US Treasury head defensive after reports that Chinese investment in US tech will be blocked and declared a security risk
The US Treasury Secretary has tried to play down claims that America is targeting Chinese ownership of US companies in ‘industrially significant’ technologies
US Treasury Secretary Steven Mnuchin has come out in defence of leaked White House rules on foreign investment, saying that they will apply to all countries investing in US technology, not just China.
Both Bloomberg and The Wall Street Journal have reported that the White House is planning to heighten scrutiny of Chinese investments in sensitive US industries under an emergency law, putting Washington’s trade war with Beijing on a potentially irreversible course.
According to Bloomberg, eight people familiar with the plans said that the White House would use one of the most significant legal measures available to declare China’s investment in certain US companies a threat to economic and national security.
On Monday morning, Mnuchin tweeted that this was “false, fake news”, although he did not deny that the plans did not exist – only that they would be applied not just to China, “but to all countries that are trying to steal our technology”.
On behalf of @realDonaldTrump, the stories on investment restrictions in Bloomberg & WSJ are false, fake news. The leaker either doesn’t exist or know the subject very well. Statement will be out not specific to China, but to all countries that are trying to steal our technology.
— Steven Mnuchin (@stevenmnuchin1) June 25, 2018
The White House’s plans would apply to companies involved in technologies such as new-energy vehicles, robotics and aerospace, Bloomberg reported.
The Wall Street Journal also reported on Sunday that the Treasury is crafting rules that would block firms with at least 25 per cent Chinese ownership from buying US companies in “industrially significant” technologies.
Mnuchin, in a report expected to be released on Friday, will suggest administering that law through an inter-agency government panel called the Committee on Foreign Investments in the US, or CFIUS, the people said, requesting anonymity to discuss the plans, it said.
A Treasury spokesman did not reply to a request for comment.
One concept under review would be to create a two-tracked CFIUS process to review investments, with one specifically for China, two of the people said.
“It is now clear that Trump’s policy is not about the trade deficit,” said Raymond Yeung, chief China economist for Australia & New Zealand Banking Group in Hong Kong. “Security risks can be applied to every aspect in a bilateral relationship, investment restrictions in particular.”
The S&P 500 Index fell to the lowest level since May, with technology shares leading declines on reports of the US Treasury Department plans. China and Europe warned the escalating trade war could trigger a global recession.
China’s Ministry of Commerce did not immediately respond to an inquiry about the report of planned investment curbs by the US.
Mnuchin has been working on the plans since as early as December, though he has argued for taking a less aggressive approach, the people said.
In the end, they said, he was persuaded by other members of the Cabinet and the president to use blunt tools to address growing national security risks from Chinese investments.
The Treasury chief has kept a low profile in recent weeks. People familiar with Mnuchin’s thinking said that after he lost an internal battle on how to handle the trade dispute with Beijing, he is signalling his disagreement with the president’s approach through silence.
The South China Morning Post reported on Sunday that China had no plan to target US companies operating in the nation amid escalating trade tensions, but additional steps by the White House may change that assessment.
The national emergency law, called the International Emergency Economic Powers Act (IEEPA) of 1977, will target prospective investments, meaning existing ones cannot be undone, according to four of the people. It is unclear what would happen to deals that have been announced but not yet completed.
Some administration officials are concerned that indicating a national economic emergency could hammer the stock market or hurt US firms operating in China, they said.
Treasury officials are trying to settle on a legal definition of “Chinese entities” that would be affected.
The Wall Street Journal’s report said the US National Security Council and commerce department were also devising plans for “enhanced” export controls to prevent such technologies being shipped to China, citing people familiar with the matter.
The newspaper said the plans were expected to be announced by the end of the week but were not finalised, and that industry representatives would have a chance to comment before they took effect.’
The initiatives, the newspaper said, are designed to hamper plans Beijing outlined under its Made in China 2025 strategy to become a global leader in 10 sectors that include robotics, aerospace and clean-energy cars.
It said the planned investment bar would not distinguish between Chinese state-owned and private companies.
Trump’s top trade adviser, Peter Navarro, has been laying the groundwork to escalate what he has so far called a “trade dispute”.
Navarro recently issued a 36-page report titled “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World”.
The report is seen as part of the evidence the administration will use to justify the investment curbs on economic security grounds.
Much of China’s “behaviour constitutes an economic aggression”, Navarro said during a phone briefing with reporters.
“It is critical both for the interests of the United States and the integrity and proper functioning of the global economy that the Chinese cease this kind of behaviour,” he said.
The US Treasury’s move is part of the Trump administration’s actions to respond to China’s alleged theft of US intellectual property and follows rounds of tit-for-tat tariff threats between the two largest economies.
The IEEPA statute allows the president to unilaterally impose the investment limits. Congress, in parallel, is working on reform legislation for the CFIUS that would scrutinise all inbound investment in the US on national security grounds.
People familiar with the administration’s plans said the Treasury’s investment limits are seen as complementing the CFIUS reform efforts, which are not only focused on China and don’t limit the investments to economic security grounds.
The people briefed on the latest action said the Treasury limits would take effect in phases, meaning that not all Made in China 2025 sectors would be covered at once.
Additional reporting by Reuters