In what will mark only the third time in more than a quarter century that the White House has rejected an investment by an overseas buyer as a national security risk, U.S. President Barack Obama is poised to block a Chinese company from buying Germany’s Aixtron SE, reported Bloomberg quoting people familiar with the matter.
The news report said, quoting people, who asked not to be identified as the details aren’t public, that the sale of the semiconductor-equipment supplier to China’s Grand Chip Investment GmbH would probably be stopped as the president is expected to uphold a recommendation by the Committee on Foreign Investment stopping the deal.
Marking the second time that Obama has rejected a deal on national security grounds would be the blocking of the 670 million euro ($714 million) acquisition. The Chinese-owned Ralls Corp. was stopped from developing a wind farm near a Navy base in Oregon in 2012 by him. A Chinese acquisition of MAMCO Manufacturing Inc., an aircraft-parts maker was stopped before that in 1990 by then-president George H.W. Bush.
CFIUS pays particular attention to purchases of technology, especially when it has defense applications and reviews purchases of U.S. companies by foreign buyers. Aixtron has a subsidiary in California and employs about 100 people in the U.S., where it generates about 20 percent of its sales and that is why CFIUS has a say in the Aixtron deal.
Aixtron technology can have military applications in satellite communications and radar and can be used to produce light-emitting diodes, lasers, transistors, solar cells, among other products. According to a Bloomberg supply chain analysis, among is customers is Northrop Grumman Corp., a major U.S. defense contractor.
“It will be extremely difficult for China’s state owned enterprises to do deals in the semiconductor industry looking forward. It definitely posts a negative impact on China-U.S. relations, but the damage is limited,” said He Weiwen, deputy director at the Center for China and Globalization.
The decision comes at a crucial moment for U.S.-China relations. Accusations on China that that it is carrying out unfair trade practices that hurt U.S. workers have been placed by President-elect Donald Trump. He has said he’d impose tariffs on Chinese goods and has vowed to brand the country a currency manipulator. On the other hand, Chinese companies are investing more in the U.S. than ever. According to Rhodium Group, in 2015, a record $15.3 billion in investments was made in America by Chinese foreign direct investors.
Saying Beijing uses the firms as “a tool to pursue social, industrial and foreign policy objectives”, the U.S.-China Economic and Security Review Commission said that CFIUS should be authorized to stop Chinese state-owned enterprises from acquiring U.S. companies.
Aixtron said Nov. 18 that the CFIUS raised unresolved national security concerns about Aixtron’s sale to Grand Chip Investment, announced in May, and added that the deal should be abandoned. According to the statement Aixtron and Grand Chip planned to continue negotiations with the government after having rejected that position. An executive order to block a deal must be issued by the U.S. president within 15 days, the time he has to decide on a CFIUS matter after the panel completes its investigation under the law. Before being resolved in some other way, CFIUS rulings are rarely referred to the president for a decision.
(Adapted from Bloomberg)