China‘۪s ‘‘‘Big Fund‘۝ for Strategic Acquisitions Targets High-Tech, German Semiconductor Company, Aixtron

On May 23, 2016, Grand Chip Investment GmbH, a 100% subsidiary of Fujian Grand Chip Investment Fund LP, which is, in turn, controlled by Chinese entrepreneur Zhendong Liu (51%) and Xiamen Bohao Investment Ltd. (49%), acquired Germany‘s Aixtron for $695 million with financing from the Chinese state fund Sino IC.

Aixtron develops technologies that are used in the manufacturing of LEDs, laser diodes as well as solar and photovoltaic cells.  Its production systems are also used for high-frequency transistors and electronic devices.  Chinese companies have recently been seeking out companies with these kinds of chip production and other high-tech capabilities.

Sino IC, also known as ‘‘‘The Big Fund,‘ was formed by the Chinese government in 2014 with the goal of spending $20 billion to ‘‘‘promote strategic acquisitions of foreign companies with key technologies‘ by 2017.  Over 70% of the entity‘s funds are reportedly allocated for acquiring semiconductor chip manufacturing technologies.  The creation of this fund is part of a larger Chinese investment effort aimed at improving the Chinese semiconductor manufacturing capacity.

China‘s manufacturing ability in this field lags behind domestic demand.  China consumes 50% of the world‘s semiconductor chip output, yet only accounts for 2.5% of its production.  The intellectual property obtained by China as part of this acquisition is in line with its efforts to become a major player in the global semiconductor industry.  One of the advantages sought after by China in acquiring Western production technologies, such as those developed by Aixtron, is the ability to reduce dependence on costly imported computer chips.  This could permit China to further decrease the price of its already cheap smartphones (90% of which rely on imported chips).  Of course, the dual-use (read: military) application of this technology is also likely a motivation.

Other recent technology firms acquired by China include: German robot manufacturer, Kuka; Lexmark; Ingram Micro; and Catapult Systems.  Specific purchases aimed at improving the Chinese smartphone industry include the acquisitions of Motorola Mobility and OmniVision.  In 2016, the Committee on Foreign Investment in the US (CFIUS) blocked Tsinghua Unigroup from acquiring U.S. computer chip manufactures Micron Technology and Western Digital.