As Chinese investment in the US keeps setting records, congressional advisers suggest changing US law so Chinese state-owned enterprises (SOE) can be barred from buying or gaining control of US businesses.
The concern is that such enterprises could use technology, intelligence and market power “in the service of the Chinese state,” the US-China Economic and Security Review Commission said on Wednesday in its annual report.
The commission cited as an example the growth in Chinese attempts to buy US assets in the semiconductor industry.
The recommendation, stemming from the security implications about foreign investment by the world’s No. 2 economy, was one of several proposals in the report, which examines a range of issues in the relationship between the powers.
Chinese investment in the US reached a record US$15 billion last year and could climb to US$30 billion this year. About one-quarter of that investment is from state-owned companies.
“We don’t want the US government owning large chunks of the US economy, so why do we want the Chinese Communist Party owning large chunks of the US economy?” said Dennis Shea, the Republican-appointed chairman of the bipartisan commission.
“These state-owned enterprises are arms of the Chinese state and Communist Party. Often they do not act purely on commercial or market basis, they have strategic considerations,” he said.
The commission members are selected by leaders of both parties in the House and Senate. They include former US lawmakers, and former US government, military and intelligence officials. The commission works on a mandate to provide recommendations to Congress for legislative and administrative action.
The report urges the US Congress to amend the statute authorizing the Committee on Foreign Investment in the US, known as CFIUS, to prohibit Chinese state-owned enterprises “from acquiring or otherwise gaining effective control of US companies.”
That committee reviews foreign acquisitions for threats to US national security.
A February report by the Rhodium Group, a research organization that tracks Chinese investment in the US, said that for the past three years, China was the country with the most transactions scrutinized by the committee.
Rhodium said that was not due to increased scrutiny of China, but rather reflected an increase in the volume of foreign investment from China and a shift in its interest toward technology acquisitions.
“The vast majority of Chinese overtures continue to pass CFIUS reviews without any problems,” researchers said.
According to Rhodium, annual investment flows from China to the US have exceeded US investment flows into China since last year.
China has long complained that Washington’s security review process for investments in the US unfairly targets Chinese investors.
The Chinese embassy in Washington did not immediately respond to a request for comment Wednesday.
Carolyn Bartholomew, the Democratic-appointed vice chairman of the review commission, said that while China restricts foreign investment with laws banning foreign participation in large swaths of its economy, Chinese companies face no such obstacles in the US.
“People need to take a harder look at what companies are investing in the United States, why they are investing in the United States,” she said. “We just think that people are not paying enough attention to this.”
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