GROWING CHINESE THREAT TO US NATIONAL INTERESTS

CHINESE TRADE AND INVESTMENT PRACTICES HARMFUL TO UNITED STATES
The Diplomat on March 29, 2018 reported on growing American concern about Chinese harm to national interests in the trade and investment area. Excerpts below:

[President Donald] Trump’s increasing anti-Chinese turn on U.S. industrial policy [has largely gone unnoticed].

Over the last five years, Chinese acquisitions in the United States boomed. As reported by the Rhodium Group, during this period Chinese companies invested $116 billion in the United States, raising the overall investments in the country to $138 billion. This sharp increase has produced several concerns in Washington, leaving many questioning the real intentions of the investors and their possible connections to the Chinese government.

A good share of these investments, indeed, have been directed toward strategic sectors with a high concentration of advanced technologies. Concerns stemmed from the possibility that these acquisitions could enable China to transfer cutting-edge technologies to its own companies, reinforce its high-tech industry, and pose a significant challenge to Washington’s technological supremacy.

Central to the reshaping of the relationship is the Committee on Foreign Investment of the United States (CFIUS), an interagency committee tasked with reviewing inbound investments for national security concerns. Among its members, CFIUS includes the heads of the Department of Treasury (who chairs it), Commerce, Energy, State, Homeland Security, Defense, and other offices. Although usually working behind closed doors, it has the power to block multibillion dollar deals if they are judged detrimental to national interests.

The first evidence of the administration’s change of approach came last September, when CFIUS did not approve the acquisition of U.S. chipmaker Lattice by Canyon Bridge, a semiconductor investment fund sponsored by a Chinese state-owned asset manager.

Since December, the administration made its stance even more clear regarding the high-tech industry. The National Security Strategy document released that month labeled China as a “strategic competitor”and fixed as a priority the protection of the U.S. “innovation base” from IP theft by the Chinese in order to preserve the United States’ long-term competitive advantage.

Therefore, since January, a string of interventions highlighted this new outlook. First, the deal for Moneygram, the second biggest money transfer provider globally, came under fire. The acquisition for $1.2 billion had been agreed with Ant Financial, the financial arm of Alibaba specializing in internet and mobile payments. Alex Holmes, director general of Moneygram, acknowledged the changes in the geopolitical environment as one of the reasons behind CFIUS’ refusal to give the green light.

Shortly after, CFIUS discreetly raised its voice once more when it put on hold two investments by the Chinese conglomerate HNA into U.S. hedge fund SkyBridge Capital and miner Glencore until the the buyer provided adequate information about its shareholding structure.

A month later, the committee intervened again in order to make clear that it was unlikely that it could approve the acquisition of Xcerra, a U.S. semiconductor testing company.

Only a few days after the Moneygram deal collapse, Chinese smartphone manufacturer Huawei was going to announce a deal with U.S. telecom carrier AT&T, marking a breakthrough for its penetration into the U.S. market, when suddenly the partner company backed away.

Indeed, Washington has a long record of mistrust toward Huawei and the last move appears motivated by concerns over Beijing’s espionage and presence in a strategic sector like telecommunications.

…the most prominent chapter of this saga occurred this month, when CFIUS took some unusual steps to kill the biggest deal ever in the technology industry. Broadcom, a Singapore-based formerly U.S. tech company, offered $117 billion for the acquisition of rival Qualcomm, one of the world’s largest semiconductor manufacturers and a prominent developer in the race for the next-generation high-speed wireless network known as 5G. Before the deal was even concluded, CFIUS made clear that it might not let the acquisition go through and soon Trump, building on the committee’s decision, issued an order to block the takeover.

This is probably the most interesting case to date because it shows a shift in how CFIUS thinks about the protection of national security.

After all, the massive bank borrowing required for the deal did anything but assuage that concern. Against that backdrop, CFIUS warned that China would be able to fill any void left by a “hostile” Qualcomm takeover: reducing its competitiveness and its standard-setting abilities, the committee said, would have a negative impact on U.S. national interests as Chinese companies such as Huawei would finally be able to take the lead in the development of the most advanced technologies. This, of course, could bear great military implications.

Republican lawmakers have introduced a bill to reinforce CFIUS’ scrutiny powers. The reform, which appears to have bipartisan backing, would expand its jurisdiction to outbound investments from U.S. companies in order to fight China’s practices of forcing foreign enterprises to share their technologies in exchange for market access.

…economic tensions between Washington and Beijing are heightening. Despite Prime Minister Li Keqiang’s latest endeavors to reassure his counterparts, the U.S. perception that Chinese trade and investment practices are unfair and harmful for national interests is highly unlikely to go away and Trump’s announcement of a new round of tariffs last week proves that.

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