Thu, Jun 15, 2017 - Page 11 News List

US mulls tighter scrutiny of PRC tech investments


The US appears poised to heighten scrutiny of Chinese investment in Silicon Valley to better shield sensitive technologies seen as vital to national security, current and former US officials have told Reuters.

Of particular concern is China’s interest in fields such as artificial intelligence (AI) and machine learning, which have increasingly attracted Chinese capital. The worry is that cutting-edge technologies developed in the US could be used by China to bolster its military capabilities and perhaps even push it ahead in strategic industries.

An unreleased Pentagon report, viewed by Reuters, warns that China is skirting US oversight and gaining access to sensitive technology through transactions that currently do not trigger a Committee on Foreign Investment in the US (CFIUS) review. Such deals would include joint ventures, minority stakes and early-stage investments in start-ups.


“We’re examining CFIUS to look at the long-term health and security of the US economy, given China’s predatory practices” in technology, said an official in US President Donald Trump’s administration, who was not authorized to speak publicly.

US Secretary of Defense James Mattis on Tuesday weighed into the debate, calling CFIUS “outdated” and telling a US Senate hearing: “It needs to be updated to deal with today’s situation.”

US Senator John Cornyn, the No. 2 Republican in the Senate, is now drafting legislation that would give CFIUS far more power to block some technology investments, a Cornyn aide said.

“Artificial intelligence is one of many leading-edge technologies that China seeks and that has potential military applications,” said the Cornyn aide, who declined to be identified.

“These technologies are so new that our export control system has not yet figured out how to cover them, which is part of the reason they are slipping through the gaps in the existing safeguards,” the aide said.

The legislation would require CFIUS to heighten scrutiny of buyers hailing from nations identified as potential threats to national security. CFIUS would maintain the list, the aide said, without specifying who would create it.

Cornyn’s legislation would not single out specific technologies that would be subject to CFIUS scrutiny, but it would provide a mechanism for the Pentagon to lead that identification effort, with input from the US technology sector, the US Department of Commerce and the US Department of Energy, the aide said.

James Lewis, an expert on military technology at the Center for Security and International Studies, said the US government is playing catch-up.

“The Chinese have found a way around our protections, our safeguards, on technology transfer in foreign investment and they’re using it to pull ahead of us, both economically and militarily,” Lewis said. “I think that’s a big deal.”

However, some industry experts warned that stronger US regulations might not succeed in halting technology transfer and might trigger retaliation by China, with economic repercussions for the US.

China made the US the top destination for its foreign direct investment last year, with US$45.6 billion in completed acquisitions and greenfield investments, according to Rhodium Group, a research firm.

Investment from January to last month totaled US$22 billion, which represented a 100 percent increase over the same period last year, it said.

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