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    China's Secret Weapon: How Beijing Can Wreak Havoc on US Corps in Trade Dispute

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    China sold off another $3 billion-worth of US sovereign debt last week, piling on to new anti-dumping tariffs on US chemicals and duties on $60 billion-worth of US goods introduced last month. But China's real secret retaliatory measures may come in another form: through mergers and acquisitions.

    This summer, Chinese antitrust authorities blocked a $44 billion bid by US telecommunications equipment giant Qualcomm to buy NXP, a Dutch semiconductor manufacturer with a major presence in China.  

    Now, Sputnik China says, Beijing can put spokes in the wheels of other major deals, including Disney's planned $71.3 billion acquisition of 21st Century Fox.

    China is often the single biggest market for US multinationals, meaning that large transactions need to be coordinated with Chinese authorities or face the threat of being cut off from market access. For most companies, this would result in near immediate financial ruin, and helps explain for example why Qualcomm agreed to pay NXP $2 billion in penalties after the merger's failure than to start a quarrel with China, one of its main customers.

    "The United States imports $506 billion worth of Chinese goods, with only $130 billion worth flowing in the opposite direction. If we were to think of a trade war solely in terms of mirror tariff barriers, it's likely that Chinese strength would run out faster than that of the US," Sputnik China notes. 

    However, with nearly half of all Chinese exports to the US now subject to tariffs, Beijing has promised not only a quantitative, but a qualitative response, without specifying exactly what such a response may include.

    According to a recent report by the American Chamber of Commerce in China, over half of the 430 US companies in China responding to its survey said they have already faced slower customs clearance, increased inspections, and more bureaucratic red tape in recent months amid the escalation of the trade war.

    Containers are seen at the Yangshan Deep Water Port, part of the Shanghai Free Trade Zone, in Shanghai, China, February 13, 2017
    © REUTERS / Aly Song
    Containers are seen at the Yangshan Deep Water Port, part of the Shanghai Free Trade Zone, in Shanghai, China, February 13, 2017

    According to Sputnik China, the failure of the recent Qualcomm/NXP merger demonstrates that China has another tool in its arsenal with which to influence US business. 

    Last week, the New York Times reported that big US deals "could suffer" if China moved ahead and put a block on future merger negotiations. Along with the Disney-Fox deal, such a move could also affect the $30 billion United Technologies-Rockwell Collins purchase, the paper noted.

    Speaking to Sputnik, Kai Li, a researcher from the Shanghai Institute of Finance, said that blocking mergers was not China's preferred approach, and that Beijing was, on the contrary, interested in improving perceptions of the local climate for multinationals.

    "China's anti-trust agency received a request from Qualcomm on its acquisition of NXP at a time when the ZTE issue was being resolved. In those circumstances, Chinese authorities used the Qualcomm case as a response…The logic was that if the US was to impose sanctions on ZTE, they would be denied the Qualcomm deal. But in general, I don't believe such measures will be taken further. Because Chinese authorities consider the trade war [with the US] as an opportunity to increase China's openness to the world. I think in the future, foreign companies will have an even more comfortable climate in China. Beijing will not use these measures to put pressure on US companies as a weapon in the trade war," the expert stressed.

    China has not yet begun to systematically block merger deals involving US firms, with Microchip Technology Inc. buying Microsemi for $8.35 billion, and Bain Capital purchasing Toshiba's microchip division for $18 billion earlier this year. However, with a Disney-Fox deal deadline set for October 19, and the companies receiving no word yet from the Chinese side, Washington must be sweating bullets behind closed doors, according to Sputnik China.

    "Accounting for the fact that Beijing has recently tightened control over foreign content being broadcast in China, it's only logical to expect the Disney-Fox transaction to be considered by Chinese authorities with especially carefully," Sputnik China concluded.

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    tools, corporate merger, trade war, merger, acquisition, China, United States
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