China Wants to Strike Back on Trade. Big U.S. Deals Could Suffer.

Qualcomm, the U.S. chipmaker, spent two years hammering out a $44 billion deal to acquire a Dutch semiconductor manufacturer. Then, as the trade war with the United States erupted, Chinese regulators effectively killed it.

Now China is looking for new ways to retaliate in the intensifying trade drama — and experts warn that some corporate deals with U.S. buyers could be in jeopardy./

A number of global deals involving U.S. companies are under review by Chinese market regulators. Among the biggest is Walt Disney Co.'s $71 billion acquisition of 21st Century Fox, which has an Oct. 19 deadline. United Technologies — owner of Pratt & Whitney, the jet engine maker, and other industrial businesses — is waiting to close a $30 billion purchase of Rockwell Collins, the aerospace parts maker.

China’s antitrust regulators disclose little about their deliberations. But some companies worry that this opacity could provide cover for retaliation in response to tariffs that the United States has placed on Chinese goods — and wonder if long-negotiated deals could become collateral damage in the trade war.

“Given the level of trade tensions now, in some exceptional cases you cannot exclude the possibility that individual transactions may be implicated,” said Fay Zhou, a partner at the law firm Linklaters in Beijing.

Officials at China’s anti-monopoly agency, the State Administration for Market Regulation, did not respond to requests for comment.

U.S. companies have prospered by exploring new markets and taking risks to extend their global reach. But President Donald Trump warned last week that these were early days in his trade strategy — “China wants to talk, very badly, and I said, ‘Frankly, it’s too early to talk” — and U.S. companies may encounter some backlash from Beijing.

China is looking for ways to retaliate because it has more or less run out of U.S. imports to tax. China matched Trump’s initial tariffs on about $50 billion in Chinese goods, but last month he placed a 10 percent tax on $200 billion of Chinese goods. China does not import enough from the United States to match that dollar for dollar.

So China has only so many avenues to inflict pain. They could include slow inspections for imports at Chinese ports and tighter regulatory scrutiny of U.S. companies doing business in China.

Deals are a ripe area, too.

“This is a way for China to put pressure on American corporations to get them to work on the U.S. government,” said Chen Zhiwu, a professor of finance and the director of the Asia Global Institute at the University of Hong Kong.

Blocking U.S. deals comes with some cost. Aggressive regulators could spur foreign companies to retreat from China just when economic growth there is slowing.

“China has valid reasons to be angry with the Trump administration’s protectionist tariffs,” said Fred Hu, chairman of Primavera Capital Group and a former chairman of Goldman Sachs for China. But, he added, “it is unlikely to direct its anger at American businesses.”

“On the contrary, China is trying to cultivate ties with them,” Hu said.

Regulators in China have a wide scope for denying deals by U.S. buyers, even if Chinese companies are not involved. Chinese officials can block a deal for any new venture that they deem would have too much market control in China. The country’s broadly defined anti-monopoly law allows regulators to consider more than what an individual deal might cost consumers or a specific Chinese business.

“Authorities are obliged to consider not just the competition merits of a deal but also the impact of a deal on China’s national economy,” said Zhou, a former official at the Chinese Commerce Ministry, which until recently was in charge of greenlighting deals.

China’s approach has been reciprocated, to a point. U.S. regulators have taken a tighter stance on international deals that they believe could benefit China or its companies. In August, Congress strengthened the ability of the government’s Committee on Foreign Investment in the United States to block foreign deals.

United Technologies said it was still on track with regulatory approvals needed for its Rockwell Collins deal. But when asked on a conference call in June whether the trade war could prevent the deal from going through, Akhil Johri, United Technology’s chief financial officer said: “That is something you always have to think about or worry about.”

Last Monday, United Technologies received a green light from regulators in the United States. “The process for closing on Rockwell Collins is moving forward with the recent U.S. Department of Justice approval being the latest milestone,” said Michele Quintaglie, a spokeswoman for United Technologies. China’s approval is the last step.

Fox and Disney executives have said in private discussions that they expect their deal to be cleared without any problems. In a regulatory filing from June, Disney listed Chinese approval as a potential hurdle that the deal would have to overcome.

Some large deals have cleared Chinese regulators despite the tensions. Earlier this year, China’s regulators approved Microchip Technology’s acquisition of Microsemi and Bain Capital’s acquisition of Toshiba’s microchip unit.

The Disney-Fox and United Technologies-Rockwell Collins deals may be less likely to attract scrutiny because they are not as central to Chinese business as Qualcomm. The chipmaker supplied essential parts for the country’s big smartphone manufacturers. Even before the trade war, China applied more scrutiny to foreign companies. Mergers of foreign companies in China are six times more likely to be reviewed by the authorities there than deals between two Chinese companies, according to data compiled by the Rhodium Group.

Chinese regulators have unfairly focused on foreign companies, including General Motors and Microsoft in recent years, instead of domestic companies, according to Liu Xu, a researcher at the Intellectual Property and Competition Law Research Center at Tongji University in Shanghai, who has studied the cases.

It is unclear whether the Chinese authorities will scrutinize the Disney-Fox deal in particular, but experts said a deep review would be consistent with traditionally tight regulatory controls over foreign content and information.

“The party has been more interested in containing American influence in the cultural space and entertainment space,” Chen, of the Asia Global Institute, said. “Blocking such a deal would serve to keep the American influence away and also make a point to America.”