US’ demonizing of Chinese FDI a shot in the foot

There will likely be a sharp decline in Chinese foreign direct investment in the United States in 2017, partly as a result of China’s tighter control of capital outflow, but also because the US government and lawmakers increasingly view Chinese FDI through the lens of geopolitics.

That was a message from two reports on Chinese FDI in the US released by the National Committee on US-China Relations and the Rhodium Group.

The fact that Eric Chewning, US deputy assistant secretary of defense for manufacturing and industrial base policy, was the keynote speaker at the Tuesday meeting in Washington to launch the reports is both surprising and telling.

Chinese FDI in the US plunged by more than one-third in 2017, the first major correction in a decade. The value of newly announced deals in 2017 declined more than 90 percent.

An unprecedented number of Chinese deals were delayed, or abandoned in 2017 as parties failed to obtain approval from the Committee on Foreign Investment in the United States, which screens FDI for potential national security risks.

While the committee’s shortage of staff was cited as a reason, one of the reports titled New Neighbors said a more important reason is that CFIUS has broadened its approach to reviewing Chinese deals, taking into consideration a wider array of criteria when assessing security risks. CFIUS prevented nearly $10 billion of Chinese acquisitions in 2017.

Politicization of deals and political gamesmanship may deter Chinese and other international investors, the report warned.

But such politicizing will likely get much worse when the US Congress passes the Foreign Investment Risk Review Modernization Act, or FIRRMA, likely later this year. FIRRMA will greatly expand the scope of CFIUS scrutiny and target mainly Chinese investors coming to the US. Put bluntly, it is a discriminative act against Chinese investors.

Chinese investment in the US has already created nearly 140,000 direct jobs. That is why US local leaders — governors and mayors — have shown huge enthusiasm for attracting Chinese FDI, for instance, by leading trade and investment missions to China.

However, Chinese FDI is quickly politicized once in Washington. In a March 21 opinion piece, Republican Senator John Cornyn from Texas and Democratic Senator Dianne Feinstein from California, the two who introduced the Senate bill, wrote that “as we speak, China is using any means available to turn our technology and know-how against us and erase our national security advantage. This weaponization of investment is aimed at vaccuuming up US industrial capabilities in cutting-edge technologies such as artificial intelligence and robotics which have obvious and important military application”.

They quoted Joseph Dunford, chairman of the US Joint Chiefs of Staff, as saying that by 2025, China will pose the greatest threat to US national security of any nation.

Robert Pittenger, a Republican Congressman from South Carolina, who introduced FIRRMA in the House, similarly scaremongered about Chinese FDI on the CSPAN channel on Wednesday.

The vicious words reflect the Cold War mentality in the latest US National Security Strategy and National Defense Strategy that define China as a strategic competitor and a revisionist power that threatens the US.

Already, Silicon Valley and the US electronics and semiconductor industries, which depend a lot on foreign investment, have voiced deep concerns about FIRRMA’s and CFIUS’s rejection of Chinese FDI in the tech sector.

There is no doubt that while US government and lawmakers demonize Chinese FDI, the US and American people stand to lose out on the great opportunities presented by Chinese outbound investment.

... the US government and lawmakers increasingly view Chinese FDI through the lens of geopolitics.