The 'National Economic Security' Issues In The Cross-border M&As Between Chinese And American Enterprises

This dissertation, based on the interest group theory, analyses the Chinese and American central governments'policy-makings on cross-border M&As, which are politicalized as the'national economic security'issues by the interaction among the domestic and external interest groups. Chapter 1 introduces the'national economic security'issues and reviews the literatures. Chapter 2 describes the stylized facts of cross-border M&As between the enterprises in China and US, which make up the background of the following studies. Chapter 3 analyses the shaping of interest groups on cross-border M&As policies in China and US, which develops the research framework for next chapter. Chapter 4 then focuses the interaction of'national economic security'factors and interest group factors in cross-border M&As between Chinese and American enterprises, and studies the welfare effect of the interest groups'involvement in the policy-makings on cross-border M&As, which is followed by a Logit econometric model on the factors that politicalize the M&As to'national economic security'issues (chapter 5). The end of this dissertation (chapter 6) concludes that the'national economic security'flag may be made use of marginally by the interest groups to maximize their own interest.Chapter 1 introduces the'national economic security'issues in the cross-border M&As over the world, and reviews the literatures on the relationship between cross-border M&As and national economic security. These literatures may be divided into two lines: Neo-classic school and Neo-mercantile school. The Neo-classic School emphasizes the market nature of cross-border M&As, which wouldn't impair the national economic security. On the other hand, Neo-mercantile school focuses the negative impacts of cross-border M&As on the national economic security, therefore, the government should regulate the cross-border M&As. Neither of them studies the'national economic security'issue emerged in the ongoing M&As over the world, which can be complementally explained by the'public choice'theory.Chapter 2 describes the stylized facts of American enterprises'M&As towards Chinese enterprises and Chinese enterprises'M&As towards American enterprises. The former cases include the Emerson's acquisition of Ansheng Electronics, IDT's acquisition of Xintao Technology, Newbridge Fund's take-over the Shenzhen Development Bank, Kodak's share-holding in Lucky Film, AB group's acquisition of Harbin Beer, Carlyle Investment's take-over the Xugong Machinery, Citigroup-leaded consortium's share-holding in Guangdong Development Bank, etc. The amounts of M&As involved becomes larger and larger, American enterprises shifting their M&As targets towards the service industry and the leading firms in Chinese industry. Two cases of them, Kodak's share-holding in Lucky Film and Carlyle Investment's take-over of Xugong Machinery, arouse the concern on'national economic security'in China. The latter cases include Wangxiang Group's take-over UAI Corp., Lenovo's acquisition of PC Division in IBM, Alibaba's merger with Yahoo China, Haire US Corp.'s bidding for Maytak Electronic, CNOOC's bidding for Unocal, China Construction Bank's acquisition of Bank of American (Asia), etc. The most important motives of these M&As are acquisitions of technology, brand and strategic resources. The amount of Chinese companies'M&As grows larger, too, the industries involved in these M&As are diversified. Lenovo's acquisition of PC Division in IBM and CNOOC's bidding for Unocal raise the fear of'national economic security'in US. General speaking, the M&As of American enterprises are aggressive and affect the Chinese economy profoundly, which reflect their advantageous standing in the world economy. From the facts of the M&As between Chinese and American enterprises, it may be found that most M&As are market-oriented, though few of them arouse the'national economic security'issues.As an important component of public choice economics, the theory on interest groups argues that the individual behavior is influenced by the group. So chapter 3 discusses the shaping of interest groups who affect the M&As between Chinese and American enterprises. Many multinational enterprises in US and some large enterprises in China, based on their advantageous statue in the world division of labor, support the liberalization of cross-border M&As policies. After the tax-decentralizing reform, a number of local government-owned enterprises in China have been the targets of multinational enterprises'M&As; American enterprises who will be sold also welcome the M&As to raise their asset prices. On the other hand, lots of private firms in China and US, who are located unfavorably in the world division of labor and threaten by the M&As of their competitors, are the advocators of restrictive policies of cross-border M&As. The mainstream Neo-classic school economists, wherever in China or in US, who emphasize the liberalization and opening-up of world economy, support the cross-border M&As. The voices against the cross-border M&As come from the Neo-realism international political economist in US and Neo-mercantile school economists in China who focus the negative effect of M&As on national economic security. The grass-rooted trends of economic nationalism after the 9.11 terrorism attack affect the attitude of electorates towards'national economic security'in US. The media in China get more freedom after China's accession to WTO through the popularization of Internet, which brings the economic-nationalism emotion into the citizenship in China. The US congressmen channel the voice of electorate to executive branch for purpose of their own re-election. The local governments in China support the multinational enterprises'M&As to local enterprises for maximizing governmental tax revenue. According to the logic of collective action, the small-scale interest groups will be more effective when they take action. It does implicate that interest groups are able to influence marginally the policy-makings on M&As.Chapter 4 studies the impact of'national economic security'issues on the policy-makings on cross-border M&As. As the suppliers of policies, the central governments in US and China play critical roles in policy-makings. According to American laws, if the company to be acquired by foreign ones deals in the lines of national security, it should be investigated strictly by Committee on Foreign Investment in US (CFIUS). George W. Bush declared a comprehensive economic security strategy after he took office in 2001, then the CFIUS is obliged to review the Chinese companies'M&As in US discreetly. In China, the central government has attached much importance to'national economic security'issues since Asian Financial Crises in 1997. The newly leaders come into power in China after 2003 show their democratic inclination, which will influence the reviewing process of Ministry of Commerce in PRC on cross-border M&As. If the lobby of domestic producer group come together with the afore-said factors, the M&As between Chinese and American enterprises are biased to be politicalized as'national economic security'issues. When Kodak Corp. attempts to acquire the Lucky Film in 2003, Chinese academic cycles debate intensely whether this case would do harm to the'national economic security'or not, it leads the 20% share-holding of Lucky Film for Kodak Corp. at the end. When Chinese Lenovo Co. declare its plan to acquire the PC Division in IBM in Dec. 2004, the'national economic security'concern on this M&As raised by the congressmen in US leads the investigation of CFIUS. The media's excessive exposition of the CNOOC's bidding for UNOCAL in 2005 revives the opposition of the mass. The congress in US approves the Amendment of Energy Act, which forces the extension of CFIUS'investigation on the acquisition and the finally drawback of CNOOC's bidding. When the Carlyle Investment attempts to take over the Xugong Machinery in the same year, the private enterprises represented by Sanyi Heavy Industry transfer their concern of'national economic security'through the Blog in Internet to the Chinese central government, which affect the approval of Ministry of Commerce in PRC for the M&As and quicken the promulgation of Regulation on Cross-border M&As towards Chinese Company. This chapter also studies the welfare effect of the interest groups'involvement in the policy-making on M&As under the flag of'national economic security'. If the production effect co-exists with the redistribution effect for interest groups, the relationship between the number of groups and the reduction of welfare will be a'n'-like curve. Therefore, the increase of numbers of M&As policy-making related interest groups may maximize the social welfare brought by the M&As policy as the equilibrium of competition among groups.To make an empirical analysis on the relationship between the'national economic security'and the behavior of interest groups, chapter 5 construct a Logit model which specify the politicalization of M&As as the depend variable, the amount and share of M&As, the bilateral relation between the FDI outwarding country and host country, the acquired enterprise's industrial nature, and the involvement of interest groups as the independent variables. The estimated results show that closer relation between the FDI outwarding country and the host country will reduce the probability of politicalization of M&As, the higher sensitivity on'national economic security'of acquired enterprises will leads the higher probability of politicalization by the interest group in the name of'national economic security'.The conclusions of this dissertation (chapter 6) are that the interaction of'national economic security'factor with the interest groups factor will leads the market-oriented M&As between Chinese and American enterprises being politicalized. Chinese enterprises should care about the'national economic security'issues when they try to tack over a foreign company. Chinese central government shall regulate the cross-border M&As in respect of national economic security, but these policies must be based on the equilibrium of competition among the related interest groups. An agenda to improve the transparency of M&As policies should be added in China-US Strategic Economic Dialogue to get a win-win result in M&As between Chinese and American enterprises.