China’s Growing Technology Acquisitions Come Under New Scrutiny in Germany
On October 24, 2016, the German government withdrew its approval, originally granted on September 28, for the acquisition of Aixtron, a semiconductor chip equipment manufacturer, by China’s Fujian Grand Chip Investment Fund. The Chinese group had offered $752 million for the German company. This decision comes amidst a number of attempted transactions in this industry, where China is seeking to make a qualitative technological leap – both domestically and internationally – fueled by foreign acquisitions. The country reportedly already has plans to invest some $161 billion domestically in this area.
Financing for the Aixron purchase was reportedly sourced from Sino IC, a $20 billion government fund created to assist Chinese companies in acquiring foreign semiconductor technologies. The attached image demonstrates the growing frequency and value of Chinese acquisitions of technology companies globally.
According to statements by the German government, the renewed investigation will determine whether the transaction “could disturb public order” and comes amidst rising German anxiety over the perception of unchecked Chinese investment in the country’s key technology assets. This is particularly the case in the aftermath of the controversial purchase by China’s Midea of the German Robotics firm Kuka in July 2016.
Currently, however, German law only allows for government intervention in cases where a commercial deal would jeopardize energy security or defense. Accordingly, new proposals are being put forward to enhance the government’s ability to intervene. Specifically, Economics Minister and Deputy Chancellor, Sigmar Gabriel, is advancing an initiative to restrict foreign takeovers of German companies that hold “key technologies that are of particular importance for further industrial progress.”
China’s focus on Europe’s technology sector has also attracted the attention of the EU. Digital Economy Commissioner for the EU, Gunther Oettinger, has repeatedly stressed that the EU should not sell-off its high tech industry and has pressured individual states to enact tougher laws. The glaring lack of reciprocity concerning what types of foreign investment China permits has also been the target of Western criticism in response to this growing trend.
The United States appears to have taken a harder stance than Europe towards protecting its semiconductor industry. Two cases of espionage were prosecuted in this area in recent years.
- In 2012 Chinese nationals were arrested attempting to smuggle out dual-use programmable logic devices made by Lattice.
- In June 2013 the U.S. government filed charges against China’s Sinovel for “conspiracy to commit trade secret theft, theft of trade secrets, and wire fraud,” and the theft of technology from its former supplier, American Semiconductor.
And, more recently, fear of unwanted scrutiny from the Committee on Foreign Investment in the U.S. (CFIUS) played a role in derailing the following two deals earlier this year.
- China Resources Microelectronics’s $2.6 billion bid for Fairchild Semiconductor failed in February 2016. Although the bid was $200 million higher than the closest competitor, ON Semiconductor, Fairchild was worried about CFIUS scrutiny of the deal and decided the extra $200 million was not worth going through a CFIUS investigation.
- In February 2016, Unisplendour Corporation, a subsidiary of Tsinghua Unigroup, abandoned the $3.78 billion acquisition of Western Digital after CFIUS began to investigate the acquisition on natural security grounds.