Chinese state-owned companies should be barred from making acquisitions in the U.S., a Washington government commission said Wednesday (11/16).
The recommendation from the U.S.-China Economic and Security Review Commission is likely to inform the incoming Trump administration as it evaluates the open-investment policy of the Obama administration that has coincided with a surge in purchases from Chinese investors, some connected to the state.
“There is an inherently high risk that whenever [a state-owned enterprise] acquires or gains effective control of a U.S. company, it will use the technology, intelligence and market power it gains in the service of the Chinese state to the detriment of U.S. national security,” said the U.S. commission, which monitors the economic and security relationship between the two countries, in a report to Congress. “Chinese firms, which often receive state funding, have been particularly active in bidding for U.S. technology assets.”
A spokesman for the Chinese embassy in Washington didn’t immediately reply to a request for comment on the recommendation. Chinese officials have complained about obstacles some of its investors have faced in entering the U.S. market.
Created in Congress in 2000, the commission has been highly critical of China and of the U.S. executive branch, in part reflecting the views of some lawmakers who have targeted Beijing on everything from its military assertiveness in the Pacific to trade and investment. By contrast, recent presidential administrations have sought to maintain balanced relations with Beijing to support business ties and cooperate with the world’s second-biggest economy on global issues. Congress and the White House aren’t required to act on the commission’s recommendations.
The idea of a state-investment ban on Beijing comes as China has launched a buying spree for U.S. assets, triggered by longstanding economic imbalances between the countries as well as Chinese investors’ concerns about their domestic markets and a desire for international diversification.
China has moved to invest $18 billion directly in the U.S. economy in 2016 through acquisitions and greenfield investments, according to the Rhodium Group, already surpassing last year’s total of $15.3 billion and nearly 100 times the level of a decade ago.
But U.S. officials are concerned that China has clamped down on foreign investment in its market and placed restrictions on U.S. technology and financial companies. Meanwhile, some officials and experts warn some Chinese acquisitions may be part of state-directed campaigns to acquire U.S. assets that have economic or military significance.
The commission cited statistics that 84% of Chinese foreign direct investment last year came from private Chinese companies but also noted that the line between state control and private management can be thin in China.
The powerful committee that reviews foreign deals—the Committee on Foreign Investment in the U.S., or CFIUS—has a broad definition of state control for foreign acquirers that can include a board seat or a small percentage of ownership.
This year CFIUS has probed some deals so deeply that the Chinese investors have walked away, according to statements by the companies involved. CFIUS can recommend that the U.S. president reject a deal outright on national-security considerations, a step Mr. Obama took once for a Chinese company.
The buying binge this year from China attracted the attention of Mr. Trump, who complained during a debate about a group of Chinese investors bidding for the Chicago Stock Exchange, a small bourse that nevertheless operates a key market hub deep in the U.S. financial system.
A group of Republican lawmakers led by Rep. Robert Pittenger (R., N.C.) wrote to U.S. officials to urge a careful investigation of the Chicago Stock Exchange bid, which the exchange says came from private Chinese investors.
More than half of the U.S. Senate wrote to Treasury Secretary Jacob Lew in September with concerns about state-controlled China Railway Rolling Stock Corp.’s bid for North Carolina-based Vertex Railcar Corp.
“All these investments come from communist Chinese state interests,” Mr. Pittenger said in an interview Monday, adding that he expects the Trump administration to carefully review risks associated with China.
“He’s going to have a high level of concern, and I think he will look at the relationship with China with a thoughtful eye.”
Mr. Trump made complaints about Chinese trade practices a centerpiece of his campaign, and his campaign said he would use all appropriate agencies at this disposal.
But it isn’t clear whether Mr. Trump would want to use officials at CFIUS to limit Chinese acquisitions as a lever on trade. Most recent U.S. presidents have affirmed the U.S. open-investment policy as vital for the economy and focused on applying economic pressure elsewhere to solve trade disputes, according to a former senior Treasury Department official involved in CFIUS who noted that Mr. Trump himself is a major foreign investor.
“I would expect that he’s going to look to use every possible tool in the toolbox to counter what he sees as unfair Chinese economic practices,” said Scott Kennedy, a deputy director at Center for Strategic & International Studies, a Washington think tank.
By Courtesy of WSJ