CFIUS is a US Government inter-agency committee that reviews the national security implications of all foreign mergers and acquisitions (M&As) of US companies. Submitting a case to CFIUS is voluntary, but the committee can investigate any M&A without a voluntary submission.
Summary
On July 26th, the U.S. House of Representatives passed the John S. McCain National Defense Authorization Act for the following year (2019) by a vote of 359-54. This large majority vote revealed rare bipartisan support for the $716 million US dollar (USD) bill. This bill not only creates a higher barrier for Chinese investment, but it also prohibits the government from using technology made by Chinese giant telecommunication companies like Huawei, a Chinese leading telecommunication firm. Moreover, the bill empowers the Committee on Foreign Investment in the United States (CFIUS). CIFUS is an inter-agency panel that reviews all proposed foreign investments and blocks transactions which impose national security concerns. Earlier in July, China’s second-largest telecommunication company, ZTE, resumed its business after receiving near fatal punishment for violating US sanctions on Iran. Lawmakers from both parties disagreed with President Trump’s decision to remove the ban on the company. Once the John S. McCain National Defense Authorization Act goes into effect, Chinese investment in U.S. technology companies will be more difficult both in terms of time consumption and level of scrutiny. This particular legislation largely targets China and tightens other foreign investments that present national security risks.
FAO Global Assessment
There is bipartisan support in America to put higher priority over national security and stricter controls on Chinese investment, especially after sanctions and negotiations between China and America on ZTE. Because CFIUS is responsible to assess all foreign merger and acquisition (M&A) deals, the expansion of CFIUS is likely to create greater challenges for foreign companies to purchase businesses in sensitive fields such as semi-conductors and robotics. It also aims at preventing China’s national strategy, “Made in China 2025” from using M&A as an easy way to transfer core technology. The barrier for Chinese tech firms may discourage other potential investors and cause them to pull out of their money, which may lead to a ‘chilling effect’ that could potentially hurt the US economy by blocking more foreign investments.
Related Links
- Bloomberg- Foreign Investment Reviews Expanded in Bill Passed by U.S. House
- Reuters- U.S. House passes defense bill targeting Chinese investments
- WSJ- Congress to Toughen Foreign Investment Reviews Amid Trade Fight With China
- Caixin Global- U.S. House Passes Bill to Increase Scrutiny of Chinese Tech Investments
Analyst Bio
Weiting Li -International Policy Associate
Weiting Li is an international policy intern at FAO Global, where she focuses on international trade, technology, and environmental policies. Weiting is currently a second year graduate student pursuing dual master’s degrees in public policy at Georgetown University and Business Administration at University of Geneva. Prior to Georgetown, she was the assistant for government relations and working groups at European Chamber of Commerce in China. She graduated from Gettysburg College with a major in Sociology and a minor in Business.
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