On January 13, 2020, roughly a year and a half after it was signed into law, the U.S. Department of Treasury introduced two final Foreign Investment Risk Review Modernization Act (FIRRMA) regulations. This concludes a period of public consultation and, according to the final press release, will allow the Committee on Foreign Investment in the United States (CFIUS) to “comprehensively” implement the act to “better address national security concerns arising from certain investments and real estate transactions”. These final regulations are “largely consistent” with the proposed rules issued in September, which expanded the purview of CFIUS to scrutinize non-controlling foreign investments in critical technologies, critical infrastructure, or sensitive personal data, along with some real estate transactions. Although no country is mentioned directly, the hawkish Trump Administration is implicitly addressing China.
As noted in a September 2018 CIUA investment blog, FIRRMA was just the most recent in a series of “economic measures” targeting China, also including the initial implementation tariffs on Chinese goods and the blocking of Broadcom’s takeover bid for Qualcomm. The combative U.S.-China relationship has largely persisted with tech as a main battleground. Huawei, the world’s largest telecommunications equipment manufacturer, was also placed on a trade blacklist (the “entity list”) along with 70 other Chinese firms in May 2019, preventing the export of American technology to China without government approval. President Trump, with bipartisan support, has repeatedly made clear his intention to restrict and “decouple” U.S.-China tech supply chains on national security grounds.
It is against this backdrop, in tandem with increased capital outflow restrictions, that Chinese foreign direct investment (FDI) in the United States has rapidly fallen. Rebecca Fannin, a prominent technology writer, stated to China Daily that while “Chinese companies used to make robust investments in trophy American startups” the new CFIUS rules have driven many to focus on ”smaller strategic deals”. According to data collected the Rhodium Group, the U.S. received $3.1 billion in foreign investment from China in 2019, down from $46.5 billion in 2016 – a drop of 93%. While the recently announced “Phase 1” trade deal could spark increased cooperation, the bilateral relationship is still ultimately undermined by distrust and the U.S.-China tech arms race is unlikely to dissipate any time soon.