Hurdles to foreign investments in sensitive US companies would be raised under proposed legislation that responds to perceived threats to national security from China and elsewhere.
A bipartisan coalition of lawmakers on Wednesday put forward legislation that would broaden the remit of the Committee on Foreign Investment in the US and widen the criteria it uses to assess threats to US security.
The lawmakers explicitly linked the reforms to an expansion of Chinese purchases of US companies, potentially fuelling tensions with Beijing just as US president Donald Trump landed in the Chinese capital for a state visit.
The bill follows an expansion in the number of Chinese deals in the US and demands for heightened scrutiny of purchases of US technology companies and attempts to force American companies to hand over valuable intellectual property.
In September President Trump blocked the $1.3bn sale of US chipmaker Lattice Semiconductor to a Chinese-funded investment firm. Chinese companies have invested $136.5bn in the US since 2000, according to the Rhodium Group, but much of that has been in recent years with Chinese foreign direct investment in the US reaching a record $46.2bn in 2016.
Among the new provisions are the expansion of the jurisdiction of Cfius to include certain joint ventures in the US, as well as minority investments. The definition of critical technologies that could trigger a review is also set to be expanded.
The bill also calls for the president to work with US allies to increase their own national security scrutiny of foreign investments. That comes as the EU is working to impose its own more stringent scrutiny on Chinese investment.
China has long complained about the Cfius process and what they see as its discrimination against its companies. But the bill is being backed by influential legislators from both parties, suggesting it has a good chance of becoming law.
John Cornyn, a Texas Republican, and Dianne Feinstein, a California Democrat, introduced the bill in the Senate on Wednesday. A similar piece of legislation is being put forward in the House with the backing of Robert Pittenger, a North Carolina Republican who helped lead a campaign against the Lattice purchase.
Mr Pittenger said China had been using techniques, including murky companies, to try to surreptitiously acquire US defence suppliers and other sensitive companies and Washington needed better tools to track and evaluate inbound investment.
He said: “China is buying American companies at a breathtaking pace. While some are legitimate business investments, many others are part of a backdoor effort to compromise US national security. For example, China recently attempted to purchase a US missile defence supplier using a shell company to evade detection.”
The bill, while calling for more stringent scrutiny of inbound investments, particularly in the tech sector, does not go as far as some early drafts had.
Over the summer Mr Cornyn said he expected the bill to include a special list of countries of concern that would have automatically applied greater scrutiny to any investments from those countries. Many Cfius experts had expected China to figure on that list.
A US Treasury spokesperson said: “As security threats evolve, Cfius must be modernised and have the tools and resources needed to ensure our national security while maintaining an open investment environment. We look forward to working with the bill sponsors, the committees of jurisdiction and other members of Congress on legislation that would effectively achieve both.”
Beijing’s push to acquire new technology in industries such as semiconductors and electric vehicles is part of a broad strategic push advocated by Xi Jinping, China’s leader, to gain dominance in key sectors that are likely to be increasingly important in the global economy.
That has resulted in a growing number of cases at Cfius and complaints of an overloaded system by lawyers who work with the committee, who say they believe the committee is on course to review a record 250 transactions in 2017, up from 172 in 2016.
If it passes, the new legislation would only add to the workload, said Anne Salladin, a former top Cfius legal adviser who helped review more than 500 cases while working at the US Treasury.
“As foreign investment continues to grow, especially in areas where national security might be a concern, the Cornyn bill would significantly broaden Cfius’s power and scope,” she said, “changing the landscape for national security reviews for years to come.”
The bill lowers the bar for Cfius scrutiny from its current standard, which only requires an examination when foreign companies take majority or board control of a US company, she said. It also would lead to longer reviews, extending the current 75-day process to up to 120 days.
“In a world where we are facing new national security threats, seeing different structures in corporate deals and are on the receiving end of an explosion in foreign investment, we do need to re-examine Cfius and update it to reflect the world we live in,” Ms Salladin said.
“[But] we need to make sure that the changes to Cfius do not put up new hurdles to foreign investment, deter companies from filing, or undermine the US’s standing as the premier global destination for foreign investment.”
Tony Fratto, a former US Treasury official who now heads Hamilton Place Strategies, a consultancy, said US officials must be careful not to put a chill on inbound investment into the US, which was increasingly important for the economy. “Foreign direct investment plays a key role in creating high-quality US jobs and economic growth. It’s difficult, if not impossible, to meet our growth targets while discouraging FDI,” he said.
Mr Fratto and others also argue that the US must be careful to keep Cfius’s current narrow focus on national security. Efforts by some in Congress to have it broaden its remit to look at issues such as food security or a national economic test have failed but experts have always been mindful of the rising political pressure on Cfius to act as a more active gatekeeper.
“Cfius needs to be about protecting national security, not economic protectionism,” Mr Fratto said. In large part because of a lack of political appointees to sit on the committee and the reluctance of existing staff to make sensitive decisions, lawyers who work on Cfius cases have also been complaining of a growing backlog of cases since the Trump administration took over.
But some key personnel have finally begun work in recent weeks, including Heath Tarbert, the assistant secretary of the Treasury who will head the committee on a day-to-day basis but was only confirmed by the Senate in late September.
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