abandon its glamorous and ultra-feminine Florentine roots and gave it a modern, urban and minimalist identity under the creative leadership of Maximilian Davis,a British national with Trinidadian and Jamaican roots.

The brand’s ad campaigns have been going in different directions. In 2022, its imagery was very black and red and slightly futuristic. Last year, models posed in front of famous Renaissance artworks from Florence’s Uffizi Galleries. This year, it produced photo shoots in classic interiors with dimmed light featuring supermodel Natalia Vodianova,who is the wife of LVMH scion Antoine Arnault. “The fact that the brand keeps changing its message and its ad campaigns are so different is a sign that it has not yet figured out what it wants its story to be,” one Milan-based fashion expert said.

Ferragamo lost Salvatore as part of its name - like Saint Laurent lost Yves - and replaced its traditional burgundy red with the same flashy red that luxury car maker Ferrari uses. It also threw out its trademark handwritten logo and adopted one that looks like that of several other brands, including Burberry and Balenciaga.

IT’S ALL ABOUT SHOES

Gobbetti wants Ferragamo to be a fully fledged fashion brand that also sells jewelry. Yet its reputation is in shoes. That’s where its legitimacy lies. Let’s remember that Salvatore Ferragamo rose to fame in the 1950s and 1960s when he was the shoemaker to the stars and personally looked after celebrities Sophia Lauren, Audrey Hepburn and Rita Hayworth. Last year, shoes represented 45.7 percent of Ferragamo’s net sales. In the past, several luxury shoe brands have tried to become fashion brands, but they never succeeded. Switzerland’s Bally, which has been looking for a buyer since 2017, and LVMH’s Berluti are good examples.

Davis is recognized by the fashion crowd as a talented designer but that does not mean he’s figured out what Ferragamo is about. His vision is sharp and edgy. Ferragamo now offers shoes and bags in bright colors that are cosmopolitan and may appeal to young customers, but its personality has become somewhat cold and severe.

Davis’ looks are clean and elegant, but there is little reference to Italy, let alone Florence, where the brand was founded in 1927. When you buy Ferragamo shoes, bags or clothes, you want to buy a bit of Italy. Even the products don’t have Italian names. One of its new totes is called the Hug bag. Its design is somewhat similar to Hermès’s bags with the same emphasis on buckles.

The brand’s new identity has scared away the traditional consumer who loved its elegant silk scarves and bow-tipped ballerinas. Today, the cohort of new followers are not big enough to compensate for departure of the old buyers. Ferragamo is struggling to rebuild traffic after having remained irrelevant from a fashion point of view for so many years, industry analysts say.

LOOKING BACK

For most of the past two decades, influential members of the Ferragamo family would not let go of the vision they had of the brand’s golden age from half a century ago. In terms of style and image, they did not want it to stray too far away from that period. As a result, the brand looked old and customers thought it was for their grandmothers. Before the pandemic, the brand was dying a slow death and inertia was not an option.

Ferragamo needed a creative disruption, but it’s turned out to be too radical and extreme for consumers to adopt and understand. “Davis is a great designer but I think he’s not been briefed correctly,” one former senior Gucci executive said.

Gobbetti was previously CEO of Burberry starting in 2017 and jumped ship after four years without completing the turnaround of the British brand for which he was hired. Before Burberry, he spent 13 years at LVMH, running Givenchy with Riccardo Tisci as a designer, and later Celine with the acclaimed Phoebe Philo.

Gobbetti took Ferragamo’s executive reins in January 2022 with a lucrative package. In 2022, his total remuneration reached €9.84 million, according to the company’s annual report. That was three times more than what he made at Burberry. Plus, luckily for the 64-year-old Italian, who spent nearly 20 years abroad, he was entitled to the tax break reserved for Italians who return home. Starting in 2022 and for seven years, he became eligible to pay a flat 15 percent tax rate on his income -- a third of what he was charged in the UK or what most wealthy Italians pay.

In 2023, Gobbetti received €8.2 million and was awarded shares last year and this year. That amount is more than the operating profit the Italian fashion company made in the first quarter of 2021.

Industry sources say one of the reasons why the Ferragamo family decided to renew his contract is because it would cost them too much to let him go. Gobbetti is said to have negotiated an excellent deal for himself. Several industry sources say he could claim at least two year’s worth of salary if the family asked him to leave. Hence, best to keep him. Also, Ferragamo’s revamp is only two years old. Might as well give Gobbetti more time to improve the brand’s performance and his own track record.

PATIENCE

Still, in recent months, patience among the Ferragamo clan has been running thin. Tension between Gobbetti and Leonardo Ferragamo, chairman of the board and son of founder Salvatore, have grown due to the brand’s poor results, several senior industry sources have said. “Tensions between the Ferragamo family and Marco Gobbetti are super high,” one of those sources said. So much so that the family forced out Gobbetti’s trusted Chief Marketing Officer Catherine Vautrin last month. Vautrin was replaced by Michela Ratti, who was CMO of Ferragamo six years ago and worked for eBay, Swarovski and Procter & Gamble.

The company declined to confirm Ratti’s appointment and did not reply to Miss Tweed’s requests for comment. Ousting Vautrin is a sign the family is trying to take back some of the power it conferred Gobbetti when he took the executive reins.

“My understanding is that the family have lost faith in Gobbetti but they cannot let him go for now,” one former Ferragamo senior manager who still has contacts with staff at the company told Miss Tweed under condition of anonymity. One of Ferragamo’s problems is that more than 10 family members are still in key positions and continue to influence matters ranging from image to product and distribution - even though insiders suggest they are not all qualified for such tasks. “Many of them do not have the competencies to run a luxury company,” the former Ferragamo manager said.

When Gobbetti was hired by the Ferragamo family, he was regarded as the savior who could give the brand a new relevance. Before Gobbetti, the family would never let the CEO take decisions and craft a coherent roadmap. His predecessor Micaela Le Divelec Lemmi struggled to get the family’s full backing and cooperation, industry sources said at the time.

Could it be that Gobbetti made the same mistake he did at Burberry — hiring a designer who did not really understand the brand? Designer Daniel Lee, in place for a year, is on a mission to reconnect Burberry with its British roots after years of lackluster performance under Riccardo Tisci. The Italian designer developed an metrosexual and sporty identity for Burberry that did not suit the brand, fashion critics and industry experts say. Gobbetti, who worked with Tisci before at Givenchy, was the one who chose the Italian designer for Burberry.

Whatever happens to Ferragamo,x Gobbetti sitting pretty from a financial point of view. His concern now is his reputation and track record – things money can’t always buy.