Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

The U.S. is cranking up the heat on China's overseas ambitions, blocking Royal Philips's $2.8 billion sale of its LED business to a Chinese-backed private equity fund just weeks into the new year. Thwarting that sale on national security grounds threatens a deeper Chinese ambition: Creating a credible car brand.

It's no secret that China has been buying up global assets, with overseas technology and brands ranking high on the nation's shopping list. Outbound deals are running at a record pace this year. What's less appreciated is that much of China's M&A in the past year has been directed at another, more specific failing: the lack of domestic car brands in the world's largest vehicle market.

Acquisitions by Chinese firms of overseas car and car-parts brands hit a high last year, with ChemChina's $7.1 billion purchase of Italian tiremaker Pirelli among the country's biggest deals in 2015. 

Driving Higher
China has been ramping up acquisiitons overseas of autos and auto parts ($)

The Pirelli acquisition is part of a growing trend by Chinese acquirers, which aren't finding the same opportunities to buy car brands as in the aftermath of the global financial crisis, when Volvo was purchased by Zhejiang Geely.

Even though car sales have been rising, and local players, benefiting from a recent tax cut on small vehicles, are increasing their share, China's market remains dominated by overseas automakers, largely through Sino-foreign ventures.

Volkswagen was the leading seller last year, followed by Wuling -- a joint venture between General Motors and SAIC Motor, the country's largest automaker -- and Hyundai in third, according to Euromonitor's data. An estimated 22.3 million light vehicles were sold in China, compared with 17.2 million in the U.S.

The focus on parts-makers makes sense for China. Such acquisitions tend to fall under the radar of overseas regulators, and are in line with the country's policy of reducing reliance on foreign manufacturers. (In 2014, China's top economic planner, the National Development and Reform Commission, fined foreign carmakers including Audi and Chrysler for overcharging on spare parts, which cost as much as 10 times those in the U.S.)

Yet the Philips deal shows even this strategy is strewn with hurdles. The Dutch conglomerate struck an agreement last March to sell Lumileds, which makes LED components and automotive lights. The company then flagged in October that the U.S. might not be so amenable to the sale of an 80.1 percent stake to GO Scale Capital, an investment fund led by Chinese venture-capital firm GSR Ventures. On Friday,  Philips said the deal was off.  

U.S. jitters over allowing China access to sensitive technology are well known. A mooted $23 billion bid for chipmaker Micron Technology didn't materialize after suggestions the proposal would run into opposition with the foreign-investment review committee. That the U.S. can block the sale by a Dutch company of manufacturing know-how as benign as lights shows the extent of China's challenge.

Lumileds, which recorded sales in 2014 of about $2 billion, is the biggest supplier of headlamps to the auto industry, equipping one out of every three cars in the world, according to the company's website. The blocking of the deal closes off another avenue of progress as China tries to move up the auto production value chain.

The country also plans to move into areas such as driverless cars, where its automakers are less far behind their century-old foreign rivals. Baidu, China's largest Internet search engine, is working with electric car maker BYD  to develop autonomous cars that it hopes will take up a big share of the country's  rising car market at some point.

Soaring Sales
Chinese car sales (millions)
Source: China Automotive Information

But even those ambitions may be hard to achieve if parts remain difficult to buy. If China can't even acquire the technology to put the lamps on a car, what chance does the nation have of putting together a leading-edge vehicle that can compete with foreign marques?

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Nisha Gopalan in Hong Kong at

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Matthew Brooker at