Tech investing law expected to hurt China
Bill aims to increase oversight of foreign access to U.S. secrets
WASHINGTON — Already threatened by escalating U.S. taxes on its goods, China is about to find it much harder to invest in U.S. companies or to buy American technology in such cuttingedge areas as robotics, artificial intelligence and virtual reality.
President Donald Trump is expected as early as this week to sign legislation to tighten the U.S. government's scrutiny of foreign investments and exports of sensitive technology.
The law, which Congress passed in a rare show of unity among Republicans and Democrats, doesn't single out China. But there's no doubt the intended target is Beijing. The Trump administration has accused China of using predatory tactics to steal American technology.
“As a policy signal, it speaks with a very loud voice,” said Harry Clark, head of the international trade practice at the law firm Orrick. “Leading decision makers and Congress are very concerned about technology transfer to China.”
The Trump administration has already imposed tariffs on $34 billion in Chinese exports, is preparing taxes on a further $16 billion and has threatened to target an additional $200 billion of Beijing's exports and, maybe, still more.
As part of the same punitive campaign, Trump had initially ordered the Treasury Department to draft investment restrictions aimed specifically at China. But in late June, Trump decided instead to back Congress' effort to tighten existing investment restrictions and export controls on all countries, rather than China alone.
The new law strengthens reviews of foreign investment by the existing Committee on Foreign Investment in the United States, or CFIUS, which is led by Treasury Secretary Steven Mnuchin. The committee can now review any investments that grant foreigners access to a U.S. company's high-tech trade secrets. Before the change, such reviews were done only when a foreigner gained control of a company.
The new law also gives the committee oversight of real estate deals that are deemed to pose a national security risk by putting foreigners in “close proximity” to government offices and military bases. The legislation will also crack down on deals that appear structured to evade such oversight.
Congress is also directing the committee to go beyond specific cases to identify patterns in foreign investment — if, for example, Chinese companies are acquiring a specific technology — and to work with U.S. allies that share its concerns about Beijing's high-tech ambitions.
“Treasury can now share information,” said Rod Hunter, a partner at Baker McKenzie law firm and a former White House adviser. “They used to have to do all kinds of backflips and workarounds with allied governments to deal with this sort of issue.”
The new law also strengthens the Commerce Department's oversight of high-tech exports.
Hunter said he thought the stricter oversight of high-tech exports could potentially impose a bigger impact on China than the tariffs the Trump administration has imposed on Beijing's exports to the United States.
Still, the new measures could burden U.S. companies that will find it harder to attract Chinese investment or to share with Chinese partners or customers technology that the U.S. government might deem sensitive.
The crackdown reflects a sharp reversal in U.S. attitudes toward Chinese investment. From virtually nothing in 2000, Chinese direct investment in the United States (including new plants and offices and acquisitions of American companies) reached a record $46 billion in 2016, according to the Rhodium Group research firm.
Chinese investors sank money into U.S. companies involved in artificial intelligence, robotics and blockchain technology, which is used to do business in cryptocurrencies.
But it tumbled 36 percent last year to $29 billion. In the first half of this year, such investment dropped to its lowest level in seven years — $1.8 billion — down 90 percent from the first six months of 2017, according to Rhodium Group.