The decoupling of China and the United States has become a continuing trend. Many U.S. companies which have been acquired by Chinese funds or have had joint ventures with Chinese companies are now either separated or disbanded. However, the ongoing scrutiny undertaken by the U.S. government is still identifying organizations that have similar associations. In recent times, Cirrus Aircraft, a China-funded company based in the United States, has attracted a lot of attention from the U.S. government. The repercussions of its exposure have experts predicting that Cirrus could become the next TikTok.
Located in the United States, Cirrus Aircraft Corporation was founded in 1984 by the Klapmeier brothers. Cirrus primarily manufactures single-engine light aircraft. In 2011, China’s Aviation Industry Corporation (AVIC) acquired all the shares in Cirrus Aircraft through an affiliated company. In 2020, the United States began imposing sanctions on AVIC after it was flagged as a potential security threat.
Subsidiary Cannot Escape Scrutiny If Parent Company Is Sanctioned
AVIC is one of the world’s largest military contractors. It manufactures fighter jets, helicopters, and drones for China’s military. Cirrus has been a subsidiary of AVIC for more than ten years. The deal, which took place in 2011, contained certain conditions, and has created little negative reaction over the years. On the other hand, Brooke Sutherland, a Merger and Acquisition (M&A) columnist for Bloomberg, recently published an article stating that many people have simply forgotten the acquisition of Cirrus Aircraft by AVIC in 2011. However, when Cirrus applied to be listed on the Hong Kong Stock Exchange in June, it disclosed its intricate ties with AVIC in the company’s prospectus.The prospectus revealed Cirrus Vice Chairperson Wang Hui also holds a directorship with AVIC Heavy Machinery, which is included in the U.S. Treasury Department’s sanctions list and the Pentagon’s list of CCP military enterprises. It also disclosed another Cirrus director sitting on the boards of two AVIC subsidiaries which both carry the imposition of sanctions. Experts believe that the leadership ties between Cirrus and AVIC will lead to increased scrutiny of Cirrus by the U.S. government.
Approval Unlikely If Acquisition of Cirrus Took Place Today
Ms. Sutherland believes that if AVIC were to acquire Cirrus today, it is likely that the deal would not be approved. However, she said that the United States must work harder to provide the widest-ranging and most stringent scrutiny of all industrial enterprises which have ties with China, regardless of their nature, size, or history. She believes that from a national security perspective, Cirrus’ composite materials and small aircraft designs could be exploited by the Chinese to further their military objectives.
George Ferguson, senior aerospace, defense, and airlines analyst with Bloomberg Intelligence, said that while there’s a big gap between producing general aviation (GA) aircraft and lethal weapons such as AVIC’s advanced attack drone, the U.S. subsidiary does possess certain expertise which is of interest to military customers.
A 2018 report by the Office of the U.S. Trade Representative also mentioned the possibility of China’s domestic aerospace industry being strengthened if partnerships were established with foreign companies to access expertise and technology.
With CCP’s ‘Unrestricted Warfare,’ Cirrus May Need to Part With Chinese Ownership
The Wall Street Journal reported in May that the software development company Rockwell Automation Inc., with a 29-year history in China, had drawn the attention of the U.S. government. Their concern was raised over the possibility that local employees could access codes within critical military and industrial infrastructure to exploit vulnerabilities for cyberattacks. Rockwell claimed that its development works at the Dalian software center in China were limited, and that the company’s primary focus was on maintaining a small number of fully developed products. Rockwell also stated that the business would leave China if any serious situation eventuated.Nick Gangestad, Rockwell’s chief financial officer, said at a conference that it is something that can always be solved one way or another. But U.S. industrial enterprises may not be able to solve the tensions between the U.S. and China.
According to Ms. Sutherland, if U.S. tech firms want to continue operating in China, it’s wise for them to keep their distance. Chinese takeovers of U.S. companies have declined to an almost imperceptible level. As for Cirrus, she said the U.S. government can force AVIC to sell Cirrus in the same way that it forced ByteDance to sell TikTok.
