Concern Grows in US Over China's Drive to Make Chips

Those ambitions are starting to get noticed in Washington.

Worries over China's chip ambitions were the main reason US officials blocked the proposed purchase for as much as $2.9 billion (roughly Rs. 19,607 crores) of a controlling stake in a unit of the Dutch electronics company Philips by Chinese investors, according to one expert and a second person involved with the deal discussions.

The rare blockage underscores growing concern in Washington about Chinese efforts to acquire the know-how to make the semiconductors that work as the brains of all kinds of sophisticated electronics, including military applications such as missile systems.

In the case of the Philips deal, the company said late last month that it would terminate a March 2015 agreement to sell a majority stake in its auto and light-emitting diode components business known as Lumileds to a group that included the Chinese investors GO Scale Capital and GSR Ventures. It cited concerns raised by the Committee on Foreign Investment in the United States, which reviews whether foreign investments in the country present a national security risk.

Philips said that despite efforts to alleviate concerns, the committee - known as CFIUS - did not approve the transaction.

"There is a belief in the CFIUS community that China has become innately hostile and that these aren't just business deals anymore," said James Lewis, a senior fellow at the Center for Strategic and International Studies, a research firm.

Philips did not respond to requests for comment. GSR Ventures, which sponsors GO Scale Capital, declined to comment.

CFIUS, an interagency body that includes representatives from the Treasury and Justice departments, declined to comment.

At the center of the committee's concerns on the Philips deal, according to Lewis, was a little known but increasingly important advanced semiconductor material called gallium nitride. Gallium nitride, often referred to by its abbreviation GaN, could be used to construct a new generation of powerful and versatile microchips.

© 2016 New York Times News Service