New investment law of the US discriminates against China
The Foreign Investment Risk Review Modernization Act, signed by US President Donald Trump on Aug 13 as part of the National Defense Authorization Act, is a hostile law against Chinese investment.
Despite statements by some White House and Congressional leaders that FIRRMA does not target China specifically, the ulterior motive was evident at the Aug 23 roundtable on FIRRMA, where Trump and several lawmakers had a field day demonizing Chinese foreign direct investment. Every participant at the roundtable singled out China, mentioning it at least 15 times.
FIRRMA has expanded the power and scope of the Committee on Foreign Investment in the United States, an interagency that screens foreign FDI for national security concerns. The law makes CFIUS filing for certain categories of transactions mandatory, expands the areas of transactions subject to CFIUS jurisdiction, and enhances the CFIUS’s power to delay, block or unwind transactions deemed a threat to US national security interests.
Under FIRRMA, the CFIUS’s scrutiny also covers sales and leases of real estate in proximity to US government facilities and sales of US companies deemed “critical technology” and “critical infrastructure”. Such vague concepts leave much room for the opaque CFIUS to target Chinese investors.
While the law does not specify China in most provisions, Chinese FDI in the US is likely to face the toughest scrutiny by the CFIUS.
This has already been the case. Over the past years, more Chinese FDI has been reviewed and blocked in the US than from any other country. Last September, Trump ordered the blocking of the $1.3 billion acquisition of US chipmaker Lattice by Canyon Bridge. In February this year, the US Securities and Exchange Commission blocked the acquisition of the Chicago Stock Exchange even though the deal had been approved by the CFIUS.
Trump’s order in May to block the $117 billion acquisition of Qualcomm by Broadcom, a Singapore-based company, was also based on wild speculation that China might have something to do with the deal.
What FIRRMA does target China explicitly in is its requirement for the US commerce secretary to provide information biannually for the CFIUS and Congress on Chinese FDI in the US. Besides FIRRMA, the National Defense Authorization Act includes the Export Control Reform Act of 2018 that controls exports and outbound transfers of technology. The US export control regime, a legacy of the Cold War, has long been discriminative against China. Many rules, as a former US Commerce Department official in charge of the issue told me during a chat, are outdated and laughable in today’s world.
Yet for the Trump administration and some lawmakers, the Cold War may never end. Their unwarranted fears over Chinese FDI are in sharp contrast to the fervor of US governors and mayors who lead trade missions to China every year to woo Chinese investment and trade.
According to the Rhodium Group, Chinese FDI now supports about 150,000 US jobs. And an Oxford Economics study shows China-US trade supports 2.6 million jobs in the US. But the hostile US policies have dampened the enthusiasm of Chinese investors, as seen in the sharp fall of Chinese FDI in the US in the first half of this year and the smaller size of the Chinese delegation attending the SelectUSA in Washington in June, although China’s control of capital outflow is another major factor.
FIRRMA is a major setback for the investment environment in the US at a time when China is increasingly welcoming foreign investment by easing its restrictions and implementing its new negative list on foreign investment on July 28, which reduces the number of items covered from the 63 to 48. As such, Trump’s move will only end up harming the US economy.
Yet for the Trump administration and some lawmakers, the Cold War may never end. Their unwarranted fears over Chinese FDI are in sharp contrast to the fervor of US governors and mayors who lead trade missions to China every year to woo Chinese investment and trade.