Corporate China’s global shopping binge barreled on this week with more multibillion-dollar deals, but Beijing is starting to discover that there are limits to what its money can buy.
In recent days German and EU officials have moved to tighten up scrutiny or even block high-profile acquisitions in the latest sign of growing opposition to Chinese purchases of companies in key industries due to national security or competition concerns.
Swiss chemical giant Syngenta AG on Tuesday said that EU regulators examining its proposed US$43 billion takeover by state-owned China National Chemical Corp (中國化工) have “recently requested a large amount of additional information,” which will drag the approval process out into the first quarter of next year.
At about the same time, the German government withdrew clearance for China’s Fujian Grand Chip Investment Fund (中國福建芯片投資基金) to buy semiconductor equipment maker Aixtron SE in a US$670 million deal citing unspecified security-related concerns — a decision that threatens to complicate German Minister of Economic Affairs Sigmar Gabriel’s trade visit to China next week.
German WirtschaftsWoche on Thursday reported that, pending a review, Berlin has turned down a Chinese request for approval of a takeover of Osram’s Ledvance unit, which means it could take months until there is clarity over whether the more than 400 million euro (US$437 million) deal will go through.
Concern is growing in Berlin about losing technology to China after a string of Chinese acquisitions of German companies including industrial robots maker Kuka AG.
“The surge in Chinese acquisitions of high-tech companies certainly has policymakers on high alert, especially in Germany,” said Bjorn Conrad, vice president of research at the Mercator Institute for China Studies in Berlin, which tracks China’s overseas investment. “That is because China is not playing by the rules.”
He said some of the deals reflect a political strategy in which state-owned Chinese companies, spurred by an aggressive outbound industrial policy, unfairly exploit Europe’s open markets to gobble up companies with core technologies to speed the country’s technological advance.
European policymakers “are not naive when it comes to government-driven acquisitions. They will apply a much higher level of scrutiny in the future,” Conrad said.
Data from Dealogic PLC showed that Chinese companies have invested nearly US$200 billion so far this year in overseas firms, almost double the amount for all of last year.
However, about US$40 billion in proposed Chinese purchases have been canceled since the start of last year, reflecting resistance to such deals, according to Dealogic.
The Australian government blocked a Chinese group involving state-owned State Grid Corp (國家電網) and Hong Kong-based Cheung Kong Infrastructure Holdings Ltd (長江基建) from leasing a Sydney electricity grid in an unusual turnaround, citing classified national-security reasons.
The August decision was unusual in that Canberra had initially invited the companies to bid and only rejected them at the last minute on general security concerns unrelated to any specific country, said Hans Hendrischke, a professor at the University of Sydney Business School who specializes in Chinese investment in Australia.
However, “overall, certainly, I think the political outcome is clearly that the perception is created as if all of these are somehow directed against Chinese acquisitions of assets in foreign countries,” Hendrischke said.
The concerns mirror those in the US.
Last month, 16 members of the US Congress wrote to the US Government Accountability Office calling for a review of the Committee on Foreign Investment in the US, a federal inter-agency panel also known as CFIUS, saying it should be updated or expanded to keep pace with the surge of foreign acquisitions in strategically important sectors.
Specifically, the letter said the committee’s powers might need to be widened in light of Chinese conglomerate Dalian Wanda Group Co’s (萬達集團) recent purchases of US theater chains and Hollywood studio Legendary Entertainment LLC, citing fears about Beijing’s censorship and propaganda efforts.
Tighter scrutiny by CFIUS, or the prospect of it, has already thwarted some high-tech deals.
State-owned Tsinghua Unisplendor Group (清華紫光) in February scrapped a plan to buy a 15 percent stake in disk drive maker Western Digital Corp, which would have made it the biggest shareholder, after the US committee decided to investigate the US$3.8 billion investment on national security grounds. A month earlier, electronics giant Royal Philips NV aborted the sale of a majority stake in its LED components and auto lighting business to Chinese investor GO Scale Capital.
Additional reporting by Reuters
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