As bizarre as it may sound, Federal Trade Commission Chair Lina Khan and Chinese President Xi Jinping share the same tactic when it comes to antitrust: Block virtually all mergers involving U.S. firms. Whether it’s Microsoft/Activision, Amgen/Horizon Therapeutics, or Meta/Within, the FTC has many examples of how Jinping and Khan share similar approaches.
While Xi wants to do this to cripple U.S. competitors to China, Khan wants to do it to hobble, Gulliver-like, big U.S. corporations because she, and her allies in the neo-Brandeisian antitrust movement, abhor large corporations.
Khan has been railing against large corporations for almost a decade, initially for Barry Lynn when he was at the New America Foundation, and then on her own when she was a Yale law student and wrote the famous law review article “Amazon’s Antitrust Paradox.”
But it was only when President Biden appointed her to head the FTC that she could try to advance her agenda. Besides bringing multiple antitrust cases against large firms, many of which are tech firms like Google and Amazon, the FTC has also sought to issue merger guidelines.
While these guidelines appear reasonable and well thought out, they are anything but. If enacted, they would make mergers among large U.S. firms impossible. Indeed, if Khan could go further and break up already large firms, she would do it, all in the service of shrinking the role of large corporations in the U.S. economy to create a “people’s democracy.”
Unlike Kahn, the Chinese Communist Party doesn’t worry about monopolistic behavior by its firms, at least within China, partly because it controls firms with a tight leash and through heavy-handed regulation if necessary. All significant firms are required to have a CCP member on their boards. But even without that, the CCP cares much more about global power than domestic market competition. That’s why they have forced many firms to merge to gain scale.
A case in point is the rail firm CCRC. The Chinese government forced China’s two largest rail firms to merge to create a powerful national champion, Chinese Railway Construction Corp., now the largest rail producer in the world. And in 2021, Chinese regulators approved the merger of the two major chemical companies, Sinochem and ChemChina.
They have also encouraged Chinese companies to go out and acquire large foreign firms. For example, Chinese display maker TCL acquired France’s Thomson Electronics; SAIC acquired South Korea’s SsangYong Motor Co.; Midea Group purchased German robot maker Kuka; ChinaChem bought Swiss chemical giant Syngenta; Sinopac acquired Swiss oil and gas company Addax; Geely bought Swedish Volvo; and Haier bought GE’s appliance division. To be sure, these Chinese national champions would have bought up many other foreign firms if many foreign nations had not woken up to the threat and passed tougher investment restrictions.
At the same time, they are promoting mergers and acquisitions involving foreign firms. The CCP increasingly refuses to approve Western mergers because they do not want these merged firms to be stronger competitors to Chinese firms.
As Lingling Wei and Asa Fitch wrote in the Wall Street Journal earlier this year, China’s antitrust regulator “is holding back its required green light for mergers that involve American companies as a technology war with Washington intensifies.” For example, Broadcom’s deal to buy U.S. software company VMware has not been approved, even after it has been given the green light in nine other nations. Additionally, Intel scrapped its deal to buy Israeli chip maker Semiconductor Ltd. Tower after China would not approve it.
The Chinese government is attempting the same thing as the neo-Brandeisians, but only for non-Chinese firms. For Chinese firms, it is anti-neo-Brandeisian. The CCP wants its firms to merge to bulk up and get powerful so they can go out and destroy foreign competitors. Despite being foreign firms, they are uber-neo-Brandeisians, wanting to limit foreign firms from merging and gaining scale.
Because the Chinese market is so large and still growing, few merging firms will walk away from it if Chinese regulators do not approve their merger. When two major companies seek to merge, they usually seek approval from competition authorities in major markets, including the United States, the European Union, Japan, and China. If China denies a merger, the firms can still merge, assuming their home nation governments approve it, but they won’t be able to sell to China. As such, China exercises a virtual veto power over all major mergers involving internationally traded firms.
In the future, it is likely that there will be few mergers of Western companies in traded, advanced sectors because China will oppose them. If Kahn gets her way at home, the same thing will occur here, except the limits will be for firms in all sectors, not just globally traded ones. It will be hard to get China to back down on this behavior, unless antitrust-mercantilism is actionable under the World Trade Organization rules. But it is possible to get Kahn and the Biden administration to back down on its destructive antitrust campaign.