US “I can’t see you stealing advanced technology” …

Even after the inauguration of US President Joe Biden, the US continues to confront China. The confrontation between the United States and China is apparent on the surface as a military tension in the western Pacific region, but in reality it is going on more extensively.

Measures in the economy and technology sector are intensifying, including sanctions against Huawei, China, a leading 5G mobile telecommunications (5G) company, and strengthening audits of Chinese companies listed on the US stock market. In addition, China is trying to block the acquisition of advanced technology in order not to give China a chance to grow in the future.

China is called the world’s factory, but it is mainly used as a subcontractor or a local production base because it is lagging behind advanced countries in many fields such as high-tech materials and machinery. The Chinese government aimed to develop advanced manufacturing industries in order to promote the development of national defense as well as economic development. This is because the basis for the modernization of the Chinese military is China’s economic and technological development.

The result of this goal is’Made in China 2025′ announced in 2015. Made in China 2025 is a long-term plan for the’three phases of 30 years’ with 2025 as the primary target point and 2045, with the goal being raised in 10-year cycles.

China was stimulated by the relocation of factories to Southeast Asia, where workers’ wages have risen significantly, cheaper than China, slowing economic growth in China, the rise of green growth industries due to environmental pollution, and the fourth industrial revolution of advanced countries such as Germany and the United States.

To this end, China has selected 10 key areas, is carrying out 5 key projects to develop them, and is pursuing 9 strategic missions that specify the 5 key projects. In order to develop advanced technologies, it is necessary to strengthen internal R&D capabilities in China, but the fastest way to acquire advanced technologies is to buy companies with those technologies.

Since the early 2000s, the Chinese government has been encouraging foreign investments called Zhou Chuqi (走出去) to government-affiliated institutions and enterprises. China’s foreign investment focuses on mergers and acquisitions (M&A) that buys foreign companies rather than building overseas production bases.

However, the mergers and acquisitions through China’s aggressive investment are viewed by advanced countries such as the United States as technology looting. Since the days of the Obama administration, the United States has been sensitive to Chinese acquisitions. The US responds to aggressive mergers and acquisitions of Chinese capital by strengthening the screening of the Foreign Investment Committee (CFIUS).

In response to the U.S., attempts to acquire wind power plants in Oregon in 2012, the U.S. subsidiary of Axitron, a German semiconductor company in 2016, Lattice, a semiconductor company in 2017, and Qualcomm in 2018, all failed.

In October 2018, the U.S. was reining by requiring foreign investments in 27 key technology companies to be reported to CFIUS. Furthermore, in January 2021, US investors issued an executive order not to purchase securities issued by Chinese military or Chinese companies affiliated with China’s military-industrial complex.

The Chinese penitentiary period in the United States continues outside the United States. A prime example is putting pressure on the Ukrainian government to prevent a Chinese company from acquiring Motor Seechi, an aircraft engine manufacturer.

The company trying to acquire Motor Seechi is a startup founded in 2014 and is suspected of being behind the Chinese government. If an engine manufacturing plant is established in China as a condition of the acquisition, the engine field, which used to be a weakness of the Chinese aviation industry, will develop rapidly.

China’s aggressive mergers and acquisitions are also taking place in Europe. In 2017, the Commissioner of the European Union announced that it would strengthen the screening of foreign capital inflows.

This measure is aimed at restraining Chinese capital, which is randomly buying up infrastructure such as ports in addition to general enterprises. Recently, NATO officials also launched an investigation into how Chinese capital, invested in infrastructure such as roads and ports, could interfere with the ability to quickly move troops in case of conflict.

Individual countries are sensitive to high-tech leaks. Germany was the first to act.

Germany has had a big backlash internally after a Chinese home appliance company acquired Kuka, an industrial robot company, for $4.5 billion in 2016. After that, the regulations were settled, and in 2018, the acquisition of Reifeld Metal Spinning, a Chinese company’s mechanical equipment and parts maker, was not permitted.

Similar measures are also being introduced in France and the UK. However, European countries are developing into a situation where their alliances are included in the target of foreign investment monitoring.

In April 2020, Teledyne Technologies of the United States announced the acquisition of Photonis, a French company that produces video amplifiers for night vision. However, when the French government did not permit it, it acquired the US’s FLIR system, which is famous for thermal imaging sensors and the like.

Overseas mergers and acquisitions by China have recently declined significantly due to checks on Chinese capital in the US and Europe. However, the high-tech companies that China is targeting are not limited to the US and Europe. As China’s investment in Korea increases, efforts are being made to attract them.

However, while rushing to attract investment, you can taste the bitter cup of technology leaks. A prime example is the leak of core technology from Shanghai Motors, which acquired Ssangyong Motors. While promoting normal investment in domestic companies, it is necessary to see if the institutional mechanisms and safeguards to prevent technology leakage or technology looting are working properly.

Hyun-ho Choi, military columnist and CEO of Millidome