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Opaque US panel hones in on China deals for third year

Saturday, February 20, 2016 - 08:21

[WASHINGTON] China led the pack of countries whose planned US acquisitions and investments for 2014 were probed for US security implications, making it the most scrutinised country by US regulators, according to a government report released on Friday.

The Committee on Foreign Investment in the United States (CFIUS), an interagency panel that reviews deals over national security concerns, said in its annual report that it investigated 51 of all 147 international deals filed with the agency in 2014.

China accounted for 24 of all the deals, making it the third consecutive year that CFIUS probed deals from the country more than any other nation. CFIUS reviewed 21 deals involving the United Kingdom in 2014 and 15 involving Canada.

The report comes as China's increasing push to acquire US and other overseas assets, including in sensitive areas such as technology, is setting off unease in Washington.

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There have been 22 M&A transactions announced in the United States so far this year involving Chinese acquirers, totaling US$23 billion, according to Thomson Reuters data. That outpaces Chinese outbound US M&A for all of 2015, which reached US$13 billion.

The CFIUS report for 2014 shows that 12 notices of unidentified mergers or investments were withdrawn during the review process. Only one of them was re-filed, indicating the other 11 were abandoned by the companies. It said it had formally rejected one notice, but did not say why or identify the deal.

CFIUS rarely kills proposed mergers formally, but instead informally urges companies to scrap merger plans and they comply. Most recently, in January, Philips dropped a plan to sell an 80 per cent stake in its Lumileds division to Chinese buyers because of what it described as pressure from CFIUS.

The panel is considered opaque since it neither confirms that it is investigating a transaction, nor confirms if it considers certain deals problematic.

CFIUS will likely probe ChemChina's record US$43 billion takeover of Switzerland's Syngenta, which generates nearly a quarter of its revenue in North America by selling pesticides and seeds.

Another transaction it would likely look at are plans by Tianjin Tianhai Investment Co's to buy Ingram Micro for US$6 billion, which was announced this week.

It is also not unusual for companies to rebuff an advance from a Chinese investor because of concerns that CFIUS would not allow the deal. Just this week, Fairchild Semiconductor International Inc rejected an acquisition offer from China Resources Microelectronics Ltd and Hua Capital Management Co Ltd because of CFIUS concerns.

In the months since the time covered by the CFIUS report, Chinese acquisition attempts in the United States have accelerated, as Chinese investors have sought to park their money outside the country, especially following a summer stock market crash and a devaluation in August.

But the drive has faced backlash from US lawmakers in an election year and at a time of increasing tension between the two countries over China's expanding role in the South China Sea, as well as high-profile hacking attacks against US government agencies which Washington has attributed to China.

A group of 46 US lawmakers, most of them Republicans, urged CFIUS this week to take a hard look at a bid by China's Chongqing Casin Enterprise Group to buy the storied Chicago Stock Exchange, one of the oldest US exchanges.

REUTERS

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