The White House is toning down its strict approach toward Chinese investments in the United States, agreeing to work with Congress to strengthen the existing review process rather than craft new rules.
Media reports earlier this week suggested that the administration would aim to block companies with at least 25 percent Chinese ownership from buying U.S. technology firms and would restrict additional technology exports to China.
President Donald Trump stated on June 27 that there was no need for additional measures as “Congress has made significant progress toward passing legislation that will modernize our tools for protecting the Nation’s critical technologies from harmful foreign acquisitions.”
Trump’s announcement caused a sigh of relief on Wall Street. The Dow Jones industrial average rose more than 1 percent, and the S&P 500 index was up 0.5 percent in early trading on June 27.
To address threats posed by Chinese investment in particular, lawmakers recently passed a bipartisan bill to reform the oversight and authority of the Committee on Foreign Investment in the United States (CFIUS), the interagency committee responsible for assessing threats to national security posed by certain types of foreign investments.
The new legislation, the Foreign Investment Risk Review Modernization Act (FIRRMA), strengthens CFIUS by bringing new transactions under its review authority. It enables the committee to audit deals involving the transfer of not just controlling shares but also minority interests in companies dealing in critical infrastructure or technology.
“After reviewing the current versions of FIRRMA with my team of advisers, and after discussing them with many members of Congress, I have concluded that such legislation will provide additional tools to combat the predatory investment practices,” Trump stated.
The legislation covers transactions that increase the rights of the investor, according to a senior administration official. If an investor, for example, is getting additional rights with regard to sensitive technologies, the committee will have to review those transactions as well, he said.
On June 18, the U.S. Senate voted 85-10 to approve the Senate version of the FIRRMA bill. The House of Representatives passed its version by an overwhelming majority of 400-2 on June 26.
A joint conference committee will now meet to resolve differences between the House and Senate bills.
“We continue to work with Congress to ensure that what comes out of the conference process is as strong and effective as possible,” said the administration official.
Trump urged Congress to enact the bill rapidly. If Congress fails to pass the FIRRMA legislation, Trump said he would direct his administration to “deploy new tools, developed under existing authorities.”
Trump’s decision to focus on the FIRRMA came as good news, according to William Reinsch, a senior adviser at the Center for Strategic and International Studies.
“It’s usually better to take an existing process and existing system that people understand and use that rather than to try to create something that’s brand new,” he told NTD, a member of Epoch Media Group.
Besides reforming CFIUS, the administration also wants to expand controls on outbound investment, which means controls on technology transfers outside the country.
“I think it is an exercise that will be more China-specific,” Reinsch said. “They’ve decided not to use CFIUS for that, but to use the existing export controls process.”
The FIRRMA bill is an important step, according to Reinsch as CFIUS only provides a review if there’s an outright acquisition, taking over control of a company.
That means a large number of transactions are not reviewed, including joint ventures and deals “where people invest more than a token amount and expect to be actively involved in management but don’t have a controlling interest,” he explained.
On March 22, Trump signed a presidential memorandum directing the U.S. trade representative (USTR) and the Department of the Treasury to take action based on the findings of the Section 301 investigation launched last year, which determined that the Chinese regime has been unfairly acquiring U.S. intellectual property for years. Trump’s punitive measures included restricting Chinese investment in the United States and imposing tariffs on Chinese products.
According to the 301 report, certain countries direct and facilitate systematic investment in American companies and assets in order to obtain sensitive technologies and intellectual property, which are critical to national security and interests.
A recent report by The White House Office of Trade and Manufacturing Policy (OTMP) outlines tactics that China uses to steal key technology and intellectual property (IP) from American companies, including physical and cyber theft, forced technology transfers, and investments in high-technology companies.
The United States has demanded that China cut the trade deficit and stop stealing American technology and IP.
Last year, China was given 100 days to come up with a proposal. Despite numerous meetings with Chinese delegations, no significant progress has been made, according to the White House.
Larry Kudlow, the top White House economic adviser, said on June 27 that Trump and Chinese leader Xi Jinping “work well together,” but he added Trump was unsatisfied with China’s response to trade talks and so he planned to impose additional tariffs.
“We’ll see how they respond. The ball is in their court,” Kudlow said.