A Chinese company is setting up a rare and potentially tone-setting showdown with the US government over its deal to buy a high-tech firm that the US said could impact its national security.
The showdown involves Aixtron SE, a German semiconductor firm being acquired by a Chinese company, Fujian Grand Chip Investment Fund (中國福建芯片投資基金).
In a statement on Friday last week, Aixtron said a US security panel that advises the White House on foreign deals had recommended the two sides drop their plan, citing unspecified US national security concerns.
Normally, a recommendation like that would be enough to persuade the companies to scotch their plans, but in its statement, Aixtron said it and its Chinese suitor would do something unusual: They would appeal to US President Barack Obama directly to approve the deal.
Chinese and German companies “plan to continue to actively engage in further discussions to explore means of mitigation that may be amenable” to the White House and the US security panel, the Aixtron statement said.
Obama has 15 days to decide the fate of the deal, though most likely Obama would scupper it given presidents usually follow the recommendations of the panel. If the deal is struck down, it would send the message that the US will continue to carefully scrutinize similar deals — and might act quickly to axe them for US national security reasons.
The unusual move is sure to spotlight the growing tensions between the US and Beijing over China’s ambitions to become a power in microchips.
The move is also likely to shine a light on the shadowy security panel that recommended the deal be dropped. The panel — called the Committee on Foreign Investment in the US, and commonly known as CFIUS — has been increasingly at odds with an expansive new Chinese effort to spend US billions acquiring foreign high-tech companies.
While the Aixtron deal does not involve a US company, Aixtron itself does considerable business in the US and lack of US approval would shut that business off.
Beijing has highlighted its intentions of catching up to the rest of the world in semiconductors. It has spent hugely to help fund efforts by private Chinese companies and state-run national champions to acquire foreign firms that make microchips, the brains of everything from supercomputers to smartphones to guided missiles.
However, CFIUS reviews or concerns about them have derailed a number of proposed Chinese acquisitions of chipmakers worldwide. Earlier this year a group of Chinese investors abandoned plans to spend US$2.9 billion on a majority stake in a business owned by Royal Philips NV of the Netherlands after CFIUS noted the business specialized in a material key to making semiconductors.
In the case of Aixtron, the companies are asking Obama to decide directly — a move that has been made only twice before. In 1990 then-US president George H.W. Bush canceled the sale of an aviation company to Chinese bidders. In 2012, Obama forced a Chinese firm to divest from a wind project deemed too close to a US Navy facility in Oregon.
The continuing Aixtron saga is a study in how difficult it can be to track which Chinese investments are private and which are state led.
Last month, the New York Times highlighted how a Chinese customer that dropped a large order — in turn crashing Aixtron’s shares — had a relationship with the acquirer, Fujian Grand Chip, through government investment funds. The connection does not indicate wrongdoing, but does illustrate the blurred lines between Chinese industrial policy and the constellation of privately owned but state-supported companies that have been tasked with acquiring new Chinese technological capabilities.
In a surprise move last month, German authorities withdrew approval for the takeover without specifying a reason.
Because CFIUS decisions are considered confidential, the regulator did not say what concerns it had with the acquisition. One possibility is Aixtron’s leading position making technology that creates chips based on an advanced semiconductor material called gallium nitride.
The technology has been used in tech as mundane as Blu-ray Disc players, but its resistance to heat and radiation give it a number of military and space applications. Chips based on the technology are used in radar for anti-ballistic missiles and in an air force radar system, called Space Fence, that is used to track space debris.
CFIUS’ recommendation against the Philips deal earlier this year stemmed in part from that business’ involvement in gallium nitride.
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