ANNUAL REPORT

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64 Chinese acquisition deals, the number of CFIUS-reviewed Chinese transactions has decreased every year since 2012. 216 A number of China’s M&A deals have unraveled, in some cases due to regulatory concerns, in others due to the inability of Chinese buyers to follow through with financing (see Table 5). According to data from international financial software firm Dealogic, nearly half of the unsolicited offers made by Chinese companies over the past five years have failed. 217 Notably, in March 2016 the Chinese insurance giant Anbang surprised Starwood Hotels & Resorts Worldwide by abandoning its $14 billion bid for the hotel chain, without offering a full explanation.* Worried about the ability of Chinese companies to secure financing or pass CFIUS review, a growing number of U.S. acquisition targets are asking for escrow accounts or letters of credit to guarantee deal financing or breakup-fee payments. 218 Chinese investment in the United States is expected to grow, but perhaps at a more moderate pace than the breakneck speed of the first quarter of 2016. 219 With increased M&A activity, Chinese companies face rising pressure from U.S. business and government stakeholders to be transparent, particularly with regard to ownership structure, corporate governance, and funding sources. 220 The increasingly high leverage of Chinese companies † also places financial constraints on their ability to pursue new investment opportunities overseas. 221 Table 5: Failed Chinese Bids for U.S. Companies, 2015–2016 Chinese Buyer U.S. Target Price (US$ billions) Status Industry Montage Pericom Semiconductor Corp. $0.4 Pericom rejected bid, citing a lack of committed financing and potential regulatory hurdles in China, Taiwan, and the United States, Nov. 2015 Semiconductors Tsinghua Unigroup Micron $23.0 Micron rejected bid, citing concerns over CFIUS approval, Feb. 2016 Semiconductors * Anbang said it was withdrawing its offer “due to various market considerations.” However, Caixin reported that Anbang’s decision likely stemmed from fears that China’s insurance regulator would reject its bid to buy Starwood, since it would put Anbang’s offshore assets above a 15 percent threshold for overseas investments. Chinese regulators’ concerns over Anbang’s reliance on high-cost borrowing for its overseas acquisitions may have been another contributing factor. In a panel discussion days before Anbang withdrew its bid, China’s former Minister of Commerce Chen Deming said the company should not use high leverage to acquire overseas assets, warning that “it will leave us with systemic risks.” Esther Fung, “Anbang: What We Know and Don’t Know,” Wall Street Journal, August 23, 2016; Greg Roumeliotis and Matthew Miller, “China’s Anbang Abandons $14 Billion Bid to Buy Starwood Hotels,” Reuters, April 1, 2016; and Ding Feng, “Regulator Said Close to Rejecting Insurer’s Plans for Foreign Hotel Investments,” Caixin, March 22, 2016. † According to data from S&P Global Market Intelligence, the median debt-to-equity ratio of Chinese buyers since the beginning of 2015 has been 71 percent, compared to 44 percent for foreign targets. Economist, “Money Bags: China’s Global Investment Spree Is Fueled by Debt,” April 2, 2016.
65 Table 5: Failed Chinese Bids for U.S. Companies, 2015–2016—Continued Chinese Buyer U.S. Target Price (US$ billions) Status Industry China Resources Microelectronics Ltd. and Hua Capital Fairchild Semiconductor $2.5 Fairchild turned down bid over fears it would be blocked by CFIUS; accepted takeover offer from U.S. rival ON Semiconductor, Feb. 2016 Semiconductors GO Scale Capital Philips Lumileds $2.8 Buyer withdrew after CFIUS blocked the deal, Jan. 2016 Lumileds & Automotive Lighting Unisplendor Western Digital $3.8 Buyer withdrew after CFIUS announced investigation, Feb. 2016 Electronics Anbang Starwood Properties $14.0 Buyer withdrew bid, Mar. 2016 Real estate Origin Technologies Corp. Affymetrix Inc. $1.5 Origin Technologies withdrew bid in Mar. 2016 after Affymetrix board recommended a lower bid from Thermo Fisher Scientific Inc., citing concerns over approval from U.S. and Chinese regulators Health & biotechnology Zoomlion Terex $3.4 Source: Various. 222 Buyer withdrew bid; deal went to Finnish company Konecranes, May 2016 Construction machinery Limited Progress at Eighth Strategic and Economic Dialogue At the eighth and final round of the Strategic and Economic Dialogue (S&ED) talks under the Obama Administration, held in Beijing on June 6–7, 2016, participants failed to achieve any major breakthroughs on fundamental strategic and economic issues, but left with some deliverables on financial sector and environmental cooperation. (For more information on the outcomes of the strategic track of the S&ED, see Chapter 2, Section 1, “Year in Review: Security and Foreign Affairs.”) On the economic side, overcapacity topped the U.S. agenda, replacing currency valuation as the top concern. The lack of improvements to the investment climate for U.S. com-
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USCC 2016 ANNUAL REPORT
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1 2016 REPORT TO CONGRESS of the U.
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U.S.-CHINA ECONOMIC AND SECURITY RE
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• The safety of food, drug, and o
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CONTENTS Page TRANSMITTAL LETTER TO
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IX Page Recommendations ...........
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2 ernment’s “going out” strat
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4 economically and politically stra
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6 wage rates are determined by free
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8 while allowing a greater role for
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10 began construction on its first
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12 from—the People’s Republic o
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Page 49 and 50: Introduction CHAPTER 1 U.S.-CHINA E
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Page 91 and 92: 77 Addendum I: WTO Cases Recent and
Page 93 and 94: 79 ENDNOTES FOR SECTION 1 1. Lucy H
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dkrause on DSKHT7XVN1PROD with USCC
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123 Addendum I: Section 15 of China
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125 Addendum II: AD and CVD Investi
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141 dkrause on DSKHT7XVN1PROD with
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143 lifetime cost of bringing the e
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145 gets achieved). 57 Using satell
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147 cost of compliance,’’ and p
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151 boost the efficiency of China
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Table 1: 157 Chinese Attempted and
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Table 1: 159 Chinese Attempted and
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163 Figure 4: China’s Total Debt-
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173 weapons, opens the U.S. militar
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175 ests, and allow for greater vol
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177 Addendum I: Key Targets in Chin
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179 Addendum I: Key Targets in Chin
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195 The ultimate impact of the ruli
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197 Environmental Impact of China
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201 China’s Maritime Disputes in
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203 Reform and Reorganization of th
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207 • PLA Army Headquarters: Chin
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211 Figure 5: Type 072A Tank Landin
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215 Figure 7: JL-2 Missile Range Co
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221 Space-Tracking Facility in Arge
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223 Table 1: Significant PLA Bilate
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227 Nigeria will be the first expor
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231 tional annexes to the 2014 Noti
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233 Select U.S.-China Security-Rela
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257 China’s Core Interests—Cont
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259 guerrillas in Colombia and held
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271 stan. 109 In 2014, the PLA Air
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275 conflict Chinese expeditionary
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279 RECOMMENDATIONS Developments in
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SECTION 3: CHINESE INTELLIGENCE SER
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291 Strategic Support Force In Dece
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293 of advanced intelligence, surve
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295 tives, and sexual entrapment. 4
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297 information to a Chinese intell
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299 such as power transmission grid
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301 for transferring trade secrets
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303 nal U.S. discussions of issues
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305 ENDNOTES FOR SECTION 3 1. U.S.-
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307 29. U.S. Department of Justice,
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309 63. U.S. Department of Justice,
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311 106. Eric Holder, “Attorney G
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314 sure its own ambitions in South
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316 Chinese foreign direct investme
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318 • Pakistan: In 2015, China an
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320 India “Acts East” and Puts
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322 Counter Terrorism and Religious
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324 tivities of the Dalai Lama and
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326 incursions across the border fr
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328 conducive to sea lane protectio
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330 Karachi Port, that could eventu
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332 India and OBOR India has not en
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334 China’s Arms Sales to Pakista
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336 For China, the goals of CPEC ar
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338 according to Mr. Small, “The
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340 side the Treaty on the Non-Prol
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342 Facets of U.S.-India Defense Re
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344 of China, but has advocated for
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346 • Recent U.S.-China tensions
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348 24. Debasish Roy Chowdhury, “
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350 71. Jeff Smith, Cold Peace: Chi
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352 127. U.S.-China Economic and Se
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354 2016, 86; Andrew Small, The Chi
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358 Taiwan’s Economic Challenges
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364 agreements. 57 Since then, many
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366 $67.2 billion, comprising 25.4
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368 Foreign Direct Investment China
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370 is leading the initiative, have
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374 Taiwan and the 11-Dash Line The
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384 trade-based partner to an innov
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410 Hong Kong’s Political Gossip
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418 Chinese Censorship of Prize-Win
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420 Hong Kong and the ‘‘Panama
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424 Table 1: Select PLA Hong Kong G
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428 sitive periods in Hong Kong, le
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436 150. Commission meeting with Ta
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442 Korea. The resolution also bans
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446 pand China-South Korea ties. 54
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448 Technical Details of THAAD The
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485 Table 1: U.S. Goods Trade with
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489 basis for President Obama’s c
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APPENDIX II BACKGROUND OF COMMISSIO
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APPENDIX III PUBLIC HEARINGS OF THE
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537 June 9, 2016: Public Hearing on
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APPENDIX IIIA LIST OF WITNESSES TES
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541 Alphabetical Listing of Panelis
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APPENDIX IV LIST OF RESEARCH MATERI
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547 China’s Military Agreements w
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APPENDIX V ACRONYMS AND ABBREVIATIO
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551 OPM PBOC PLA PMI PPI PPP PRC QD
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553 2016 COMMISSION STAFF MICHAEL R
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