Qualcomm acquisition involves Sino-US games

Washington - As the United States and China pay attention to protecting their national security needs and economic interests, the struggle between the two financial superpowers is increasingly concentrated in one area: technology.

On Tuesday, the U.S. government cited national security as the basis for a full investigation of the hostile takeover of US chip giant Qualcomm. This kind of review usually means that a certain company transaction is dead.

Broadcom's proposed purchase of Qualcomm may become the largest transaction in the history of technology, creating an important force in the field of computer chip development, and powering smart phones and many Internet-connected devices. However, a US government team said that the acquisition may weaken Qualcomm’s strength and lead its Chinese competitors to take advantage.

"China is likely to be fiercely competing to fill any gaps in Qualcomm's hostile takeover bid," an U.S. Treasury official wrote in a letter demanding a review of the deal.

In an era when national security and economic power are closely linked, the struggle around science and technology is redefining the rules of engagement.

Under the leadership of President Xi Jinping, China has launched an ambitious plan to occupy a leading position in cutting-edge industries such as mobile technology, super calculators and artificial intelligence, and devote a lot of resources to what it considers to the Chinese government and military. And the economy is a crucial effort. The Chinese government hopes to build its own technology leaders and encourage companies to acquire engineering technology, expertise, and intellectual property rights from large competitors in the United States and elsewhere.

This aggressive offensive has aroused Washington's vigilance. Policy makers and legislators fear that the American giants will lose their advantage. President Trump is strengthening the defense of the United States. The government is investigating actions that may infringe US intellectual property rights and strengthen the review of overseas transactions.

The secret group that reviews Qualcomm transactions is the Foreign Investment In the United States (Cfius). The committee plays a central role in boycotting Chinese investment. It is led by the Ministry of Finance and consists of representatives of various agencies. It has the power to prevent foreign companies from acquiring US companies on the grounds of national security. In the past year, it effectively killed several purchase deals related to Chinese buyers. The lawmakers also called for expanding the power of Cfius and extending it to broader areas related to China's interests.

(What is Cfius? An executive in a mergers and acquisitions transaction said that it is "the ultimate supervised rocket launcher." For more information on Cfius, click here.)

"The Trump administration has put a turbo pressure on its power," said Tony Ballon, head of China operations at Alston & Bird, when he mentioned Cfius. "Now, the U.S. government is aware that foreign investors, especially Chinese investors, are getting more and more sophisticated about how to get U.S. technology."

In the case of Qualcomm, the U.S. government clearly expressed its vision for the ever-changing global economic leadership.

The company is a major supplier to the U.S. government and is a leader in the competition to build next-generation wireless technology 5G. These high-speed mobile networks will form the backbone of the infrastructure and eventually connect household appliances, street lights and driverless cars with the Internet. Many devices and machines running on these networks will use Qualcomm's chips.

“Let a well-known and trusted company take the lead, just as Qualcomm has in the field of telecommunications infrastructure, so that people can have great confidence in the reliability of such infrastructure that is closely related to national security,” said the U.S. Department of the Treasury. An official wrote in the letter.

The U.S. government specifically mentioned China's telecom equipment giant Huawei, saying that it is a potential competitor and may fill the gap caused by mergers and acquisitions. The Chinese company has invested heavily in the 5G network. The Chinese government has stated that it owns 10% of this key patent.

"This is a new example," said Paul Triolo, head of global technology policy affairs at the Eurasia Group, a geopolitical risk consulting firm. "It means that technologies such as 5G, artificial intelligence, biotechnology, and automation are now considered to be more sensitive technologies and belong to the national innovation base that needs protection."

Broadcom said that it is cooperating with Cfius and stated that it will "let the merged company become a global leader in the crucial 5G and other technology areas." Qualcomm said in an earlier statement that the review is a "very serious matter."

This letter and the call for investigations reflect Cfius's recent hard-line position.

In most cases, the committee expressed its opinions after the transaction was announced. However, on the issue of Qualcomm, Cfius preemptively launched an investigation before the parties signed the acquisition agreement.

In the past year, Cfius called for a number of transactions.

The transfer company MoneyGram and China’s electronic payment company, Ant Financial, canceled the merger plan in January, given the regulatory concerns of Cfius. If this transaction is passed, Ant Financial will get a lot of money flow data, which may cause security problems. The ant gold suit questioned the relevant statement.

Last year, the White House halted plans for a Chinese-backed investment group to acquire the US government's Lattice Semiconductor. One of the members of the investment group, China Venture Capital Fund, is the owner of the state.

"This is entirely a definition of expanding national security," said Zhang Taiming, director of the Institute of Global Conflict and Cooperation at the University of California at San Diego. "Operations involving China's investment in and acquisition of key components of the US innovation system."

The power of Cfius may soon increase.

There are new legislation requiring the expansion of Cfius's authority. The legislation received support from both parties in the Senate. The Trump administration has expressed its support for the revision of the regulations governing Cfius. The Finance Minister Steven Mnuchin also stated last year that the federal government is working closely with the House and Senate.

The motion proposed by Republican Senator John Cornyn of Texas and Democratic Senator Dianne Feinstein of California will grant Cfius to evaluate certain types of joint ventures, minority investments, and Military base real estate trading power. A press release issued on the motion shows that this legislation will also broaden the definition of “key technologies” that may be subject to review, and “may be crucial to maintaining the technological superiority of the United States that poses a threat to China and other countries. Emerging Technologies" included.

In addition to the review, the United States Trade Representative (United States Trade Representative) also investigated whether China "damaged the US intellectual property, innovation or technological development." One of the agency’s concerns is that US companies are forced to surrender technology, establish joint ventures, or otherwise assist local Chinese companies in exchange for access to the Chinese market. For example, Qualcomm has been working with the Chinese government to develop drones, artificial intelligence and mobile technology.

Technology companies were caught between the United States and China. Despite concerns about China’s invasion, the U.S. technology industry also recognizes that such deals are the price of entering the world’s second largest economy. Some companies protested Cfius's proposed reforms, saying that its expansion of power may be abused, and the new definition of emerging technologies is not yet clear.

IBM said that the bill would limit "the ability of American companies to do business overseas and authorize foreign competitors to occupy the global market." Industry Information Industry Industry Council (Information Technology Industry Industry Council) lobbied against reforms, saying that they would add difficulties to Silicon Valley companies. The latter’s business relationship in China is often complicated.

"They are in a dilemma," said Rob Atkinson, president of the Information Technology and Innovation Foundation, a technology company sponsored by Microsoft and other technology companies. "The Chinese government says it must do this to conduct business here. The United States says it cannot do this.

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