US Treasury Warns of National Security Risks in Chinese Acquisition of Semiconductor Firm Magnachip

The U.S. Treasury Department said the sale of Magnachip Semiconductor Corp. to a Chinese private equity firm poses "Risks to national security," as Chinese investments in critical technologies meet with enhanced U.S. scrutiny.

The Committee on Foreign Investment in the United States, the U.S. interagency panel overseen by the Treasury Department that scrutinizes foreign deals for national security implications, sent a letter to Magnachip on Aug. 27, saying it has "Identified risks to the national security of the United States arising as a result of the Merger," and would seek President Joe Biden's decision on the issue, the company disclosed in its latest filing with the U.S. Securities and Exchange Commission.

The U.S. Senate in June passed the "U.S. Innovation and Competition Act" to set aside $190 billion of provisions to fortify U.S. technology and research, plus $54 billion specifically to increase production of semiconductors, microchips, and telecommunication equipment.

Over the past few years, concerns from the U.S. security panel and U.S. presidents have caused several proposed semiconductor deals to be dropped.

In 2018, the CFIUS blocked a $580 million sale of U.S. semiconductor testing company Xcerra Corp to a Chinese state-backed semiconductor investment fund, Hubei Xinyan.

In 2017, former U.S. President Donald Trump blocked a Chinese-backed private equity firm from buying Lattice Semiconductor Corp, a chipmaker based in Oregon.

Financial Information Technology Alliance, the parent company of Wise Road Capital based in Beijing, had previously expressed support for advancing China's local semiconductor testing industry, following its September 2020 acquisition of Singaporean semiconductor testing firm, UTAC. Two dozen Chinese companies sit as board members for FITC, including China's biggest and partially state-owned chipmaker, SMIC..

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