China’s Grindr Strategy
The hookup app isn’t the only tech company Chinese companies have tried to acquire. It’s part of a broader strategy of the country buying up cutting-edge Western firms.
Grindr isn’t the sort of company most people associate with national security. The dating app, which caters mainly to gay men, cheerfully tweets messages like “happy thanksgiving! 🦃 let’s hope the turkey isn’t the only thing getting stuffed today 😏.” But earlier this year, the U.S. government took the extraordinary decision to revoke the acquisition of Grindr on national security grounds. The dating service had been purchased by a Chinese firm, Kunlun, apparently as part of a broader Chinese strategy of buying up cutting-edge Western companies. And that strategy has serious security implications for the West.
When Kunlun, a fast-growing Chinese gaming company, completed its acquisition of Grindr, which has some 3 million daily users, last year, nobody paid much attention. Regulators typically watch takeovers of strategic companies such as defense contractors and power suppliers, and perhaps social network giants such as Facebook, not relatively small dating apps. But earlier this year, the Committee on Foreign Investment in the United States (CFIUS), the U.S. government committee that evaluates the national security implications of acquisitions of American companies, decided that Kunlun must sell Grindr back.
CFIUS didn’t explain its reasoning, but the reason for its intervention is pretty clear. Like other dating sites, Grindr stores users’ details, including their preferences, location, and HIV status. Following the app’s acquisition, Kunlun had given Beijing-based staff access to that information as well as to private messages. The U.S. government had clearly realized the potential for blackmail and exposure of U.S. civilian and military leaders.
Kunlun’s Grindr deal is not the only Chinese takeover of Western tech firms. In 2016, the Chinese appliance maker Midea bought Kuka, a pioneering German industrial-robot firm. It didn’t take long before Midea had refocused Kuka’s operations on China and replaced its CEO. In Sweden, meanwhile, news media reported last year that three cutting-edge tech firms had been acquired by Chinese buyers. In two of the cases, the seller was the Swedish government.
In a globalized economy, firms buy each other all the time. The Chinese tech firm takeovers, however, follow a particular pattern. In a new report, the Swedish Defense Research Agency mapped Chinese acquisitions of Swedish firms. The agency found that most of the takeovers have taken place since 2014 and that more than 1,000 Swedish businesses now report being controlled by Chinese nationals. The majority of the acquired firms are part of one of five sectors: industrial products and machinery, health and biotech, information and communications technology, electronics, and vehicle manufacturing. What’s more, half of the takeovers fell within the focus areas of China’s Made in China 2025 national industry plan, which aims to make the country a global leader in high-tech manufacturing.
This points to the fact that Chinese firms are buying up Swedish (and other Western) companies not for purely commercial reasons but because China wants access to the firms’ know-how. “It’s concerning that we don’t have a screening mechanism for foreign investments,” Jerker Hellstrom, the report’s lead author, told me. “There’s no government agency that receives information about all planned acquisitions by foreign entities, so as a result we don’t know what’s happening and lack a complete picture.”
Figures on Chinese FDI in the European Union compiled by the Mercator Institute, a German think tank focusing on China, point in the same direction: In 2018, Chinese firms invested 17.3 billion euros, nearly $20 billion, in the EU, the vast majority of it in mergers and acquisitions (as opposed to minority-share investments).
That figure is down from 37.2 billion euros, over $40 billion, in 2016—the result of a shift away from megainvestments such as takeovers of manufacturing giants. Yet buying cutting-edge tech is cheaper and, as the Swedish Defense Research Agency report points out, in line with China’s official strategy. By buying cutting-edge businesses, China gets access to key technologies without having to develop them. “It’s imperative that we understand the range of possibilities [of such actions], so that we can respond appropriately,” Roderich Kiesewetter, a Christian Democrat member of the German Bundestag who leads his party’s faction in the parliament’s foreign affairs committee, told me recently. Kiesewetter pointed out that his party’s annual conference last month passed a motion that Germany should only allow companies not influenced by a foreign government to bid for its new 5G network.
Call China’s actions clever investing or weaponization of globalization: What’s clear is that it’s not just commerce but a strategy for geopolitical advancement. “Among major commercial powers, China is unique in the way it links industry and the government,” noted Hellstrom, who was previously a China correspondent. To be sure, industry and government are linked in other countries too. The French government regularly pitches French defense contractors’ wares to other countries, and in the United States the Trump administration (in)famously pushes other countries to buy American. In Xi Jinping’s China, however, the links are structural and all-encompassing: Companies and the government work in lockstep. Under Xi, the government’s role in the private sector has dramatically increased; the Chinese Communist Party can influence companies’ decisions, and China’s 2017 National Intelligence Law obliges organizations and citizens to “support and cooperate in national intelligence work.”
Following Midea’s acquisition of Kuka, Chinese Foreign Ministry spokeswoman Hua Chunying said that her government encourages “win-win, mutually beneficial cooperation” between corporations in accordance with market principles. Like America’s CFIUS, however, the German government rather abruptly woke up to the danger posed by Chinese takeovers. In 2018, then-Economic Affairs Minister Brigitte Zypries (a Social Democrat) declared that German know-how has to be protected against foreign investors, and her successor, Peter Altmaier (a Christian Democrat), lowered the threshold at which the government can scrutinize and veto foreign investments from 25 to 15 percent of shares and blocked two deals. The threshold has since been lowered to 10 percent.
Germany, France, and Italy are also concerned about the national security risks posed by Chinese investments. In 2017, they wrote a letter to then-EU Trade Commissioner Cecilia Malmstrom, pointing out (without mentioning China by name) that “we are worried about the lack of reciprocity and about a possible sell-out of European expertise, which we are currently unable to combat with effective instruments.” Earlier this year, the EU introduced a regulatory framework through which EU member states can exchange information about specific investments and that allows the European Commission to intervene if it finds that a proposed takeover threatens the security of more than one member state. But it’s still not a screening tool.
The challenge, of course, is that increased scrutiny of Chinese takeovers could offend China, a major trading partner for all Western countries, and result in reduced exports to China. But, Hellstrom said, “we shouldn’t constantly be considering the feelings of the Chinese Communist Party. What’s important is that we strengthen our countries.”
For all of its more heralded effects, globalization has offered phenomenal opportunities to those with less-than-fair intentions. But the answer is not to close borders or limit international commerce. Rather, it is to pay more attention to the motivations of those operating on the global markets. Executives at industrial-robot firms, pioneering biotech startups, and indeed dating sites have until now not had to reflect on the intersection between their firms and national security. They should now. The West’s adversaries use lots of means—legal and illegal—to weaken its societies. It’s in the West’s best interest not to unduly assist them.