Tuesday, 24 April 2018

U.S. targets China deals as security threat


Efforts by China’s GAC Motor to sell vehicles in the U.S. may receive closer scrutiny.

WASHINGTON — For all the hubbub about tariffs and trade wars, it’s Washington’s increasingly aggressive investment policy toward China that could pose the biggest challenge to the auto sector in both countries.

Under a policy that involves using national security grounds to limit Chinese influence over U.S. industry and emerging technologies, the Treasury and Congress, guided by the principle of reciprocity, are expected to soon add layers of security reviews to cross-border transactions that could constrict how automakers, suppliers and other companies on both sides do business.

Heightened scrutiny of ownership changes and technology transfers in critical industries could complicate plans by auto-related companies to set up operations or sell products in the U.S., limit imports of China-made telecom equipment to support autonomous vehicles and even restrict U.S. companies from building factories in China.

“There’s an increased inclination to say, ‘Why should we let you invest in U.S. industry if China won’t let us invest in the Chinese equivalent sector?’,” said Stewart Baker, a partner at international law firm Steptoe & Johnson, who participated in investment reviews as assistant secretary of policy at the Department of Homeland Security under President George W. Bush. “Automotive is part of it. It’s very hard to buy an automobile company in China, and the U.S. is likely to make it harder to buy U.S. automotive companies as well.”

The changed investment climate is a product of renewed geopolitical competition with global powers after years focused on combating terrorism, resulting in a broader interpretation of the government’s national security powers over commerce. The shift will mean new scrutiny of U.S. and Chinese companies, especially as China embarks on its Made in China 2025 plan, an ambitious strategy to acquire technological know-how and establish global leadership in sectors such as electric vehicles, artificial intelligence, robotics, autonomous vehicles, quantum computing and advanced manufacturing.

In addition to $150 billion in retaliatory tariffs for Chinese intellectual property theft and forced technology transfers and joint venture requirements, President Donald Trump ordered the Treasury to propose measures that curtail China’s investment practices involving sensitive industries or technology.

One option under consideration is invoking the 1977 International Emergency Economic Powers Act, The New York Times reported. The law gives the president sweeping authority to deal with any “unusual and extraordinary threat” and was used to place sanctions on countries after the Sept. 11 attacks.

{{title}}


{{abstract}}

Read more >

{{/content}}

Baker, whose practice covers national security and technology issues, said it is plausible that Trump officials will use the powerful legal tool to stop risky inbound Chinese investments, as well as joint ventures, purchases of China-made equipment and other transactions that haven’t been covered by security reviews. Courts have upheld presidential use of the act to extend export controls, even when authorizing legislation has expired, he added.

Slowing investment

China watch

Though new security screenings of planned Chinese investments in the U.S. are intended to protect sensitive technology, they could further chill acquisition and investment activity — including greenfield developments. The screenings target investments such as those involving these companies and sectors:

  • Zhejiang Geely Holding: Volvo plant in S.C.
  • Nio: Electric vehicles
  • Baidu: Self-driving car lab in Calif.
  • Alibaba: Artificial-intelligence lab in Washington state
  • AVIC (acquired Hilite, Nexteer Automotive): Steering, driveline, emissions control
  • Ningbo Joyson Electronic Corp. (acquired Key Safety Systems): Safety parts, airbags
  • Global Steering Systems: Factory in Conn.
  • Wanxiang (acquired A123 Systems): Batteries
  • Zhongshan Broad-Ocean Motor (acquired Prestolite Electric): Electric motors
  • Fuyao Group: Auto glass plants in Ohio, Illinois
  • SF Motors (acquired AM General assets): EV manufacturing
  • BeijingWest Industries (acquired Delphi assets): chassis
  • Yanfeng Automotive Interiors: plant in Tenn.
  • Great Wall Motor: signaled interest in acquiring Fiat Chrysler
  • GAC Motor: Recruiting U.S. dealers to sell imported vehicles

Stakeholders say the challenge for policymakers is protecting sensitive technologies without deterring benign foreign investment.

A few years ago, China represented a potent source of investment capital for automotive startups, especially in EVs. But investment flows between China and the U.S. have slowed. In 2017, the value of completed Chinese direct investments in the U.S. fell more than 35 percent to $29 billion, including $500 million in the auto sector. And the value of newly announced Chinese acquisitions plunged 90 percent, according to a report by the Rhodium Group. The restrictive policy on inward investment from China that began under President Barack Obama was a major factor in the decline, it said.

An unprecedented number of Chinese deals were delayed or withdrawn as deal-makers failed to obtain approval from the Committee on Foreign Investment in the United States, an interagency working group tasked with reviewing foreign acquisitions for potential security risks, according to legal and trade experts.

Many transactions once considered outside the scope of national security are now subject to review, the experts said, including state- sponsored takeover deals.

Presidents have blocked only four acquisitions, including last month’s denial of Singapore chipmaker Broadcom’s attempt to buy Qualcomm. In other cases, a warning from CFIUS caused the parties to walk away from the deal.

Recently frustrated transactions include ones in the mining, energy and advanced-materials industries. Data privacy concerns helped scuttle Ant Financial’s takeover of MoneyGram.

“If I showed you a list of the industries which have been designated as critical by the Department of Homeland Security, you would think I was showing you an S&P 500 index fund,” Mario Mancuso, a former undersecretary of commerce for industry and security, said in a podcast produced by the Center for Strategic and International Studies.

Expanded reach

Legislation pending in the Senate and House would greatly expand CFIUS’ reach to transactions such as technology sales by U.S. companies, takeovers by non-Chinese companies with operations in China, joint ventures, investments in undeveloped land and emerging technologies so new they aren’t yet part of export control regulations.

A revamped CFIUS, for example, could reduce Chinese investment in r&d centers of the type Chinese technology giant Baidu has established in California for self-driving vehicles.

The bills have bipartisan support and could be approved this year.

For U.S. companies with factories in China, such as Ford Motor Co., permission to invest in countries such as China would be treated as the exception rather than the rule, said Fred Bergsten, senior fellow and director emeritus at the Peterson Institute for International Economics.

“The goal,” he said, “would be to put limits on opportunities for U.S. firms to invest abroad and thereby be in a position to transfer technology and other skills.”



Source link