Chinese Tech Companies Hit Hard as Washington Moves Against Foreign Investments

In response to the new policy aimed to tighten control of acquisitions of U.S. technologies by foreign companies, the stocks of Chinese tech ADSs declined on Wall Street Wednesday.

CapitalWatch Staff
    Jun 27, 2018 1:30 PM  PT
Chinese Tech Companies Hit Hard as Washington Moves Against Foreign Investments
author: CapitalWatch Staff   

Wall Street fell on Wednesday, with Nasdaq dropping more than 1.5 percent, after U.S. President Donald Trump said he planned to tighten the national security review process to thwart Chinese acquisitions of sensitive American technologies.

The move comes as a softer approach to foreign involvement in U.S. tech companies than the investment restrictions announced earlier this week. 

In response to the new policy, shares of Alibaba Group Holding Ltd. (NYSE: BABA), JD.com Inc. (Nasdaq: JD), and Baidu Inc. (Nasdaq: BIDU) declined more than 3 percent Wednesday. Newly listed video streaming platforms iQiyi Inc. (Nasdaq: IQ) and Huya Inc. (NYSE: HUYA) fell 13 percent and 9 percent, respectively. 

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(Source: Yahoo Finance)

The Committee on Foreign Investment in the United States (CFIUS) would act as the agency to tighten control on foreign investment deals, according to Reuters citing sources. The new legislation expands the scope of transactions reviewed by CFIUS to address concerns of security, Trump said in a statement on Wednesday.

"We've got trillions of dollars seeking our crown jewels of technology," White House trade advisor, Peter Navarro, said last week. "There has to be a defense against that."

Most of the major Chinese ADSs have made significant investments in American companies. In 2015, Alibaba invested $200 million in Snapchat. The Chinese e-commerce giant also financed a ride-sharing unicorn, Lyft, as well as the virtual reality startup, Magic Leap. 

Among the more recent examples of U.S.-China partnerships, Baidu announced today that it has teamed up with Ford Motor Co. (NYSE: F) to develop connectivity, artificial intelligence, and infotainment in smart vehicles. In 2016, Baidu and Ford jointly invested $150 million in Silicon Valley-based Velodyne, which makes a key component in self-driving cars.

The concerns on grounds of national security and intellectual property involving Chinese companies are not new, as U.S. has a history of rejecting investments from certain overseas firms.

Indeed, earlier this year, Washington turned down an offer from Alibaba's financial unicorn, Ant Financial Services Group, to acquire an American money transfer platform, MoneyGram International Inc. (Nasdaq: MGI), citing concerns of national security. The proposed $1.2 billion acquisition was the most high-profile Chinese deal to be rejected by the U.S. government since President Trump took office.

(Reuters contributed to this article.)

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