Wise up to Chinese capital
Wise Road Capital (WRC), a hitherto little-known Chinese company, has been in the news lately following several major mergers and acquisitions. This includes the acquisition of four factories in China from Taiwan’s ASE Group — the world’s largest chip packaging and testing company — a merger with China’s Tsinghua Unigroup — one of China’s largest chipmakers — and an attempted merger with US chipmaker Magnachip Semiconductor Corp, which fell through late last year.
One cannot help but wonder how WRC, which was founded in 2015, have the financial resources to conduct major mergers and acquisitions around the world.
The company was jointly established as a private equity firm by a number of Chinese private and state-owned enterprises with links to the Chinese government.
Its profit model is based on mergers and acquisitions. Since the source of private equity funds is unknown to the outside world, there is always a sense of mystery about such funds and their managers.
The main source of WRC’s capital is the Zhongguancun Science Park in Beijing, known as the “Chinese Silicon Valley,” where 200 high-tech companies have formed an alliance.
The alliance has worked with the banking industry to launch private funds, which were used as capital to establish a number of asset management companies, such as WRC.
Since its establishment, WRC has focused on mergers and acquisitions semiconductor-related companies — from chip design to original equipment manufacturing and wafer dicing to packaging and testing. It has even been dubbed a “semiconductor company harvester” by the Chinese media.
Once a foreign enterprise is merged with or acquired by a Chinese company, it is common for its overseas research or production centers to be swiftly relocated to China. The intention is likely to be technology transfer and this practice has raised concern in other countries.
The US Department of the Treasury’s concerns over a merger attempt between WRC and Magnachip Semiconductor on national security grounds in December last year serves as a good example of this phenomenon.
After all, it is hard to believe that a company is capable of raising the massive amount of capital required in just a few years, without the backing of the Chinese government, especially as Beijing is engaged in an all-out effort to boost domestic semiconductor production.
From China’s perspective, the pros and cons of quickly improving technology through mergers and acquisitions appears to be mixed.
On the pro side, the Chinese government can raise funds privately behind the scenes, while systematically planning the mergers and acquisitions of selected foreign enterprises to remedy areas of technological weaknesses, in a way that would be difficult for the private sector to achieve on its own.
On the con side, despite the ostensibly private nature of funds such as WRC, the Chinese government takes advantage of their opaque funding models to merge government funds within private funds, and thereby avoid having to publicly disclose this information.
However, the lack of transparency inevitably puts other nations on the alert when their companies are targeted for mergers and acquisitions by Chinese institutions.
Since the semiconductor industry has become Taiwan’s leading industry, the government should handle Chinese mergers and acquisitions with extreme caution.
Yang Chung-hsin
Taichung
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