The game of chess at the heart of China-US M&A

News and opinion on finance

The most important theme in global M&A has become a game of chess being played by two shadowy committees with vastly different priorities.

On one side of the board: the Committee on Foreign Investment in the United States (CFIUS). Under Trump, the attitude to Chinese ownership of US assets has become belligerent.

The rejection of the Ant Financial bid for MoneyGram is the most obvious example, but the truth is anything at all involving a remotely sensitive area – data, artificial intelligence, semiconductors, robotics – is now off the table.

If there’s an acquisition in the works, with a Chinese buyer for a company with any American assets or presence whatsoever, then the advisory job now starts, not ends, with a discussion of what CFIUS’s objections will be and what might be done in mitigation to address them.

Leading M&A lawyers in Asia now spend much of their time in Washington DC in the offices of Covington & Burling and Skadden Arps either trying to get 18-month-long regulatory impasses resolved on their deals, or working out whether it’s even bothering to attempt new ones.

Under the Trump administration, deals such as Chinese home appliance maker Midea’s acquisition of German automation group Kuka, which took place only two years ago, would never get through, because even though Kuka is German, it has operations in the US.

Still, there are less sensitive US sectors, but this brings us to the other side of the board: the Chinese state, represented principally by the National Development and Reform Commission (NDRC).

Dramatic change

The NDRC and the broader Chinese state infrastructure that it speaks for have also changed their position dramatically in recent years and are no longer interested in either the colossal outbound icebergs such as ChemChina-Syngenta, or the frivolous trophy purchases like much of what Anbang and HNA have done since 2015.

Those are gone, out of the picture – particularly Anbang, whose former chairman Wu Xiaohui, got 18 years in jail in May – and really China has no interest in the sort of industrial assets that CFIUS would be prepared to approve.

Instead, the modern handbook for state-approved outbound acquisition is Made in China 2025, the strategic plan issued by premier Li Keqiang in May 2015, but only receiving international attention since a China-US trade war became a threat.

If you’re Chinese and want to buy in Sweden, your adviser’s first question will now be: does the Swedish business have any data servers in the US? 

This prioritizes 10 key industries within which China wishes to acquire not only technological competitiveness but ideally outright dominance, with a leadership position in research and development: pharma, robotics, biotechnology, electronic vehicles.

In short, pretty much exactly the industries Trump would no sooner allow Chinese access to than he would rename one of his golf resorts after Obama.

Also, everything’s a data business, if you think about it. US insurer Genworth Financial has been seeking approval to be taken over by China Oceanwide ever since the deal was announced in October 2016 and is now on its third refiling with CFIUS.


Insurance is not, per se, a sensitive industry. Personal information on US customers, particularly if some of them are government employees, is very sensitive indeed.

M&A bankers will tell you that China-US deals have never really been that big a part of their business anyway, but that’s not the point: Chinese acquisitions of assets with any American angle at all are at risk, hence these at-the-outset whiteboard sessions with DC lawyers.

If you’re Chinese and want to buy in Sweden, your adviser’s first question will now be: does the Swedish business have any data servers in the US?

One result of all of this is that attractive companies with no assets in the US now command a premium. It is a fine thing to be a Chilean lithium producer with no American business operations at all, or perhaps a visionary young South African biotech.

Belt and Road, too, creates opportunities, particularly since almost anything can be tangentially linked to it and therefore parlayed as a bracing piece of Chinese state service.

M&A advisers now need their global reach more than ever – which, for once, does not mean being Big in America.