In 2017 Canyon Bridge, a Cayman Islands-registered investor, bought Imagination Technologies, one of the UK’s premier chipmakers.
Surprisingly, the deal didn’t incur the wrath of British politicians. Just weeks previous US President Donald Trump had scuppered a $1.3 billion Canyon Bridge bid for Oregonian chipmaker Lattice, citing security concerns: Canyon Bridge was majority-owned by China Reform, a state-backed investment vehicle.
Last month, the Imagination plot thickened. China Reform attempted to place four directors on the company’s board, in an attempt to trigger control. Parliament intervened. Imagination’s CEO resigned, and China Reform scrapped its plan.
The Imagination saga was a high-profile chapter, in a crescendoing crusade by Europe’s politicians to keep Chinese investors away from its tech crown jewels. With a global crisis in full swing, it is likely to grow louder.
In the wake of 2008’s financial crisis, state-backed Chinese investors went on a spree, gobbling up stakes in weakened European companies. They are expected to do the same amid a COVID-19 pandemic that is wiping billions from the value of firms across the continent.
The White House’s hawkish approach to China, which involves its zealous watchdog the Committee on Foreign Investment, has irked many policymakers, who do not view Europe’s involvement in a post-Coronavirus economy as a zero-sum decision between Washington and Beijing.
Trump’s trade war has helped quell Chinese foreign direct investment (FDI) in the US from $46.5bn in 2016 to $5.4bn in 2018. China’s FDI in Europe has also fallen – from $40.7bn in 2016 to just $13.1bn last year. That trend may continue in 2020, as China too struggles to stabilize an economy rocked by a Coronavirus outbreak that reportedly began within its own borders.
But Europe’s technology will still prove appetizing to China’s investors, many of which are bankrolled by Beijing. They are part of the so-called “Made in China 2025” project that aims to push China to the top of the tech industry.
And Europe’s high-tech startups—many of whose precarious financial arrangements have left them unable to access government crisis handouts—may present the tastiest meal.
Last month Bloomberg reported that bankers have seen rising interest in European firms from Chinese companies and funds, many of which are publicly financed.
According to the Mercator Stiftung, a German think-tank, “Beijing’s aims remain unchanged and its industrial policy is already being implemented: it wants Chinese companies to become global leaders in ten core industries by 2025. And it aims to be a global technological superpower by 2049.”
Spain and France have already implemented rules ramping up screening of foreign investors. Britain, with by far the EU’s largest share of Chinese FDI, has fended Huawei away from its core 5G network. “What we think is going on is the Chinese are trying to export the technology base from here to China and that’s inappropriate,” UK lawmaker David Davis recently told Reuters.
Germany has strengthened its own regulations since 2016, when Chinese firm Midea bought German robotics outfit Kuka. In 2018 Berlin blocked Yantai’s takeover of engineering company Leifeld. Last month German politicians agreed to review deals if there is “likely harm” to security – a step up from the previous definition of “actual danger.” Investments of over 10% in AI, robotics, semiconductors, biotech and quantum must be made public.
On a political level, Berlin has come under criticism for its unease at leading an EU crawling from COVID-19’s deadly grip. Brussels has, too, remained far more restrained on Chinese investment than its allies in the United States.
Yet EC commissioner Margrethe Vestager recently called on states to take stakes in private firms. “The situation now really underlines the need so we work really intensively,” she said. “This is one of our main priorities.”
Expect it to remain so well after Europe’s Coronavirus curves have flattened and its residents return to some sort of normality. Europe may not prevent some of its prized tech possessions falling into Chinese hands. But it is waking up to tech transfer – and in a global economy threatening to become more protectionist post-crisis, governments will seek greater controls over private industry.