U.S. panel wants CFIUS to block all SOE deals

The chairman of the commission said to the press: “Chinese SOEs are arms of the Chinese state…We don't want the U.S. government purchasing companies in the United States, why would we want the Chinese Communist government purchasing companies in the United States?”

Chinese foreign ministry spokesman Geng Shuang said that the proposal “has again revealed the commission's stereotypes and prejudices.”

The most recent CFIUS annual report, published on February 19 this year, showed China took the lead in countries represented in the reviews, with 23, 21, and 24 notifications from PRC acquirers in 2012, 2013 and 2014, respectively.

CFIUS does not give reasons for its decisions. Last January, the committee blocked the $3.3 billion sale of Philips' lighting business Lumileds to a Chinese consortium. This year, state-owned Tsinghua Unigroup pulled the plug on its $3.8 billion plan to become the largest shareholder in data storage group Western Digital after the deal was flagged for a CFIUS probe.

And last Friday, Aixtron SE, a German tech company preparing for a takeover by China's Grand Chip, said it was informed by CFIUS that the proposed transaction would be blocked due to “unresolved U.S. national security concerns”. The German economics ministry's merger clearance withdrawal last month reportedly came after it received a notification from the U.S. authorities.

An Aixtron spokesman on Monday said that the company has “objective arguments to overcome the concerns,” and that it was in close contact with the U.S. and German regulators.

The U.S.-China Economic and Security Review Commission's report, although strictly advisory, could have real implications. U.S. president-elect Donald Trump's transition team is formulating foreign policy and trade agendas and appointing candidates for economic and security positions. Trump's election campaign was also largely fueled with anti-Chinese rhetoric, with promises to brand the Asian nation a currency manipulator and impose 45% tariffs on imported PRC goods.

Among the other 19 proposals contained in the document were to conduct an investigation into how far outsourcing to China has weakened U.S. defense. It also calls for passing laws that would require Congress approval of any moves made by the Department of Commerce to treat China as a “market economy”, as a key provision in China's WTO Accession Protocol surrounding anti-dumping duty calculation methods expires soon. Specifically, the 15-year period for which China agreed to be treated as a non-market economy—and be imposed higher rates—comes to an end on December 11, 2016.

Trump has also publicly announced to kill the “disastrous” Trans Pacific Partnership (TPP), an Obama-led Asia trade pact that China was excluded from. China is seizing this window of opportunity to push its own regional agreements, such as the Regional Comprehensive Economic Partnership (RCEP), which takes a more traditional approach by cutting tariffs rather than opening up economies and setting labor and environment standards like the TPP. China, Japan and South Korea are also in early talks of pursuing a trilateral trade deal.

By Katherine Jo

A U.S. commission has urged its legislators to ban China's state-owned enterprises (SOEs) from acquiring or gaining control of American companies.

In its annual report to the U.S. Congress, the U.S.-China Economic and Security Review Commission, a panel that monitors security and trade links between Washington and Beijing, said the Chinese government has used SOEs to advance and achieve its own national security objectives.

The document, released on November 16, calls for changes to the mandate of the Committee on Foreign Investment in the United States (CFIUS), an inter-agency body led by the Department of Treasury and eight others including those of Defense, State and Homeland Security, which steps in and reviews inbound acquisitions by foreign firms when a deal is perceived to pose a threat to U.S. national security or critical infrastructure.