China / Across America

Chinese tech deals could face more US scrutiny

By Paul Welitzkin in New York (China Daily USA) Updated: 2018-07-23 10:33

The US Congress is close to tightening oversight of foreign investment in American companies that while unlikely to significantly reduce Chinese purchases may mean a more stringent review of deals in sectors such as technology.

Negotiators from the Senate and the House of Representatives have agreed on the final text to strengthen the Committee on Foreign Investment in the United States (CFIUS), according to The Wall Street Journal. Both chambers of Congress have approved versions of the measure.

CFIUS, an interagency committee, reviews potential foreign investment in American businesses to ensure national security is not compromised.

"It's a done deal," Senate Majority Whip John Cornyn told the Journal about the negotiations on Thursday.

Cornyn, a Texas Republican, and Senator Dianne Feinstein, a California Democrat, worked on the Senate's version of the legislation.

TheForeign Investment Risk Review Modernization Actwould help stop foreign countries from eroding the US military advantage by acquiring sensitive dual-use technology by investing in American companies, a press release from Cornyn's office said.

The legislation would expand CFIUS jurisdiction to include overseas minority investments as well as real estate transactions near military bases or other sensitive national security facilities. It also creates a new national security review system to examine overseas transactions such as joint ventures involving sensitive American technology.

"Chinese investors should anticipate CFIUS reviews in any investment in the high-tech sector. It is important to note that Chinese investments will still be approved, but the process may be longer, and Chinese investors may find certain industries effectively 'off limits,'" said lawyer Christopher Brewster of Stroock & Stroock & Lavan LLP in Washington.

Theodore Kassinger, an attorney and partner in the Washington office of O'Melveny & Myers LLP, said that overseas transactions in what he called critical infrastructure technologies such as utilities, telecommunications services providers, semiconductors and "companies that are creating significant databases of consumer information" will probably face a more intense review under the legislation.

"Now there is a process that will start from a common base and more forward more smoothly," he said.

The reforms would apply across the board, said Brewster, but one purpose of the legislation is to enforce a risk-based approach to CFIUS reviews.

"To this end, investments from close US allies (such as the NATO countries) may be exempt from certain requirements and may also be able to take advantage of expedited reviews," he said.

"By contrast, Chinese investment is a target of the reforms," Brewster said."The bill is grounded in an approach focused on investments from 'countries of special concern.' CFIUS will be encouraged to give close review to investments from countries such as China that are subject to a US arms embargo."

Chinese foreign direct investment in the US dropped by 36 percent to $29.4 billion in 2017 from $46.2 billion in 2016, according to a report by Rhodium Group and the National Committee on US-China Relations.

paulwelitzkin@chinadailyusa.com

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