Beijing could scupper another merger involving a US chips firm just as the Biden administration clamps down on China’s tech sector

Chinese regulators are exploring whether to delay approval for U.S. chipmaker Broadcom’s $69 billion deal for cloud computing firm VMWare, reports the Financial Times citing three unnamed sources familiar with the matter. The move may be retaliation to the Biden administration’s announcement of expanded controls on chip sales to the country earlier this week.

Washington updated its export controls on Tuesday to close a loophole used by Nvidia and Intel to continue selling AI chips to the Chinese market. Even some non-AI-focused chips, like Nvidia’s top-of-the-line processors for video gaming, are now blocked for sale under the expanded rules.

Beijing is reportedly unlikely to formally block the deal. Instead, regulators may drag the process out indefinitely until both parties give up.

If that happens, the strategy would match an earlier, smaller deal involving a U.S. chipmaker: Intel and its attempt to buy Israeli chip firm Tower Semiconductor for $5.4 billion.

The U.S. firm hoped its Tower purchase would drive the company’s plan to become a contract chip manufacturer, akin to Taiwan Semiconductor Manufacturing Company. Yet Chinese authorities continued to evaluate the deal, with Intel CEO Pat Gelsinger even traveling to the country in an attempt to mollify regulators to no avail. Intel eventually abandoned the plan in August, paying a termination fee of $353 million.

Neither Broadcom nor VMWare immediately responded to a request for comment.

Broadcom declined to confirm to the Financial Times whether the deal would need Chinese approval. Yet large multinationals, even if they are not Chinese, must submit deals to China’s State Administration of Market Regulation (SAMR) for anti-monopoly approval if the parties generate over $55 million in revenue from China.

Broadcom reported $33 billion in revenue for its last fiscal year, approximately 35% of which came from sales to China and Hong Kong.

VMWare generated $12.9 billion in its last fiscal year. The cloud company gets just over half of its revenue from non-U.S. markets, though does provide a more specific breakdown by country or region.

Beijing may now be using the merger approval process to push back on U.S. export controls. The SAMR has asked companies with deals under review whether they will sell products in China that are also sold in other markets, reported The Wall Street Journal in April, a likely reference to goods banned for sale to Chinese companies under U.S. regulations.

Regulators have blocked Broadcom’s mega-mergers before

In 2018, the U.S. scuttled an over $100 billion deal for Broadcom to acquire fellow semiconductor firm Qualcomm.

Trump administration officials had national security concerns that Broadcom—then headquartered in Singapore—would be purchasing a significant part of the U.S. chip industry. Broadcom has since switched its headquarters to the U.S.

Broadcom CEO Hock Tan has a reputation as a serial consolidator, and a ruthless cost-cutter.

The Malaysian executive dismissed concerns that China might get in the way of his deal to buy VMWare on the company’s last earnings call in September.

Tan responded to an analyst pressing him for a clear answer on Chinese approval by saying “I made those specific notes or remarks on regulatory approval. I ask that you think it through, read it through, and let’s stop right there.”

Broadcom is primarily a chipmaker, but is diversifying its business to include software. Its deal with VMWare—if it goes ahead—would give the company a foothold in the cloud computing market.

A few months after the VMWare deal was announced, Tan wrote that it would allow Broadcom to “be a new participant in the multi-cloud era, and VMWare will be the flagship of our combined software offerings.”

Shares of VMWare closed about 9% down on Thursday. Broadcom shares were down about 2%.