Advisory commission urges US Congress to bar acquisitions by China state firms

PUBLISHED : Thursday, 17 November, 2016, 9:33am
UPDATED : Thursday, 17 November, 2016, 9:33am

With Chinese investment in the United States setting records, congressional advisers have suggested changing US law so Chinese state-owned companies can be barred from buying or gaining control of American businesses.

The concern is that such enterprises could use technology, intelligence and market power “in the service of the Chinese state,” the US-China Economic and Security Review Commission said Wednesday in its annual report. The commission noted, for example, a growth in Chinese attempts to buy US assets in the semi-conductor industry.

The recommendation, stemming from the security implications about foreign investment by the world’s No 2 economy, was one of several proposals in the report, which examines a range of issues in the relationship between the powers.

We don’t want the US government owning large chunks of the US economy, so why do we want the Chinese Communist Party owning large chunks of the US economy?
Dennis Shea, US-China Economic and Security Review Commission chairman

Chinese investment in the US reached a record US$15 billion in 2015 and could climb to US$30 billion in 2016. About one-quarter of that investment is from state-owned companies.

“We don’t want the US government owning large chunks of the US economy, so why do we want the Chinese Communist Party owning large chunks of the US economy?” said Dennis Shea, the Republican-appointed chairman of the bipartisan commission.

“These state-owned enterprises are arms of the Chinese state and Communist Party. Often they do not act purely on commercial or market basis, they have strategic considerations,” he said.

The commission members are selected by leaders of both parties in the House and Senate. They include former US lawmakers, and former US government, military and intelligence officials. The commission is mandated by to provide recommendations to Congress for legislative and administrative action.

The report urges Congress to amend the statute authorising the Committee on Foreign Investment in the United States, known as CFIUS, to prohibit Chinese state-owned enterprises “from acquiring or otherwise gaining effective control of U.S. companies.”

That committee reviews foreign acquisitions for threats to US national security.

A February report by the Rhodium Group, a research organisation that tracks Chinese investment in the US, said that for the past three years, China was the country with the most transactions scrutinised by the committee. Rhodium said that was not due to increased scrutiny of China, but rather reflected an increase in the volume of foreign investment from China and a shift in its interest toward technology acquisitions.

“The vast majority of Chinese overtures continue to pass CFIUS reviews without any problems,” researchers said. According to Rhodium, annual investment flows from China to the U.S. have exceeded American investment flows into China since 2015.

China has long complained that Washington’s security review process for investments in the U.S. unfairly targets Chinese investors. The Chinese Embassy in Washington did not immediately respond to a request for comment Wednesday.

Carolyn Bartholomew, the Democratic-appointed vice chairman of the review commission, said that while China restricts foreign investment with laws banning foreign participation in large swaths of its economy, Chinese companies face no such obstacles in the U.S.

“People need to take a harder look at what companies are investing in the United States, why they are investing in the United States,” she said. “We just think that people are not paying enough attention to this.”