Heightened scrutiny of Chinese firms could hurt U.S.: expert
A giant Chinese electronics and information technology company announced Wednesday it has withdrawn plans to invest $3.8 billion in hard disk maker Western Digital, following a decision by U.S. authorities to investigate the proposed deal.
Unisplendour Corp (UNIS), a unit of China's State-owned Tsinghua Unisplendour Group, is the latest Chinese company facing heightened scrutiny by the Committee on Foreign Investment in the United Sates (CFIUS), an inter-agency committee authorized to review national security implications of takeovers of U.S. firms by foreign companies.
Analysts said such scrutiny of Chinese companies planning to invest in the U.S. is unfair to Chinese companies and not in the interest of the U.S..
UNIS, which specializes in electronics and information technology, said it decided to withdraw from the deal after the CFIU.S. informed it Tuesday of an investigation into the transaction, according to a company statement to the Shenzhen Stock Exchange on Wednesday.
The proposed deal, which was closed last year, involved the acquisition by UNIS of more than 40.8 million shares of Western Digital for about $3.78 billion, an approximate 15 percent stake in the U.S. hard-disk maker.
The CFIU.S. informed the companies that it would be conducting an investigation into the proposed investment plan, triggering a 15-day period for either company to pull out of the deal, according to a Western Digital press release.
"Based on careful consideration, the company's Board has decided to terminate the deal," UNIS said in a statement, without elaboration.
Not the first
The UNIS-Western Digital deal is the most recent case of an increasing number of Chinese firms facing U.S. government's scrutiny for plans to invest in the U.S.
Last week, a bid by the Chinese firm Chongqing Casin Group, a property and investment firm, to buy the Chicago Stock Exchange was submitted for national security review sparked a call from U.S. lawmakers to block the deal if links were found between Casin and the Chinese government, Bloomberg reported on February 18.
Earlier in the month, a $43 billion deal by Sinochem Group, a State-owned petroleum conglomerate, to buy Swiss seeds and pesticide maker Syngneta, which has major operations in the U.S., was also submitted to the CFIUS for review, Reuters reported on February 4.
Investments from China were the primary targets of CFIUS reviews in 2014, with 24 notices filed involving Chinese investors. This was followed by 21 notices involving investors from the UK, according to a CFIUS report to the U.S. Congress.
Acquisitions by Chinese investors accounted for the largest share of the notices filed between 2012 and 2014 with 68 notices, making up 19 percent of the total number of notices filed during the period, the report said.
"The heightened scrutiny to target Chinese companies shows that the U.S. does not trust China," said Huang Wei, director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.
With a growing number of Chinese companies making investments in the U.S., the U.S. government has shown concerns, especially when it involved high-tech companies, Huang said.
The world's No.1 telecom giant, Huawei, has long been barred from the U.S. market over allegations of state and military connections.
"But blocking Chinese investments is not going to do any good for the U.S. economy," Huang said, adding Chinese companies could go somewhere else to invest.
The U.S. will continue to scrutinize Chinese companies, said Jiang Yong, a research fellow at the China Institutes of Contemporary International Relations, saying such measures by the U.S. are not fair to Chinese companies.
"There has always been heightened scrutiny, especially in areas where the U.S. thinks we don't have advanced technologies such as semiconductors," Jiang told the Global Times.
The collapse of the UNIS deal led to the re-pricing for Western Digital's alternate merger plan with rival SanDisk, according to Reuters. The original deal, valued at $19 billion, was reduced to $15.78 billion, Reuters said Tuesday.
