China is a major investor in the US, and it stands to lose from tighter foreign investment rules. The Chinese government’s economic plans have a strong focus on technological advancement. One way to acquire better technology is to invest in foreign companies that already have it. CFIUS has knocked back a string of proposed Chinese acquisitions of US companies over the past year. The new legislation is likely to be an additional hurdle. Chinese investment in the US has taken a big hit since Donald Trump became president.
Figures from the Rhodium Group found that the value of deals fell by more than 90% in 2017. The American Enterprise Institute (AEI), a conservative US think-tank, found that China invested $24.2bn across all sectors in the US last year a huge drop from 2016, but still the second highest on record. Chinese companies have invested about $21.6bn in US technology businesses since 2007, according to the AEI.
The latest move comes amid continued trade tensions between the world’s two largest economies. Earlier in the week, reports suggested that the US might target investments in the America by any company with more than 25% Chinese ownership. It appears that this plan has been abandoned in favour of an expanded role for CFIUS. But even if the US has backed off on investment rules, it looks set to move ahead with tariffs. The US will impose tariffs of 25% on $34bn worth of Chinese goods starting from 6 July, with an additional $16bn potentially to follow. China has promised matching tariffs in retaliation.