US scrutinises Chinese investments most over national security: law firm

PUBLISHED : Monday, 13 January, 2014, 12:27am
UPDATED : Monday, 13 January, 2014, 12:46am

China has for the first time topped the list of source countries for proposed investments in the US that have been scrutinised over national security concerns.

But analysts say commercial factors are the main barriers to such deals proceeding.

The Committee of Foreign Investment in the United States (CFIUS) reviewed 23 transactions proposed by Chinese companies in 2012, followed by 17 for Britain, traditionally top of the list for scrutiny, and 13 for Canada, US law firm Kaye Scholer said in a report.

Between 2009 and 2011, British firms accounted for 26 per cent of notices filed with the committee, while Chinese investors made up 7 per cent, said
Diplomat, an Asia-Pacific-focused current affairs magazine.

CFIUS is a government committee that vets proposed foreign acquisitions of US companies to determine their impact on US national security.

The 23 reviews of Chinese proposed investments in 2012 was a big jump from the 16 in 2011 and 2010 combined, according to Kaye Scholer.

The increase in scrutiny is out of proportion with overall growth in Chinese investment in the US, which grew from 126 between 2005 and 2007 to 307 between 2010 and 2012 - a jump of 144 per cent. The total value of those investments surged 560 per cent, from US$2.5 billion to US$16.5 billion, over this period, US consultancy Rhodium Group said.

While the number of CFIUS reviews of proposed Chinese investments rose in 2012, the number of Chinese deals that were completed fell 36 per cent to 78, although the total value of the transactions increased 48 per cent to US$7.1 billion, Rhodium said.

The increased scrutiny of Chinese investments in 2012 coincided with a presidential election campaign in the US.

"Given projections of increasing foreign direct investment by China, we expect a continuation of high numbers of notices from China, continued close scrutiny by CFIUS," a report by US law firm Stroock & Stroock & Lavan said.

Despite the political rivalry between the two powers, Rhodium said most failures of Chinese investments in the US could be attributed to commercial factors.

The consultancy cited a disagreement over terms and price as the reason for the scrapping last year of a US$1.7 billion plan to build homes in the US by Lennar Corp of the US and two Chinese state-owned firms, China Development Bank and China Railway Construction Corp.

Also that year, concerns about commercial viability prompted carmakers Dongfeng and Geely to drop their bid for US car company Fisker, while financing difficulties ended an attempt by a mostly Chinese consortium to buy International Finance Lease Corp, a US aircraft lessor, for US$4.7 billion, it said.

Last year Chinese investments in the US doubled to US$14 billion, driven by acquisitions in the food, energy and property sectors, Rhodium said.

"We expect Chinese interest in US assets to remain strong in 2014 because of aggressive economic reforms in China, a more liberal policy environment for Chinese outbound investors, and a positive outlook for the US economy," the consultancy said, adding that "2013 was a milestone for employment provided by Chinese firms in the US".

Chinese-owned companies provided more than 70,000 full-time jobs in the US at the end of 2013, a more than eightfold increase compared with 2007, Rhodium estimated.