Originally published by Gordon Orr on LinkedIn: Is Chinese M&A in the US still possible?
A 90% fall in Chinese investment into the US in 2018 so far could just be a blip resulting from current geopolitical tensions. Or it could be a permanent reduction, cemented in place by new laws, now finalized and set to pass the US congress in the next few weeks.
And it’s important to realize that this new law, while supported by the Trump administration, was not initiated by them. Rather it comes from agreement between Republican and Democrat lawmakers that something needed to change. And laws once made tend not to get changed very often – we should assume this new law will remain in place for at least the next decade.
So what exactly will be different?
This law – the Foreign Investment Risk Review Modernization Act (FIRRMA) to give it its full title – expands the scope of types of investment that the government must review and sign off on before an investment can be completed, and gives clear direction on the types of investment that it expects to be turned down.
These reviews are undertaken by a group called CFIUS (Committee on Foreign Investment in the United States) whose membership is made up of close to 20 branches of the US government ranging from the Department of Commerce to the Department of Defense.
Proposed investment that must be reviewed include not only investments where a foreign party acquires control of a business, but also:
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Minority (or non-controlling) investments into:
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Critical infrastructure companies
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Suppliers to critical infrastructure companies
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Companies that develop, manufacture, or test critical technologies
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Companies that maintain or collect personal data on US citizens
2. Major real estate transactions, prioritizing any proposed transaction in the vicinity of a government facility.
Lots of use of the word “critical”. Digging in to what some of these terms mean:
Critical technology company: A business that "produces, designs, tests, manufactures, fabricates, or develops" critical technologies. Critical technologies, in turn, are those subject to certain US export and other security controls, including new export control provisions designed to protect "emerging and foundational technologies". This is likely to include companies that work in quantum computing, artificial intelligence, biotechnology and the like, as well as anything regarded as dual use, civilian and military, technology such as drones.
Critical infrastructure company: A business that "owns, operates, manufactures, supplies, or services" critical infrastructure, such as telecommunications, utilities, transportation, financial services, healthcare and government services (A very similar definition to that which China uses in its cybersecurity law). Covered suppliers to these companies include providers of technology such as servers, switches, convertors, vehicles, medical consumables and potentially anything a government department might purchase. A sweeping scope.