Can the U.S. do anything to block China's ability to block merger deals?

Question

https://www.reuters.com/technology/intel-walk-away-54-bln-acquisition-tower-semiconductor-sources-2023-08-16/

NEW YORK, Aug 16 (Reuters) - Intel Corp (INTC.O) scrapped its $5.4 billion deal to buy Israeli contract chipmaker Tower Semiconductor Ltd (TSEM.TA) after their merger agreement expired without regulatory approval from China.

Question is whether China can block any merger deal between a U.S. company and another company even if they don't ship goods or sell services to China like Google and Facebook, and whether the U.S. government can do anything to allow a merger to take place even if the companies don't receive regulatory approval to do so. It is especially interesting since the U.S. and China are in an all-out tech and economic war.

Answer 1

International relations theory says that states are sovereign and that trade is a privilege, not a right. That derives from the concept of Westphalian Sovereignty. The states' sovereignty is somewhat tempered by treaties like the WTO, where countries agreed on general trade rules. But there are many exceptions to those. Based on national security or other laws, a state can block a foreign company from trading.

So Intel could buy Tower Semiconductor, and get banned from China, or they do not buy Tower, and remain allowed to trade in China.

Some states or groups of states are large enough that the threat of being banned from that market gives most companies pause. Certainly the US, but also China and the EU. Other countries are so small that the threat falls flat.

Answer 2

Nothing ! Works as designed.

China is allowed to disapprove any merger. Intel is allowed to ignore China’s disapproval. Intel won’t do that cause China’s a huge market and Intel is trying to do business in that market. Intel would be foolish to ignore China. I don’t see the problem? That’s just business.

We aren’t in an economic nor technological war with China nor any other kind of war. We’re competitors.

As for blocking mergers, the US blocks mergers and restricts who can do business here and fines folks who violate laws, as does the EU, why should China not have the same authority? The US can object when the EU fines Google 5 Billion dollars or blocks South Korean Mega merger nobody is going to war over it. It’s the price companies pay for access to foreign markets. China like the US and EU is a pretty big market. Good for them, and good for Intel too. Smart move on their part suspending the merger and keeping the Chinese market open to them.

Answer 3

Question is whether China can block any merger deal between a U.S. company and another company even if they don't ship goods or sell services to China

China did not block the merger to which the question refers. That is, they did not actively say "no" to it. They simply did not issue a decision on a request for regulatory approval. Nor did that force the parties involved to kill the deal, but it did set the stage for a bilateral business decision by the parties not to move forward.

But yes, China can apply pressure in favor of or against all manner of business deals, between any parties, anywhere. How effective such pressure can be will depend on the parties and their overall business plans, but direct or indirect threats of fines, asset seizures, denial of permission to conduct business, criminal prosecution, or the like will be highly (de)motivating to some.

whether the U.S. government can do anything to allow a merger to take place even if the companies don't receive regulatory approval to do so.

Nothing prevented the merger in question from taking place. The parties decided to back out.

The U.S. government could conceivably have intervened in favor of the parties by diplomatic means and / or by applying its own economic pressure against China or Chinese companies. Perhaps that would have persuaded China to approve the deal. In principle, the U.S. could even have attempted to apply military force, but in reality that's altogether implausible.

China is sovereign. Washington has no power under law to make or override Beijing's decisions (nor vice versa).

Answer 4

I don't think there's anything the US can do to completely block China from this activity, short of going to war and winning it.

But the US could apply economic pressure on China to try to convince them to reverse their position. They could implement economic sanctions, add tariffs, etc.

Whether it's worth doing anything like this just to get one merger approved is a whole other question. Sanctions are not generally implemented willy-nilly, they're usually reserved as reactions to serious state actions, such as major human-rights violations, war, and attempts to develop nuclear and chemical weapons. Trump was rather free-wheeling in imposing tariffs to try to bolster US manufacturing, but he didn't understand that they had more impact on consumer costs than China's revenues.

Answer 5

whether the U.S. government can do anything to allow a merger to take place even if the companies don't receive regulatory approval

They could run a Special Ops operation to make the merger de facto happen, even if it doesn't happen on paper. Options include:

1. Corporate espionage: steal all of the technical knowledge from the company in question and covertly provide it to Intel, thus making the merger moot.
2. Bribery: secretly provide bribes to the stakeholders of the Israeli corporation to hand over the technical knowledge to Intel.
3. Sabotage: pressure the company's stakeholders to shut down the company, forcing the employees to go work for Intel instead while taking the technical knowledge with them.

Companies are merely a social construct and their entire value can be transferred to other entities with sufficient government efforts. Whether or not this would be worth the US governments time depends on how valuable this merger is for national security.