Beijing left with a chip on its shoulder in Washington row

Semiconductor sector becomes the new frontline as tension rises between China and the US 

A semiconductor skirmish with the United States has left China’s ruling Communist Party with a chip on its shoulder.

Beijing has been quick to ring-fence its technology sector under tough national security laws. 

At the same time, it has condemned Washington and its allies for safeguarding high-tech firms by blocking Chinese state-sponsored buyouts. 

The latest row erupted this week over plans by Beijing-based private equity group, Wise Road Capital, to buy US-listed Magnachip for US$1.4 billion.

Sparks started to fly on Monday when South Korea’s state-of-the-art semiconductor company came under pressure to pull out of the “deal.” 

In a Securities and Exchange Commission filing, Magnachip reported that the US Treasury Department feared the acquisition posed “risks to the national security of the United States.”

Since then, Beijing has hit back through the country’s state-run media.

“If the US succeeds in blocking the deal this time, it could set a very bad precedent for global high-tech mergers and acquisitions, further consolidating the industrial concentration in the US,” Global Times, which is owned by the People’s Daily, the official mouthpiece of the ruling Communist Party, argued in an editorial.

The facts:

Big picture: Chips are the building blocks of the modern world, a 21st-century version of oil. Without them, nothing runs in today’s plugged-in society of smartphones, smart cars and smart factories.

China’s gripe: “The Biden administration’s clampdown on Chinese companies trying to invest abroad in chip-related assets appears to be moving in a dangerous direction, one that requires vigilance from the global high-tech players,” Global Times stated on Thursday.

Delve deeper: At the heart of the hullabaloo is Wise Road Capital. “[The] private equity firm [is] often involved in [Chinese] government-backed investment funds,” Datenna, a data intelligence platform, revealed.

Geopolitical risks: “In the coming years, tensions [are likely to increase] in the field of semiconductors. That can have implications, including geopolitical ones,” European Union Commissioner Thierry Breton told a media briefing in March.

China Factor comment: Washington believes it has every right to scrutinize and block takeovers of US-listed companies. It appears the foreign acquisition party is finally over for the Party.