Advertisement
Advertisement
Lenovo
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
The US Treasury building, which houses the Committee on Foreign Investment in the United States. Photo: AFP

Chinese tech firms more confident in facing US national security review

Lenovo

Mainland Chinese companies have again set the pace for the most deals placed under national security review by the United States government as many of them, especially technology firms, are now more confident to submit voluntarily amid growing confidence in the US legal process.

“Filing a notice with Committee on Foreign Investment in the United States (CFIUS), technically, is a voluntary process. But it should be treated as obligatory for sensitive transactions, such as those involving critical infrastructure and technologies,” said Anne Salladin, special counsel at US law firm Stroock & Stroock & Lavan's national security, CFIUS and compliance practice group in Washington.

Salladin pointed out the number of Chinese transactions filed in the latest CFIUS report “reflects the continued significant growth of Asian investment in the United States”.

Mainland Chinese companies have invested roughly US$40 billion in the US since the start of the 21st century, according to a report published last week by the US-China Economic Security and Review Commission. Real estate and information technology were the top-two US sectors for mainland investments last year.

National security has long been an issue in all aspects of the US-China relationship, from politics to business. Some commentators in both countries feared national security could be used as an easy excuse by Washington to turn down Chinese investments when the relationship is strained.

Other analysts said mainland companies have been growing more comfortable with the review process and many of them have begun to submit deals for review voluntarily, rather than wait until the US government comes to them.

Some media reports recently suggested China had been singled out because Chinese acquisitions now count for the largest number of national security reviews by the CFIUS. “This argument is specious,” said Chris Brewster, a special counsel at Stroock.

CFIUS is an inter-agency body which assesses the national security implications of mergers, acquisitions and takeovers that could result in foreign control of any US business.

Mainland companies accounted for 21 of the 97 total notices of transactions filed with CFIUS in 2013, according to the committee’s latest annual report published last week. By comparison, mainland firms accounted for 23 filings in 2012 and 10 in 2011.

Brewster said the latest CFIUS report also does not show hostility to investments made by mainland Chinese companies. “Rather, it shows that Asian investors have apparent faith in the US economy – and in the fundamental fairness of the CFIUS process,” Brewster said.

“Twenty-five years ago, Americans were anxious because Japanese buyers had purchased Rockefeller Center and the Pebble Beach golf resort. But today Japan is close behind China in CFIUS reviews, with 18 – more than the previous two years combined.”

Some of the most highly publicised deals by mainland Chinese companies that passed CFIUS review include Shuanghui Group’s US$4.72 billion acquisition of Smithfield Group in 2013, computer giant Lenovo’s US$2.91 billion takeover of Motorola Mobility last year and Anbang Insurance Group’s US$1.95 billion purchase of New York’s landmark Waldorf Astoria hotel earlier this year.

“Plainly, Chinese deals are getting approved by CFIUS,” Brewster said.

Only two foreign investments have ever been blocked by the US president in the history of the committee, both of which involved Chinese-owned companies.

In 2012, President Barack Obama vetoed the purchase by Ralls Corp of four small companies in Oregon to develop wind farm projects on the acquired land. The sites were near a sensitive US Navy installation where drone training missions are conducted.

The deal was not submitted to the CFIUS for review before it was closed, so Ralls was ordered to divest its interests in the companies, remove all the structures it had built on the sites and sell off the companies under the CFIUS' terms.

President George Bush in 1990 voided the sale of Mamco Manufacturing to the state-owned China National Aero-Technology Import and Export Corp (Catic).

Mamco, a Seattle-based firm that fabricates metal parts for aircraft, had voluntarily notified the CFIUS about Catic's plan to acquire the company. But the mainland company closed the deal while the committee's review was in progress.

 

Post