The office building of China Zhongwang in Donggang business district, Dalian, Northeast China's Liaoning Province in May 2017. Photo: VCG
Zhongwang USA LLC, an investment firm backed by Chinese aluminum giant China Zhongwang, has terminated its merger agreement with Aleris Corp by mutual agreement because of resistance from the US government, according to a press release Zhongwang USA sent to the Global Times on Tuesday.
Experts said that the failure of the deal demonstrated Chinese companies' increasing difficulties in investing in the US, where the environment is becoming tougher for Chinese capital. However, they said, China and the US should work toward smoother business relations.
The Zhongwang merger encountered strong uncertainty about winning approval from the Committee on Foreign Investment in the US (CFIUS), pushing the parties to call an end to the deal, the press released noted.
The CFIUS reviews overseas investment in the US to identify potential national security risks.
Zhongwang USA expressed disappointment that the acquisition would not proceed, saying that "through the proposed acquisition, the company was committed to preserving American jobs and investing substantial funds into Aleris, beyond the purchase price."
Zhongwang USA proposed the $2.3 billion deal in August 2016.
Zhongwang USA said that the company and its investors will continue to pursue expansion opportunities, including "positive, job-creating opportunities in the US and other parts of the world," according to the statement.
"This is not the outcome we intended," Aleris said in a statement on its website on Monday. It had not commented further as of press time.
"The US is particularly sensitive about overseas countries snatching its advanced technologies or rare resources," Wu Chenhui, a Beijing-based rare-earths analyst, told the Global Times on Tuesday.
He added that US production of aluminum is very limited. "Aluminum has a wide range of applications for different industries," including defense purposes such as the construction of aerospace equipment. "That may be why the CIFUS held up the deal," he noted.
Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times on Tuesday that the CFIUS' interference in overseas mergers and acquisitions (M&As) of US companies is "a form of protectionism."
The failed merger comes as the US government moves to tighten scrutiny and management on Chinese investment in the US.
According to a report by US financial network CNBC on October 25, proposed legislation in the US Congress would expand the CFIUS' jurisdiction to review non-control transactions that result in access to technology, as well as expanding its authority to review overseas joint ventures.
In September, the US government blocked a proposed Chinese takeover of Lattice Semiconductor, a US-based producer of critical technology for US military applications, according to overseas media reports.
Such protectionism will make it harder for Chinese companies to invest in the US and affect US companies' competitiveness, "as many US companies do need overseas M&As," Bai said.
The purpose of the deal - Sino-US economic cooperation - was "very clear, although it would have faced a rough road," Cong Yi, a professor at the Tianjin University of Finance and Economics, told the Global Times on Tuesday.
Cong said that China and the US are the two largest economies in the world, and their economic cooperation will serve their own interests and have a positive impact on the global economy.
"But the US seems to ignore this and is allowing isolationism to rise in the country," Cong noted.
Chinese companies must "go out" to get good technologies and make up for the shortcomings in their industrial chains, according to Cong.
"In terms of the US, we should first strengthen diplomatic and cultural cooperation with the country, and economic cooperation can be extended as a result. This might take many years, but we cannot stop our efforts just because of temporary difficulties," he added.