As Chinese companies try to snap up US tech businesses, they are setting off ripples of unease in the US President Barack Obama administration and in the US Congress, inciting a backlash that has stopped the latest acquisition attempt.
One of the companies that first brought silicon to Silicon Valley — Fairchild Semiconductor International — said it would remain in US hands after rejecting a takeover offer worth about US$2.5 billion, led by Chinese state-backed buyers.
Instead, Fairchild on Tuesday embraced a smaller bid from a US rival, citing concerns that US federal regulators might reject the Chinese deal.
The unsuccessful Chinese bid for Fairchild was just one of at least 10 such offers in the past year for international semiconductor businesses, mostly in the US.
China’s five-year plan, the government’s economic and strategic road map, has emphasized semiconductors as a strategic industry, and a long list of Chinese companies, with varying ties to the government, have been trying to acquire foreign technology in the sector.
Recent Chinese moves in areas such as heavy equipment, aerospace and financial services are also drawing attention from both ends of the US political spectrum.
A group of 44 Republican members of US Congress and one Democrat sent a letter on Tuesday afternoon to the US Department of the Treasury, demanding that the Obama administration’s interagency committee on foreign acquisitions “conduct a full and rigorous investigation” of a bid by a company in Chongqing, China, to acquire the small, but historic, Chicago Stock Exchange.
US Representative Robert Pittenger said that it had been easy to gather signatures on the letter in the House of Representatives, with members worried that the deal would give China direct access to US financial infrastructure.
“It took two days — generally, you will spend two weeks trying to get signatures,” he said.
However, because semiconductors are the tiny electronic cores of a long list of military systems, including drones and smart bombs, Chinese interest in them has attracted the most attention in Washington.
Those worries have been amplified as the Obama administration has repeatedly accused Beijing of cyberespionage against the US. The worries have further increased as China has expanded its role in the South China Sea, including claims by the US and Taiwan this week that China has deployed surface-to-air missiles there.
‘BUYING SPREE’
“China’s engaged in a buying spree of international semiconductor firms,” said Michael Wessel, a member of the US-China Economic and Security Review Commission, a group created by the US Congress to monitor bilateral relations. “What they cannot develop on their own, they intend to buy, if they can, or steal, if they must.”
The Chinese government has vehemently denied that it is responsible for hacking attacks, while pointing to detailed disclosures by Edward Snowden of how the US engages in extensive electronic intelligence gathering on China.
Economists in China —and some in the US, particularly at Wall Street banks that advise on Chinese acquisitions — say that the US needs to remain open to foreign investment, particularly given low US savings rates.
When Washington politicians start objecting to Chinese acquisitions, “they are caught up by old-school, Cold War thinking,” said Fred Hu (胡祖六), a prominent Chinese economist and fund manager.
Fears of Chinese control over critical technologies recently prompted US officials to block a US$2.9 billion deal for Chinese investors to buy a controlling stake in a unit of the Dutch electronics company Philips.
Fairchild early last month said that it expected a bid from China Resources Microelectronics (華潤微電子有限公司) — a unit of state-owned China Resources Holdings Co Ltd (華潤集團)— and Hua Capital Management Co (華資本管理公司) to be a “superior proposal.” That offer amounted to US$21.70 per share in cash, compared with the US$20 per share that US company ON Semiconductor had on the table.
However, worries about the likelihood of approval from the US’ Committee on Foreign Investment outweighed the attractiveness of the bid.
SUSPICION
Fairchild’s decision shows the effect of broader political suspicion in the US toward Chinese investment in the high-tech sector. Last summer, a similar, but much larger, deal was derailed before it even made it to regulators. The US$23 billion bid for US memorychip maker Micron by a Chinese state-controlled firm was undone by concerns about its political feasibility.
In that case, US Senator Chuck Schumer voiced worries about the deal’s effect on national security in a public letter to US Secretary of the Treasury Jacob Lew. However, Republicans are now starting to take up the issue, which means that it could take on a partisan dimension in an election year.
Despite the difficult climate, Chinese bids for US companies seem likely to increase, affected by a slowing Chinese economy and a desire by many Chinese companies to move money out of the nation before China’s currency can weaken further against the US dollar.
In the sensitive microchip industry, deals are also being driven by more than US$100 billion set aside by the Chinese government to help the nation improve the sophistication and scale of the critical industry.
The number of deals involving a Chinese company that is trying to buy an overseas chipmaker rose to 21 last year, including the offer for Fairchild, from eight in 2010, according to the data company Dealogic. There have already been five this year, worth US$857 million.
That has drawn more attention to the Committee on Foreign Investment, which can recommend against foreign deals made for US companies, or companies connected to the US, on grounds of national security. It can also broker compromises in which companies enact special security checks for sensitive aspects of an acquisition or sell off those assets.
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