A Chinese supplier of carbon nanotube materials announced plans to sell a controlling stake in its U.S. subsidiary to a strategic partner for $25.5 million to conform with recent U.S. legislative requirements. This move aims to ensure the continued operation of its North American division amid new regulations.
The company intends to progressively sell a 51% interest in its U.S. unit, ensuring compliance with rules that limit Chinese ownership to prevent violations of the “One Big Beautiful Bill” Act. Specifically, this regulation stipulates that no single Chinese entity can hold more than 25% of a U.S. subsidiary, directly or indirectly, or that multiple Chinese owners combined don’t control more than 40%. The parent firm, based in Zhenjiang, announced this plan yesterday.
In the initial phase, the company will transfer 51% of its stake in the U.S. unit to the strategic partner, after which the subsidiary will no longer be included in the parent company’s consolidated financial statements. Details on how this ownership reduction will be executed were not specified. The partner controlling this stake is managed by Zheng Tao, who is also a controlling shareholder and key decision-maker in the parent company.
The legislation introduced last July supplements existing measures to identify entities classified as Proxy Foreign Entities, or PFEs, under the U.S. Inflation Reduction Act. Under these rules, downstream buyers in North America who purchase products from firms labeled as PFEs become ineligible for certain advanced manufacturing tax credits. This limitation could significantly impact the competitiveness of companies designated as PFEs by reducing their market advantage.
The U.S. unit was classified as a PFE because the parent company holds 100% of the U.S. subsidiary through its subsidiary. Failing to make the ownership adjustments risked losing key customers, facing excess idle capacity, and sustaining financial losses. Additionally, high operational costs at the North American plant made it economically unviable to export products from this facility to other regions.
Furthermore, manufacturing products in Chinese factories and directly exporting to North America would introduce substantial import tariffs. The company also noted that domestic entities in North America are classified as PFEs, making products purchased from these sources ineligible for tax incentives. This situation could erode the market competitiveness of their offerings over time.
Financially, the company experienced a 15% increase in net profit this first half of the year, reaching approximately $20 million, against a backdrop of an 11% revenue increase to about $110 million.
As a high-tech enterprise, it specializes in the development, manufacturing, and sales of nanotube carbon materials and related products, including carbon nanotube powders, conductive pastes, graphene composite materials, and masterbatch formulations.
Shares of the company closed up 2% at around $4.81 per share today, amid a slight 0.2% rise in the broader Shanghai market.