CFIUS Increasing Reviews as US-China Investment Continues to Fall, Report Says

Two-way investment between the U.S. and China dropped to a nine-year low during the first half of 2020, the National Committee on U.S.-China Relations said in a Sept. 17 report prepared with data from the Rhodium Group. It also said growing tensions between the two sides are leading to an increase in U.S. investment reviews, specifically of past Chinese transactions.

Investment between the U.S. and China totaled $10.9 billion in the first half of 2020, the lowest level since 2011, the report said. The drop would have been “even larger if not for one especially large acquisition carried over from last year,” the report said: Tencent’s $3.4 billion purchase of a minority stake in Universal Music Group. The report said the number of completed investment transactions “remained low” due to a “wider and more restrictive set of US policies” implemented by the Committee on Foreign Investment in the U.S., specifically in the technology sector.

Experts have said companies should expect increased restrictions and CFIUS reviews surrounding Chinese companies (see 2008250038), particularly around transactions in the biotechnology sector due to the COVID-19 pandemic (see 2003250033). But even though CFIUS was thought to be closely monitoring Chinese investors trying to take advantage of struggling and pandemic-hit U.S. companies (see 2006230057), the NCUSCR and the Rhodium Group said they have yet to find evidence of those investments. “Aggressive Chinese buying of distressed US assets under the cloud of COVID-19 -- a concern voiced by some US politicians at the start of the year -- has not materialized,” the report said.

It also said growing U.S.-China trade frictions are leading to an “expansion of the defensive US policy toolbox.” In an attempt to target past Chinese investments, CFIUS is increasing efforts to “retroactively” review transactions that were not filed voluntarily, the report said. CFIUS is specifically targeting investments made before the implementation of the Foreign Investment Risk Review Modernization Act, which expanded its jurisdiction to include transactions involving critical technologies (see 2001140060), among other changes. “We are seeing stepped-up efforts by CFIUS,” the report said.