China-US relations

US aims to ramp up scrutiny of foreign investment in defence technology companies

Planned bill would block ‘economic rivals’ such as China from exploiting loopholes to modernise weaponry via acquisitions of US intellectual property

PUBLISHED : Friday, 23 June, 2017, 8:51am
UPDATED : Thursday, 06 July, 2017, 11:26pm

Two US senators are to introduce a new bipartisan bill that would restrict foreign acquisitions of American companies with advanced defence technologies, a senior US Republican senator said on Thursday.

The proposed legislation would be part of an effort to keep an “economic rival” such as China from exploiting a loophole to use acquisitions of US intellectual property to modernise its weapons system.

John Cornyn, a US senator from Texas, said at a Council on Foreign Relations event [in Washington] that there is an “urgent need” to close the loopholes in national security scrutiny of foreign investments to thwart investors who would seek access to US intellectual property to “undermine our competitiveness or defence industrial base”.

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The bill is part of the US Congress’ effort to expand the nation’s foreign investment review procedures overseen by the Committee on Foreign Investment in the United States (CFIUS), which is chaired by the Treasury Secretary along with eight other heads of government agencies, including defence and homeland security.

Cornyn added that the bill would include foreign transactions such as joint ventures or minority investments designed to acquire equity stakes in companies with advanced technologies used in rockets, sensors, autonomous vehicles application in the military space and other projects.

“No nation’s name will be mentioned in the bill,” Cornyn said.

He strongly criticised China, saying it “is using every tool at its disposal to close the technology gap between the US and that country”.

“China is the most preeminent and most aggressive country acting technically in a way to avoid the CFIUS process,” Cornyn said.

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The US has recently appeared poised to heighten scrutiny of Chinese investment in Silicon Valley, particularly in fields such as artificial intelligence and machine learning, to better protect sensitive technologies seen as vital to US national security, Reuters reported last week, citing current and former US officials.

Cornyn said Gary Peters, a Democratic senator from Michigan, would co-sponsor the bill. He declined to provide a time frame for the bill to be introduced on the Senate floor.