China’s technological ambitions have raised longstanding concerns about its use of investments abroad to access sensitive technologies, data, and infrastructure, particularly those with military implications. Accordingly, Chinese investments in the United States are far more likely to undergo government scrutiny than those from other countries.
Deals involving Chinese investors were reported to the Committee on Foreign Investment in the United States (CFIUS), the US agency responsible for reviewing investments for national security threats, at a rate disproportionate to their share of investment. Chinese deals make up 15 percent of CFIUS reviews but are the source of only 4 percent of all US mergers and acquisitions. Japan, South Korea, and Singapore also averaged more reviews relative to investment, but this may indicate that they are investing in more sensitive sectors.
The high rate of Chinese filings could reflect caution on their part as Chinese firms may be filing even the least sensitive investments with CFIUS to reduce the risk of trouble.
A recent rule change may also have contributed to Chinese wariness. Four years ago, Congress expanded CFIUS’s scope to include investments in US firms that fall short of controlling stakes if they would give a foreigner access to sensitive data, technical information, or critical infrastructure, or if the investment involves a foreign government. This expanded reach was aimed at closing a loophole that allowed Chinese firms to make a minority investment, gain board seats, and push the firm to provide the tech or data to China anyway.
In some cases, CFIUS is blocking Chinese firms from buying companies with no physical presence in the United States but are listed on US stock exchanges. There is no indication that CFIUS is using its new powers to an excessive degree. But the United States should be careful about weaponizing its capital markets, to avoid discouraging legitimate investments.
This PIIE Chart is based on Martin Chorzempa’s blog post, US security scrutiny of foreign investment rises, but so does foreign investment. Produced and designed by Nia Kitchin and Oliver Ward.