China Comes Calling

Ever since computer company Lenovo Group bought IBM's desktop PC business in 2004, Chinese firms have moved aggressively to purchase Western technology firms and operate them beyond file borders of the Middle Kingdom. In recent years, the pace of acquisition has increased, with successful Chinese bids for Western firms ranging from automobile companies to producers of DNA sequencers. An increase in overseas investment by Chinese companies is an inevitable trend, said China's commerce minister Chen Deming at a conference in late November. The moves have caused concern among some Western analysts, who fear potential losses of technological know-how and concomitant threats to national security. Technology ... funded by taxpayers should not simply be shipped off to China so that the military applications for these materials can be reproduced abroad, said Republican Senator John Thune of South Dakota. On the other hand, the new owners could facilitate access to the huge Chinese market not only for the companies they acquire but also for their Western competitors. The issue provides a fresh example of the combined threat and promise that globalization offers the world of high-technology business. U.S. states covet PRC [People's Republic of China] investments for the jobs and tax revenues--even if the government is uneasy, says Denis Fred Simon, vice provost of the Office of International Strategic Initiatives at Arizona State University. Increasing Acquisitions The extent of the acquisitions has increased significantly since the start of the Great Recession. In 2012, according to information company Dealogic, Chinese companies agreed to pay out more than $10 billion in close to 50 deals that involved total acquisition of, or major stakes in, American firms--more than the three previous years combined. Canadian companies brought in even more in Chinese activity during the year: $23 billion. The nature of the deals is also changing. While IBM look a stake in the Lenovo group to which it sold its personal computer business, more recent sales have tended to give the Chinese acquirers complete control. The acquisitions cover a wide range of technologies. Early this year, for example, China's Zhejiang Geely Holding Group paid $17 million for the assets of British firm Manganese Bronze, whose London Taxi Company unit produces the British capital's distinctive black taxicabs. In 2010, Zhejiang Geely bought Sweden's distressed automaker Volvo. In North America, meanwhile, recent acquisitions have included Canadian tar sands company Nexen Inc., bought by the China Offshore Oil Corporation (Cnooc); MiaSole, a solar energy startup in Silicon Valley bought by China's Hanergy Holding Group, which had previously purchased the thin-film solar cell unit of Germany's Q.Cells; bankrupt Massachusetts battery maker A 123, acquired by the Wangxiang Group; and Complete Genomics, a DNA sequencing company based in Silicon Valley, bought by BGI-Shenzhen. Not surprisingly, many of the deals have faced criticism from American legislators and business interests, who fear that they could prejudice national security and permit the easy transfer of commercial secrets offshore. Indeed, some of the companies targeted by the Chinese have worked on defense-related technologies. As a result, their sales have had to obtain government approval, most often from the Committee on Foreign Investment in the United States (CFIUS), a federal panel attached to the Treasury Department. Federal Funds and Defense Contracts Wangxiang's acquisition of A123 came under fire because the company has received financial support from the Department of Energy to develop its advanced lithium-ion batteries for automobiles and also works on defense contracts. CFIUS approved the sale after Wangxiang agreed to the sale of A123's defense contracts to Illinois company Navitas Systems. …

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