Beijing’s strategy to support military gains through corporate takeovers remains a key part of its modernization program. For Beijing, the acquisition of foreign strategic technology companies and their capabilities plays a key role in supporting the development of the PLA. The drive is also supported by several high-level policies in China intended to develop the country’s global influence and build capability in both commercial and military domains. These include China’s ‘Going out’ strategy, the ‘Made in China 2025′ policy, and President Xi Jinping’s ‘Belt and Road Initiative’.
The US Department of Defense (DoD) in its 2021 report had underlined that the Chinese strategy encompasses several methods to acquire foreign technologies, especially those in advanced commercial sectors such as Artificial Intelligence (AI) and robotics.
A closer look at Chinese acquisitions in the strategic technology sectors during the last five years (2017-22) reveals that while half of them were located in the US, the other 50% were spread across regions including Southeast Asia, Eastern Europe, the Middle East, and Northern Africa. The largest acquisition was in 2018 and featured Wanfeng Aviation‘s takeover of Austria-based Diamond Aircraft, whose products include special mission aircraft designed for operations including search and rescue, and coastal surveillance. Other notable acquisitions in this period included the China Great Wall Industry Corporation, one of the country’s biggest satellite manufacturers, buying Nigeria Communications Limited, also a producer of satellites, for USD 550 million; and Chinese firm Midea’s takeover of another Israeli firm Servotronix, a developer of automated systems, for USD 170 million.
More and more Chinese companies are using cross-border merger and acquisition (M&A) to access and source strategic assets in developed economies so as to address their competitive disadvantage. Recently, questions were raised by some MPs in the Dutch Parliament about the takeover of Leeuwarden-based company Visser BV by the Chinese company CIMC. The Dutch government informed the Parliament that the Ministry of Defense was in discussion with company Visser BV about this lapse and was considering possible actions. It stated that all the works undertaken by Visser BV from 2013 to 2022 were ‘non-classified’ in nature, however, due to changes in the geo-political situation the guidelines for determining the level of the classifications are being currently reviewed and will be adopted in the new Defense Security Policy Bill, which is under consideration. The Parliament was also informed that foreign powers, including China as well as non-state actors, were actively seeking to acquire technological knowledge in the Netherlands.
In the past as well, contracts of Chinese companies like Hikvision and Dahua have been subject to scrutiny in the Netherlands because of the potential security risks. The cameras manufactured by these companies were supposedly being used in Dutch government buildings. The Dutch Interior Ministry had initiated an investigation with regard to security risks associated with ‘Made in China’ cameras. Another Chinese entity that has been under scanner all over the world is Huawei. It is alleged that the use of Huawei cloud services in over 40 countries gave the Communist Party of China (CPC) access to systems in these countries. Echoing these concerns, the Italian government blocked a deal between Huawei and telecommunications company Fastweb in October 2020 over the acquisition of 5G core parts and asked Fastweb to diversify its suppliers. Likewise, the French cyber security agency, The Agence Nationale de la Securite des Systemes (ANSSI) restricted the usage of Huawei equipment and plans to phase out Huawei equipments by 2028. The Finnish government has also secured powers to ban use of 5G equipment from suppliers considered a threat to national security. Sweden has banned the Chinese suppliers from rolling out 5G altogether and gave telecom operators until 2025 to remove Chinese gear from their infrastructure. Denmark also followed suit by not allowing equipments from countries that were not its security allies. In Eastern Europe, various countries including Slovenia, Poland, Czechia, Romania, Estonia, Latvia, Slovakia and Bulgaria have indicated their intent to not let Huawei enter their 5G markets. Poland and Romania have already taken legal action to exclude non-trusted suppliers.
The countries must understand that Beijing uses imports, foreign investments, commercial joint ventures, mergers and acquisitions, and industrial and technical espionage to help achieve its military modernization goals. Therefore, there is a need for increased international scrutiny of Chinese investment in local firms involved in strategic sectors, which include aerospace, semiconductors, sensors, communications, navigation, robotics, and artificial intelligence (AI). It will not only help prevent unwanted access to classified information or defense system that is of the utmost importance for national security but also ensure strategic autonomy and security of supply.