The recent trade tensions between the United States and China, as well as the increased concern about the rising investment of China-based companies in U.S. firms has led to calls for increased regulatory enforcement on overseas investments. As a result, the United States government is set to issue new rules targeted at Chinese investments. This is an exciting development, as it is widely believed that these rules will have the potential to help protect American businesses from unfair competition or exploitation.
Background
The United States and China are two of the world’s most powerful economic forces. For a long time, the two countries were economic partners, but in recent years, their relationship has become increasingly strained due to rising divisions between the two countries on a range of issues. Trade remains a major point of contention between the two sides and has been the main source of their troubles.
In response to rising Chinese investment in U.S. businesses, the US government has proposed a series of measures designed to protect American industry. These actions include adjustments to existing foreign investment policies, and the introduction of new rules designed to limit foreign investments in key sectors, such as technology and telecommunications.
The Executive Order
In March 2021, U.S. President Joe Biden signed an executive order that provides the Legal basis for the creation of new rules for foreign acquisitions. The Executive Order states:
“I hereby order a review of the current investment policies and procedures used by the U.S. government with respect to foreign acquisitions. This review shall include an evaluation of existing tools and policies related to foreign direct investment programs and related activities, and their ability to protect the national security of the United States. I further direct the Secretary of the Treasury to issue regulations or other guidance, as appropriate, to assist in the implementation of these changes. In addition, I direct the Committee on Foreign Investment in the United States (CFIUS) to review transactions and investments involving persons linked to foreign governments and to take appropriate actions as necessary.”
The executive order gives the Treasury Department the authority to proposed new regulations and other guidance on foreign investments. This order is seen as the first step towards the formation of the new rules on investment in China.
The Proposed New Rules
The proposed new rules target investments in U.S. companies that are sensitive to national security, such as those operating in technology, telecommunications, artificial intelligence, and semiconductors. These new rules will place restrictions on investments from China-based entities and foreign investment in “critical technology”.
The rules will be enforced by the Treasury Department, and impose a number of restrictions, including:
• Limiting the amount of ownership or control a Chinese investor can have in a critical technology company
• Requiring foreign investors to provide information on their companies’ ownership, as well as their investments
• Allowing the US government to review and block investments that pose a threat to US national security
• Instituting regulations on foreign investors to ensure that investments are not used for espionage or theft of intellectual property
• Requiring foreign investors to submit further information about the origin of their funds and the nature of their investment
These rules will also give the US government the power to block foreign investments or compel their divestment if it finds that the investments are detrimental to its national security.
The Implications of the New Rules
The new rules are expected to have a major effect on investments from China, greatly reducing the rate of Chinese investment in the US. This will almost certainly have a chilling effect on technology and telecommunications investments from China, as these sectors are seen to be more sensitive to national security concerns.
At the same time, these rules could also lead to increased scrutiny of investments from other countries, including allied nations such as Japan, South Korea, and the United Kingdom. This is because the US government has highlighted that the new rules will apply regardless of the country of origin of the investor.
The United States is preparing new rules to protect American businesses from unfair Chinese investments. The regulations are set to be issued by the US Treasury Department, and will place restrictions on foreign investments in key sectors such as technology and telecommunications. The proposed rules will also allow the US government to review, block, and even compel divestment of foreign investments if they are deemed a threat to national security. These new rules are expected to have a major impact, with Chinese investment in the US likely to drop substantially. At the same time, the rules could also lead to increased scrutiny of the investments of allied countries in the US.
