President Xi Jinping of China walks with President Donald Trump at his Mar-a-Lago resort in Florida. A key panel on foreign investment in the U.S. may be strengthened. (DOUG MILLS/NYT)
The push would expand the powers of a little-known but important panel — the Committee on Foreign Investment in the United States, or CFIUS — that can effectively block foreign deals for U.S. companies on national security grounds.
When President Donald Trump talked tough about China’s economic impact on the United States during the campaign, he criticized its trade policies and its approach to its currency.
Yet one of the first pieces of legislation under the Trump administration that could have a major impact on the economic relationship between the two countries centers on something different: Chinese deal making in the United States.
White House officials and a group of lawmakers on both sides of the aisle are pushing for new laws intended in part to keep closer tabs on the surge of Chinese money into the United States. Some in Washington, D.C., say that money could help China expand its technological and military abilities. While any legislation would face congressional debate and review, a large number of Trump administration employees who deal with both trade and national security have said they support some sort of overhaul of how the United States vets such deals.
The push would expand the powers of a little-known but important panel — the Committee on Foreign Investment in the United States, or CFIUS — that can effectively block foreign deals for U.S. companies on national security grounds. In particular, it could reshape the ways U.S. technology companies, big and small, raise money from Chinese investors.
“We’ll try to enable CFIUS to take a tougher line against certain investments emanating from those nations that pose a clear threat to our national security, focused particularly in the area of advanced technology,” said Sen. John Cornyn, R-Texas, who said last month that he would propose the legislation.
The Trump administration has not staked out a formal stance, but trade experts are watching how the committee treats a pair of pending deals as a test of the political winds. The first is a $1.2 billion bid by Ant Financial — the electronic-payments affiliate of the Alibaba Group, the Chinese e-commerce giant — for a remittances company based in Dallas called MoneyGram. The second is a $1.3 billion offer by a China-backed buyout fund for Lattice Semiconductor, which makes a range of advanced communications and telecommunication chips.
Chinese buyers are pouring more and more money into the U.S. In 2016, Chinese investment in the United States jumped threefold to $46 billion from the year before, according to the research firm Rhodium Group. Chinese purchases in recent years have included buildings and movie-theater chains.
But some deals have been in potentially sensitive areas, like semiconductors, which CFIUS has increasingly blocked. A growing number have also been among startups working on cutting-edge technology, but they are difficult to track and are often too small to be reviewed by CFIUS.
In a report this year that was first reported by The New York Times, the Pentagon said it was concerned about the flow of Chinese investment into startups working on important technology like artificial intelligence, robotics and augmented reality.
Critics also argue that Beijing and companies supported by the government have sought to form joint ventures or license technology, neither of which CFIUS reviews.
“There is a perception that different financial structures are being used to avoid potential CFIUS oversight,” said Andrew Shapiro, a founder of the advisory firm Beacon Global Strategies and former assistant secretary of state for political-military affairs. “So they will try to close those loopholes.”
Over the past two years, CFIUS has broken up a number of major Chinese bids for semiconductor companies, leading to Chinese complaints.
It is unclear how China’s government would respond to the revamped regulator, but the move would most likely stoke some tensions. At a recent news conference, Lu Kang, a spokesman for the Foreign Ministry, said, “There should not be undue political dimensions imposed on commercial takeovers, let alone political intervention.”
Recently, several Trump administration officials, including Wilbur Ross, the secretary of commerce, have also expressed support for expanding the committee.
“His staff is well versed on the issues, and he clearly sees the need for updating CFIUS,” said Paul S. Triolo, head of practice on technology policy for the Eurasia Group, an advisory firm.
“He appears to be leading the charge on this with the administration,” he added.
CFIUS includes members of a number of U.S. agencies, including the Departments of Defense, State, Justice, Treasury and Homeland Security, and industry and policy analysts are watching closely to see how the committee acts under the Trump presidency.
Ant Financial, the Alibaba affiliate, outbid a company based in Kansas called Euronet Worldwide to acquire MoneyGram. Some lawmakers, led by representatives from Kansas and Texas, where MoneyGram is based, have said an Ant purchase would expose the personal financial details of U.S. users.
Douglas Feagin, Ant Financial’s head of international operations, said in an interview that the company intended to allow MoneyGram to continue to operate on its own and that the data it had would continue to be stored in the U.S. on a network separate from Ant’s networks.
“The test cases will be things like the Alibaba deal,” said Adam Segal, an expert on emerging technologies at the Council on Foreign Relations.