In the latest sign of deteriorating trade relations between China and the United States, China has effectively canceled a $5.4 billion deal by Silicon Valley semiconductor giant Intel.
Intel, which has long had operations in China, said on Wednesday it has “mutually agreed” to end a planned merger with Israeli chipmaker Tower Semiconductor. The announcement came after China’s antitrust regulators failed to rule on the transaction before a deadline set by the companies.
Intel’s failure to complete the tower acquisition could further unnerve US companies with deep ties to China, where it is becoming increasingly difficult to do business amid tensions between the two countries.
The planned merger, announced in February 2022, passed antitrust review in the United States and Europe. But it was delayed in China, where regulators review mergers of companies that generate a certain amount of revenue in the country.
Technology is a key battleground in the tense economic relationship between China and the United States.
Beijing is deeply troubled by US-led international sanctions on the sale to China of the most advanced computer chips with military applications and the factory equipment to make such chips. Those restrictions were put in place in October. In a separate action, President Biden last week ordered an ban on some new investments In sensitive Chinese technology.
China has condemned the move as an attempt by Washington to stifle its technological development and slow down its economic growth.
Despite deep tensions between the countries, their economies are highly interconnected, dependent on each other’s supply chains, technology and investment money.
For Intel, China is both a major market and place of business: In 2022, the company will employ more than 12,000 people there, and generate more than $17 billion in revenue, about 27 percent of its global total. It began doing business in China in the mid-1980s, which involved assembling and testing chips manufactured elsewhere.
Intel, which has been struggling to gain an edge in chip production technology, hopes a merger with Tower will help accelerate its bid to become a major maker of chips for other designers. Intel has previously primarily used its factories to manufacture and design and sell chips.
Tower, which is headquartered in Shanghai, was founded in 1993 and operates a relatively small chip manufacturing service compared to giants such as Taiwan Semiconductor Manufacturing Co. Failure to complete the deal will result in Intel paying Tower $353 million, according to a statement from Intel.
Intel’s inability to get the merger approved in China underscores what could become a tough choice for multinationals: They may need to choose between operating in China or doing mergers and acquisitions around the world. Is. Such concerns could lead to a further chill on foreign investment in China, which has already fallen this year due to geopolitical concerns.
The State Administration for Market Regulation, the Chinese government agency that decides whether or not to approve global mergers, is now “in an uncomfortable spotlight as a proxy of China’s commitment to market access for foreign investors,” China’s country Director Han Shen Lin said. The Asia Group, a consulting firm in Washington.
Prior to the agency’s establishment in 2018, global mergers in China were reviewed primarily by a unit of the Ministry of Commerce dominated by civil servants with extensive international experience and contacts with foreign businesses and governments.
In contrast, the State Administration for Market Regulation is primarily classified as a domestic agency within the Chinese bureaucracy, and its officials have avoided most contact with foreign governments, embassies or businesses.
Patrick Gelsinger, who becomes Intel chief executive in early 2021, has pushed for the industry to add chip foundry services to attract US government subsidies under legislation passed a year ago. He recently traveled to China to help get the tower deal cleared.
“We will continue to drive forward on all aspects of our strategy,” Mr Gelsinger said in a statement on Wednesday.
Intel’s fabrication plants, or fabs, specialize in the advanced production processes used to make microprocessors and other digital chips. In contrast, towers are known for older technology that produces analog chips, which are used in cellphones and other products for functions such as signal amplification and power management.
The company now owns two fabs in Israel, two in the United States, three in Japan and is participating in a joint manufacturing venture in Italy.
