CFIUS: Act Tougher on China

US Treasury is weak on Beijing’s purchase of US aircraft manufacturer
January 21, 2022 Updated: January 28, 2022

Commentary

China is vacuuming up a U.S. amphibious aircraft company that produces sophisticated airplanes with foldable carbon-fiber wings.

While Icon Aircraft Inc.’s planes are recreational, their transformation into militarized drones that could target U.S. and allied forces is a distinct possibility that has the Americans who used to lead the company up in arms and complaining to our own apparently indifferent government in Washington.

The FBI and other U.S. entities are finally upping their inquiries, but apparently only after heroes in the California company cried foul and pointed to “obvious” attempts by the China-backed shareholders to hollow it out.

For national security reasons, Congress, the FBI, and the Committee on Foreign Investment in the United States (CFIUS), led by the Treasury Department, should take immediate and much tougher action to unwind the sale and return the aircraft maker to full U.S. ownership.

On Jan. 18, Kate O’Keeffe at The Wall Street Journal reported the takeover attempt. She wrote that the largest shareholder of Icon is a “Chinese government-backed investment company” that owns 46.7 percent of the U.S.-based manufacturer.

CFIUS lacks sufficient investigatory capability and drive to catch such deals before they clinch, and so the initial investment by the Beijing-backed company, Shanghai Pudong Science and Technology Investment Co. (PDSTI), went unnoticed in 2015.

It isn’t the first such China-backed takeover of an American or allied aircraft manufacturer in the 2010s. In 2011, the China Aviation Industry Corp. (AVIC) purchased Minnesota-based Cirrus Industries Inc. Cirrus, and therefore potentially AVIC, then gained access to material science development at Oak Ridge National Laboratory.

In 2015, AVIC acquired AIM Altitude, a British company that specializes in military and aerospace composites; there were at least a half-dozen similar situations.

The U.S.–China Economic and Security Review Commission finally advised Congress in 2016 to “amend the statute authorizing the Committee on Foreign Investment in the United States to bar Chinese state-owned enterprises from acquiring or otherwise gaining effective control of U.S. companies.”

As I wrote at the time, Congress should go further and “reverse prior sales of U.S. technology firms to China, especially those in critical industries like aviation and semiconductors,” and mandate reviews for all Chinese companies.

That was apparently a pipe dream.

PDSTI was already using small investments to gradually acquire control of Icon. PDSTI started in 2015, and by 2017, it had a dominant stake. It could then install a majority of the company’s executives and board members, pressure others, and pave the way for the transfer of Icon technology to China.

The company’s leadership, stretching back years, has military and high-technology experience, including a former Air Force pilot, a Stanford product-design expert, and former executives of General Atomics and Boeing. In 2018 and 2019, two former executives resigned in protest over the Chinese takeover.

In May 2020 one senior executive wrote, “It is obvious that PDSTI’s plan for ICON is to reduce its operations to a minimum and destroy any potential for the US business until they can move it to China to serve their own interest,” according to the Journal.

In March 2021, PDSTI allegedly shipped Icon’s only plane model, the A5, to China. Then a month later, it started to seek licenses of Icon’s IP for the unrestricted transfer of technology to China.

CFIUS has been characteristically slow to stop the deal, only starting a review in November after some of the company’s U.S. shareholders raised the alarm. The Treasury, influenced as it is by large corporations doing business in China, is usually loath to act against Chinese investment, even in key U.S. technologies.

While the FBI is probing possible criminal violations related to the Icon deal and alleged technology transfer, progress is glacial and the bureau is already under fire for its investigation of academia’s tech transfers.

This must change now.

According to a memo produced by the U.S. shareholders, “ICON’s aircraft technology and advanced materials and aerospace manufacturing capabilities should not be allowed to fall into the hands” of China. “Without expeditious CFIUS intervention, this may occur within months.”

The U.S. government must go beyond its weak approach to the Chinese Communist Party’s forced technology acquisition and theft. The Treasury is singularly incapable of stopping technology loss to China; replace it as the chair of CFIUS with the Pentagon or the National Security Council. We need leaders who put America’s national security above corporate greed.

And those “cheap” toys and electronics in your home? They are actually quite expensive, purchased with the dollars that buy the U.S. and allied technologies being used against us, and ultimately against our sovereignty and democratic systems.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Anders Corr
Anders Corr has a bachelor's/master's in political science from Yale University (2001) and a doctorate in government from Harvard University (2008). He is a principal at Corr Analytics Inc., publisher of the Journal of Political Risk, and has conducted extensive research in North America, Europe, and Asia. His latest books are “The Concentration of Power: Institutionalization, Hierarchy, and Hegemony” (2021) and “Great Powers, Grand Strategies: the New Game in the South China Sea" (2018).