US urged to block China’s state companies from buying high security risk American assets

The US should block China’s state-owned enterprises and sovereign wealth funds from acquiring US assets, particularly the country’s “critical technologies or infrastructure” exposed to potential national security risks, a US congressional advisory committee said.

The US-China Economic and Security Review Commission (USCC) recommended in its annual report that Congress consider updating legislation pertaining to national security reviews of foreign investment to address “current and evolving security risks”.

When a Chinese state-owned enterprise (SOE) gains control of US companies in sensitive industries, the report said, there is “an inherently high risk” it “will use the technology, intelligence and market power it gains in service of the Chinese state to the detriment of US national security”.

Therefore, the commission asserted that Congress should prohibit the acquisition of US assets by Chinese state-owned or state-controlled entities, including sovereign wealth funds.

It also said US government agencies, including the departments of homeland security, commerce and defence need to prepare and regularly update a list of “critical technologies or infrastructure” that would be unavailable to Chinese entities for acquisition or investment.

The commission was created in 2000 to review the national security implications of trade and economic ties between the US and China.

Michael Wessel, a USCC commissioner, said at an event marking the annual report’s release in Washington that the report’s suggestions specifically target Chinese SOEs. Private Chinese companies are still subject to security reviews that focus “on the nature of assets” related to national security.

Asked whether blocking Chinese SOEs’ investment in the US would be perceived as “protectionism”, committee chairman Carolyn Bartholomew dismissed the idea.

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When the American business community began talking about “reciprocity” between the US and China, Bartholomew said, that would mean “it’s time to throw out this term”.

The report’s recommendations aligned with Congress’s fast-progressing effort to pass a bill aimed at tilting the nation’s review process more towards foreign investment in the US. The US Committee on Foreign Investment in the United States (CFIUS), chaired by the Treasury Secretary along with eight other heads of government agencies, oversees the review of offshore deals.

John Cornyn, a Republican Senator from Texas and the Senate Majority Whip, unveiled the bill last week. He accused China in a press release of “exploiting gaps” in the existing review process to degrade the US’s military technological edge by acquiring and investing in US companies.

Cornyn told a think tank event on Tuesday in Washington that the Congress was working with the US treasury, justice and defence departments to reach a “consensus” on the bill to “navigate a difficult path”.

“We don’t want to discourage Chinese investment in the United States,” Cornyn said at the Centre for Security and International Studies. “We want to do this in a very targeted way to deal with technology and know-how transfer that jeopardise our national security.”

Cornyn said “a great sense of urgency” was driving him to pass the bill, because “every day [that] goes by, there is potential technology slipping [into Chinese acquisitions] through the cracks”.

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Derek Scissors, a China analyst at the Washington-based American Enterprise Institute think tank, told the South China Morning Post on Tuesday that a vote in both US congressional chambers on the bill was expected in January. Scissors began working on the bill with Congress as an outside consultant in March 2016.

However, Scissors said the Cornyn bill failed to establish a clear definition of the US’s “critical” technologies or infrastructure. “I want to have a transparent environment for investors,” he said.

The bill’s proposed text does not name China as its main target; nor does it include a provision for blocking Chinese SOEs’ investment in the US.