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A senior US senator said China is using its “tentacles” to undermine American security, a warning delivered to cajole lawmakers to pass legislation that would step up scrutiny of Chinese investments in the US.

“Some of our adversaries, most notably China, have altered the strategic landscape and [are] not playing by the same set of rules,” Senator John Cornyn, the second-most senior Republican, said on the Senate floor.

“China has weaponised investment in an attempt to vacuum up our advanced technologies and simultaneously undermine our defence industrial base.”

Cornyn, who co-authored the Foreign Investment Risk Review Modernisation Act (FIRRMA), with Dianne Feinstein, a senior Democrat, said: “As [China] acquires US firms and technology and intellectual property, as well as the know-how to put it to use, the risk is that the Chinese government, which has its tentacles not just in state-owned Chinese companies, but also in so-called private Chinese firms, that it will get its hands on these capabilities and use them against us.”

China’s investments into US fell 35pc in 2017 due to outflow curbs and tighter screening of deals

If enacted, the legislation would expand foreign investment review procedures overseen by the Committee on Foreign Investment in the United States (CFIUS), which is chaired by the US treasury secretary and seeks input from the departments of defence and homeland security, among other federal bodies.

Cornyn’s warning reflects increased suspicion of China in Washington, which grew after US President Donald Trump in November accused Beijing of undermining American interests.

“China and Russia challenge American power, influence and interests, attempting to erode American security and prosperity,” Trump said during his first national security strategy speech released by the White House about an hour before he delivered it.

Can Sino-US relations survive calls for more scrutiny of Chinese investment in America?

Concern over China’s acquisition of US technology through legal investments and illegal means, such as cyber-hacking, started building even before Trump made his comments, partly in response to a US defence department study issued to lawmakers soon after the president took office, which asserted that China’s investment activity in the US “will directly enable key means of foreign military advantage”.

If passed, FIRRMA would give CFIUS the authority to review all “non-passive” investments by foreign entities, suspend pending transactions and impose new conditions, retroactively, on completed transactions.

CFIUS now only reviews transactions in which a foreign party wants a controlling interest in a US company and makes recommendations to the president on the national security threat posed by a proposed transaction.

While CFIUS is designed to halt the transfer to US adversaries of advanced “dual-use” technologies – those that can be adapted for military use – lawmakers are calling for the process to cover transactions that would give Chinese companies control over large pools of personally identifiable data.

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Such data, analysts and other observers warn, could make government officials and active members of the US military vulnerable to blackmail or offers to engage in espionage.

CFIUS has already become more aggressive. Last month, the body blocked Ant Financial’s proposed US$1.2 billion takeover of US money transfer service MoneyGram. The buyer had been trying to secure the approval since April.

Ant Financial is an affiliate of Alibaba, which owns the South China Morning Post.

“Growing regulatory hurdles in the US – mostly more complications getting clearance from the Committee on Foreign Investment in the United States – was the second punch to Chinese investors” looking for US assets, Rhodium Group founder Daniel Rosen said a January 17 research note.

The first punch was a regulatory crackdown on outbound investment by the Chinese government, according to the Rhodium report.

US aims to ramp up scrutiny of foreign investment in defence technology companies

In defending FIRRMA against its detractors, Cornyn appeared to target the giants of Silicon Valley, many of whom do not want to cut off investment from China.

“Major US companies are starting to recognise the risks here as well, and several have stepped up and endorsed this bill,” Cornyn said.

“However, there’s a very small group of other US firms that are actively opposing CFIUS’s modernisation, having decided their bottom line is more important than our nation’s security.”

Silicon Valley companies have benefited from investment interest from China.

China’s four largest internet companies, Baidu, Alibaba, Tencent and e-commerce company JD.com, have invested $5.6 billion in the US tech sector in the last two years, Flatiron Law Group LLP, which advises companies on CFIUS reviews, said in a recent report, citing CBI Insights data.



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