US blocks a Chinese deal amid rising tensions over technology - CNBC News ( source : New York Times )

23/2/2018

US blocks a Chinese deal amid rising tensions over technology

Raymond Zhong Updated

The New York Times

United States officials have torpedoed a Chinese state-backed group's plan to buy an American electronics company, signaling the Trump administration's continuing skepticism toward Chinese investment deals, particularly those that involve transferring technological know-how.

Xcerra, a Massachusetts-based provider of equipment for testing computer chips and circuit boards, said this week that it was withdrawing from its $580 million sale to an investment group backed by a Chinese government-controlled fund.

The reason, according to Dave Tacelli, Xcerra's president and chief executive, was that the deal was not likely to be approved by the Committee on Foreign Investment in the United States, a multiagency Washington panel that operates largely out of the public eye. The committee, known as Cfius, plays an advisory role to the president, but it can effectively block foreign acquisitions of American companies over national security concerns.

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"Despite our best efforts to secure approval, it has become evident that Cfius will not clear this transaction," Mr. Tacelli said. The deal would ultimately have been financed by the China Integrated Circuit Industry Investment Fund, a $21 billion fund that counts several Chinese state-run companies as investors.

It was the latest in a string of Chinese acquisitions scotched by Washington officials. Under President Obama, regulators showed increased skepticism about Chinese deals involving technology companies. That trend has continued under President Trump, who has taken a tough line on China's trade and investment practices.

Chinese deal makers may soon find it even harder to get investments and acquisitions through. Lawmakers in Washington introduced a bill late last year that would widen Cfius's remit, giving it oversight over more types of deals and, in particular, those that move advanced technologies into foreign hands.

The intensified scrutiny comes as China's government is ramping up a plan, called "Made in China 2025," to use state support and overseas acquisitions to dominate high-tech fields such as big data, advanced robotics and electric cars.

The two countries have clashed over computer chips before. In September, the Trump administration blocked the $1.3 billion purchase of Lattice Semiconductor, an American chip manufacturer, by a Chinese-funded private equity firm.

Tensions have also flared over technology deals that involve sensitive personal data. In January, regulatory worries caused the collapse of a plan by Ant Financial, a sister company of the Alibaba Group, the Chinese e-retailing giant, to buy MoneyGram, the money-transfer provider. That deal would have been worth $1.2 billion.

In scuttling the purchase of Xcerra, American officials have struck at a major priority area for China's innovation policies.

China is the world's biggest exporter of electronic devices. But to churn out all those smartphones, computers and other equipment, it must still import most of the electronic brains inside them. That has led the government in Beijing to try to supercharge its domestic chip industry.

Progress so far has been mixed. Despite government subsidies, the technologies at China's leading chip makers remain generations behind those at Intel, Samsung and Taiwan Semiconductor Manufacturing Company.

In the business of semiconductor assembling, packaging and testing, however, China has surged to become a world leader. Xcerra designs and makes equipment to test chips, but it doesn't manufacture chips themselves.