US-China relations: ‘vague’ investment screening plan leaves questions on scope and execution

The America Competes Act of 2022 contains a proposal for a new outbound review process that would screen investments in offshore supply chains, notably in China

Though there is bipartisan political support for the investment regime, it is not yet clear what shape it will take or how it will impact US firms in China, say experts

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There is appetite across the political divide in the US to help American businesses diversify supply chains from China. Photo: AP

Published: 4:00am, 12 Apr 2022Updated: 5:47am, 12 Apr 2022

Tension with China is propelling the creation of a new outbound investment screening regime in the United States, but significant uncertainty remains about how it will be implemented, analysts say.

On February 4, the US House of Representatives passed the America Competes Act of 2022, which is designed to boost American competitiveness and strengthen supply chain security. Nestled within is also a proposal for a new outbound review process that would screen investments in offshore supply chains, as well as transactions that may affect “national critical capabilities”.

Analysts have mixed views on whether the new screening regime will be passed by Congress this year, but with national security concerns at the top of the agenda in Washington, there is support from across the political divide.

“Given that being tough on China is the only bipartisan issue right now, I fully expect the new screening regime to be put into place,” said Taylor Loeb, an analyst at Trivium China.

The US wants to diversify supply chains away from China, or at least develop backups

Taylor Loeb

“The US wants to diversify supply chains away from China, or at least develop backups. The screening regime is, at its core, designed to do exactly that.”

Up to 43 per cent of American foreign direct investment (FDI) to China, or US$110 billion in value, between 2000 and 2019 would have merited review under the act, according to a report written by research firm Rhodium Group and the non-profit National Committee on United States-China Relations in January.

Charlie Vest, senior research analyst at Rhodium Group, said although there was a lot of interest in a new outbound investment regime, it was “not yet clear what form it might take”.