On April 7, a Chinese company suffered a surprising setback in the United Kingdom. Following an uproar by British legislators, an arm of the Chinese state-owned investment firm China Reform had to abandon its bid to dominate Imagination, a leading British technology firm that makes smartphone chips. Even if that effort failed, others are likely to succeed.

That’s because many Western manufacturers of popular products will face financial uncertainty as a result of the coronavirus pandemic, making them easy prey for Chinese companies, which are already on a corporate buying spree in the West.

Canyon Bridge, a Cayman Islands-based outfit that is majority-owned by China Reform, bought Imagination in 2017—but the U.K. government didn’t intervene. This month, however, when China Reform attempted to put four directors on Imagination’s board and thus seize control of the company, British members of Parliament rebelled; China Reform abandoned the attempt.

Imagination is well known, but across Europe, North America, and other advanced economies there are countless cutting-edge firms in key sectors such as biotech and electronics that are neither as rich nor as well funded as Imagination. And like most other companies, they’ve been hit by the standstill that coronavirus has imposed on the economy. A recent survey of more than 10,000 Japanese firms, for example, showed that 63 percent predicted the coronavirus would have a negative impact on their business performance.

China Reform’s majority stake in Imagination is part of a major Chinese acquisition spree in Europe and North America over the past few years. Last year, for example, Chinese entities invested 11.7 billion euros (nearly $13 billion) in European Union countries, the vast majority of it in mergers and acquisitions and only a minimal share going to forming new companies. In 2018, Chinese entities invested some $25 billion in the United States. Government support makes it even easier for Chinese companies to buy foreign firms.

Chinese acquisitions have caused headaches in Western capitals before. In 2003, Chinese mergers and acquisitions of foreign companies amounted to $1.6 billion. By 2006 it had shot up to $18.2 billion, often involving takeovers of Western household names. But many of those acquisitions, such as TCL’s takeover of France’s Thomson Electronics, ended in failure.

Then came the 2008-2009 financial crisis, which presented another opportunity for Chinese businesses. In a manner similar to what the world may now be about to experience, they went on an acquisition spree among weakened Western outfits. But that, too, went south for many of them when the acquired companies’ value continued to slump, as Wang Duanyong of Shanghai International Studies University pointed out in a 2011 paper.

Source:Foreign Policy