On October 10, 2018, the U.S. Treasury Department issued interim regulations to conduct a pilot program in accordance with the Foreign Investment Risk Review Modernization Act (FIRRMA), a bipartisan bill that was signed into law in August. The regulations expand the authority of the Committee on Foreign Investment in the United States (CFIUS) to review and scrutinize foreign investment in “U.S. businesses involved in critical technologies related to specific industries.” In addition to regulating controlling interest investment, the new regulations permit CFIUS to review “non-controlling investment” from foreign parties. In order to be covered by the newly announced regulations, the non-controlling investment would need to grant the investor access to private technical information, involvement in the board of directors, or involvement in “substantive decision making” of the U.S. business. The announcement also makes effective the “mandatory declarations provision” within FIRRMA, whereby investors must file a notice of the expected transaction within a specified time period.
Although the regulations are not “country specific”, the expanded review system is evidently aimed at “preventing China from capturing American technology by buying, investing, or partnering with United States companies” (New York Times, 2018). China is the only state explicitly mentioned within FIRRMA, and companies with links to China are facing increasing scrutiny from American politicians and regulators. The Trump Administration has moved to block numerous proposed foreign investment deals with links to China, citing national security concerns. This includes the highly-publicized decision to block China-linked Broadcom’s bid to purchase American tech giant Qualcomm.
Against the backdrop of a ferocious trade war, the U.S. has made a concerted effort to crack down on perceived threats due to Chinese investment activity. U.S. Senator Ron Paul has called for another potential Broadcom corporate acquisition to face CFIUS review, and Justice Department officials announced espionage charges against a Chinese intelligence official accused of attempting to steal trade secrets from GE Aviation, a top military jet-engine supplier.
As previously detailed in a China Institute Investment Tracker blog post, Chinese investment in the U.S. has been on the decline over the past year. It was expected that the passing of FIRRMA into law would add to existing tensions and economic uncertainty. Now, with a set of newly expanded provisions, the Trump Administration is taking strong steps to deter Chinese investment in sensitive American industries.