US has further tightened the rules governing entry of foreign investors into American businesses through takeovers and equity participation in sensitive tech and other high-tech areas
National security considerations are being cited as the reason for the enhanced scrutiny
Geneva: The United States has further tightened scrutiny procedures for Chinese and other foreign investors to gain a foothold into data and high-tech American businesses on grounds of national security considerations, even as the two sides resume their trade talks at the deputy-official level on Thursday, for reaching an agreement soon.
Ahead of today's meeting, US President Donald Trump has suggested a trade deal would be reached soon. China is apparently anxious to reach an agreement before the elections in 2020 because Chinese officials understand the US will strike a harder deal after the election.
“If it’s after the election, it will be a deal like you’ve never seen, it’ll be the greatest deal ever and China knows that," the US president told reporters in Washington on 17 September.
“They think I’m going to win, China thinks I’m going to win so easily and they’re concerned because I told them, if it is after the election it’s going to be far worse than what it is right now. I told them that. Would they like to see somebody else win? Absolutely," Trump claimed, according to a report in the Washington Trade Daily on 18 September.
Despite the cautious moves by both sides towards an agreement on the trade front, the US has further tightened the rules governing entry of foreign investors into American businesses through takeovers and equity participation in sensitive technology and high-tech areas on national security considerations.
The US move was directed primarily at the Chinese investors who have invested in several start-up companies in the Silicon Valley in California, several analysts said.
On Tuesday ( 17 September), the US treasury department officials “provided a first glimpse of how they would implement last year’s Congress’s order to expand the scope of national-security reviews of foreign investment deals, including those involving satellites, oil refineries, financial-market systems and drinking water utilities," according to report in The Wall Street Journal.
“Today’s proposed regulations will provide clarity and certainty to investors regarding CFIUS’s enhanced (Committee on Foreign Investments in US) authorities to address national security risks that arise from certain foreign investments," WSJ reported quoting US Treasury Secretary Steven T Mnuchin.
The CFIUS regulates foreigners, or aliens in the American lingo, from acquiring controlling stakes in areas involving “critical technology" with national security implications.
Over the past several years, a range of Chinese venture funds and investors apparently poured billions of dollars in the start-ups in Silicon Valley by picking up minority stakes.
For overcoming this lacunae in the CFIUS which is in operation since 2007 following the Foreign Investment and National Security Act of 2007, the US Congress has already enacted a bill titled Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA).
The bill is largely directed against the Chinese investment and also included significant changes to the existing CFIUS review.
More important, the new legislation would expand CFIUS’s jurisdiction to cover a number of new types of transactions such as purchases or leases of real estate in close proximity to sensitive US government facilities in the Silicon Valley and other cities, and the contribution of intellectual property and associated support to a foreign person through any arrangement, including joint venture.
“Tuesday’s proposed rules explained what kind of sensitive data collected by U.S. businesses could trigger a national-security review if a foreign investor becomes involved, narrowing the panel’s review authority to companies with data on more than one million people or on populations that include U.S. military members," the WSJ wrote.
“Industry officials concerned about the implementation said potential regulatory overreach could overwhelm Treasury staff with new filings," it reported.
In effect, even as China is ready to conclude a bilateral trade agreement with the US, Chinese investors are unlikely to secure an entry into high-tech areas in the US due to national security considerations in the world’s largest economy. China’s companies such as Huawei are already facing several restrictions for the supply of key components and chips from the American companies.
Huawei’s founder Ren Zhengfei was quoted by New York Times as saying earlier that the company was open to sharing its 5G technologies with US companies, and “those companies can even change the software," according to a report titled in Global Times, a Chinese publication, on 18 September.
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