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In this article, we’ll look at the reasons behind China’s increasing use of antitrust merger reviews to impose demands on US companies, putting them in difficult positions due to export controls and restrictions from Washington.
We will explore the key takeaways and examine the potential consequences of these developments.
Key Takeaways:
- China’s antitrust regulator, SAMR, is delaying merger approvals involving US companies, leveraging its power in the ongoing technology war with the US.
- Companies seeking merger approvals are asked to make their products available in China, countering US export controls targeting China.
- Delayed merger reviews are putting US companies in difficult positions due to conflicting demands from Chinese and US authorities.
- China’s use of merger reviews as a subtle pressure tactic is an alternative to banning foreign companies from selling in China.
- The US has been adding numerous Chinese companies to its Entity List, further increasing tensions.
The Silent Power Play: Delaying Mergers as Leverage
China’s State Administration for Market Regulation (SAMR), the country’s antitrust regulator, has been strategically delaying its green light for mergers involving American companies.
This tactic has become more prominent as the technology war with the US continues to intensify.
The Wall Street Journal recently reported that the regulator has been taking its time in reviewing mergers involving US companies.
This includes Intel Corp.’s $5.2 billion acquisition of Israel-based Tower Semiconductor Ltd., as well as chipmaker MaxLinear Inc.’s $3.8 billion purchase of Taiwan’s Silicon Motion Technology.]
The objective behind this silent power play is to use the merger reviews as leverage in the ongoing dispute with Washington over access to advanced technology.
By slowing down the process, Beijing can apply pressure to foreign companies and, by extension, their governments.
This strategy has become an additional tool for China in the tit-for-tat firefight with the US.
Chinese Demands: Putting US Firms in a Tough Spot
In order to counter the US’s increased export controls targeting China, SAMR has asked companies seeking merger approvals to make available in China products they sell in other countries.
This demand puts American companies in a challenging position, as Washington has enacted legislation restricting US companies’ ability to sell to China and expanding certain types of production there.
Navigating these conflicting regulations and restrictions is becoming increasingly difficult for multinational corporations caught in the crossfire.
For instance, if two companies in a deal have revenue of more than $117 million a year from China, the merger needs Beijing to sign off.
As US-China ties continue to fray, merger reviews have become another way for Beijing to impose its will on foreign companies.
The Subtle Alternative: Merger Reviews vs. Banning Sales
Chinese officials view merger reviews as a relatively subtle and low-cost way to pressure foreign companies and their governments.
This strategy serves as an alternative to banning foreign companies from selling in China, which could potentially hurt China’s access to foreign technology even more.
In the past, China has blacklisted only two US companies, defense contractors Lockheed Martin Corp. and a unit of Raytheon Technologies Corp., both of which do little business in China.
Meanwhile, the US has added numerous Chinese firms to its Entity List, which greatly restricts access to American products and components.
By using the merger review process as leverage, China can avoid escalating tensions further while still asserting its power over foreign corporations.
Escalating Tensions: US Export Controls and Entity Lists
The US has been ramping up its export controls and restrictions against Chinese companies, citing concerns about their ties to the Chinese government and the Chinese Communist Party.
This has led to the addition of several Chinese firms, including Huawei, ZTE, DJI, SMIC, and YMTC, to the Entity List.
The United States has recently imposed new regulations, one of which demands chip manufacturers who receive funds from a $39 billion federal fund to pledge not to increase their production capabilities in China for ten years.
Another regulation prohibits internet service providers that receive Universal Service subsidies from using telecom equipment from Huawei and ZTE in federally funded broadband projects.
These escalating tensions are further complicating the landscape for multinational companies, making it harder to navigate the conflicting demands from both Chinese and US authorities.
Conclusion
The intensifying technology war between China and the US has led to a growing trend of China leveraging its antitrust merger review process to impose demands on US companies, putting them in difficult positions as they try to navigate conflicting regulations and restrictions from both countries.
This subtle power play serves as an alternative to banning foreign companies from the Chinese market and further escalates the already strained relationship between the two global superpowers.
As these tensions continue to rise, it remains to be seen how this situation will ultimately unfold and what consequences it will have for multinational corporations caught in the crossfire.
