After announcing tariffs on Chinese imported goods last week, the Trump administration is now considering a crackdown on Chinese investments in U.S. tech firms that develop sensitive technologies.
Bloomberg reported on March 28 that the administration was considering invoking the International Emergency Economic Powers Act, enacted in 1977, which allows the president to declare a national emergency for an “unusual and extraordinary threat.”
The president would be allowed to block transactions and seize assets.
Commerce Secretary Wilbur Ross also hinted at further action in an interview with Fox Business Network on March 27. “There will be limitations on foreign investment,” he said, while also noting that there is pending legislation in Congress designed to give the Committee on Foreign Investment in the United States (CFIUS), the panel that currently reviews foreign acquisitions, more power.
The Chinese communist regime has been assisting and directing Chinese firms in the acquisitions of American tech firms for the furtherance of its national interests, rather than mere commercial goals, according to analysts.
In a recently published two-part series, The Epoch Times detailed how the regime has methodically planned to steal Western military technology, in part by acquiring foreign companies. The regime’s State Council released a document last July that clearly stated such intentions.
The State Council also issued a notice in August 2017 encouraging Chinese businesses to invest specifically in high-tech firms, while limiting overseas investments in real estate, hotels, and the entertainment industry.
“The role of the state in directing and supporting this outbound investment strategy is pervasive, and evident at multiple levels of government—central, regional, and local,” the U.S. Trade Representative’s (USTR) office concluded in its recently published report on China’s intellectual property trade practices. The investigation was opened last year after President Donald Trump signed a memorandum directing the USTR to do so.
The report detailed how the Chinese regime coerces both state-owned and private Chinese firms to take on such foreign acquisitions while providing direct financial support for such endeavors.
“They undermine the ability of U.S technology companies to innovate and adapt, and threaten the long-term competitiveness of U.S. industry,” according to the report.
Chinese investment in the United States has grown significantly in recent years. According to Rhodium Group, a research consultancy, Chinese direct investment into the country grew from $4.9 billion in 2011 to $45.2 billion in 2016, an increase of 843 percent. The nature of the investments also changed from predominantly “greenfield” investments, or when the parent company builds operations in the foreign country, to acquisitions. Greenfield investments accounted for 99.6 percent in 2000, compared to 7.6 percent in 2010 to 2016, with acquisitions taking up 92.4 percent. Chinese state-owned enterprises made up a quarter of such deals.
In the most recent report by the CFIUS documenting all foreign investments in 2015, China was the country with the most “covered” transactions, or transactions that could result in the control of a U.S. business by a foreign individual.
The USTR report found that Chinese investment data over the years reflected the state’s priorities, with notable increases in automotive, electronics, information and communication technologies, industrial machinery, and aviation.
And as a result of the increased Chinese interest, the CFIUS has also amped up scrutiny for potential national security threats, according to Rhodium Group.
US Firms Affected
Most recently, President Trump blocked the proposed takeover of leading U.S. chipmaker Qualcomm by Singapore-based firm Broadcom. The CFIUS, which was investigating the proposal, had expressed concern that the company would eventually fall under Chinese control.
There were other notable examples of blocked deals. Tsinghua Unigroup, a subsidiary of Tsinghua Holdings—a state-owned firm—tried to acquire Micron Technologies, a leading memory chipmaker based in Idaho, in 2015. But the deal was dropped after worries that the CFIUS would not approve it. Tsinghua Unigroup also tried to purchase a 15 percent stake in Western Digital, a data storage company, but withdrew the offer in 2016. The company is funded partly by a state-backed investment firm, and at one point, former Chinese leader Hu Jintao’s son, Hu Haifeng, was its Chinese Communist Party secretary.
Other deals did go through. In 2016, Beijing E-Town, an agency of the Beijing municipal authorities, bought iML, a firm specializing in technology for flat-screen display and LED lighting. It allowed China to acquire key technology in developing different mobile and computer chips.
That same year, Chinese private firm Ant Financial bought EyeVerify, a U.S. firm with patented biometric verification technology. Prior to the acquisition, Chinese state-owned banks, firms, and the country’s sovereign wealth fund, China Investment Corporation, participated in series B investment to become new Ant Financial investors.
And in May 2017, the biggest acquisition by a Chinese firm occurred: the state-owned China National Chemical Corp. acquired the Swiss-based Syngenta. The Chinese gained access to patented genetically modified agricultural products that were cited as targets in the regime’s five-year plan, in addition to Syngenta’s entire U.S. business, according to the USTR report.
This past year, however, Chinese curbing of capital outflows, combined with increased CFIUS scrutiny, has caused Chinese direct investment in the United States to drop, according to Rhodium Group. Investments fell by more than a third compared to the year prior and the value of new acquisitions dropped by 90 percent.
Europeans Also Concerned
On March 28, Trump also discussed “joining forces to counter” China’s trade practices on a phone call with German Chancellor Angela Merkel, according to the White House. Trump also spoke with French president Emmanuel Macron regarding similar issues.
The European Union Chamber of Commerce concluded in its 2017 report that Chinese investments in European businesses were in fields “where European business is unable to make equivalent investments in China, and have also enabled Chinese firms to access technology, brands, and management expertise that they would not otherwise have been able to acquire. In some industries, such as semiconductors, attempted and completed investments have spanned entire industrial supply chains.”
Reuters contributed to this report.