Recently, the U.S. Congress has sat up and taken notice that a number of high-profile deals are occurring whereby Chinese and Russian companies are buying large U.S. businesses, often for cash. In some cases, the deals may have national security implications.
This is not the first time that such concerns have been raised. In 1975, the Ford presidential administration enacted an executive order mandating that the Congressional Committee on Foreign Investment review any such deals that could have widespread security ramifications.
But the committee’s procedures haven’t been updated since 2008, and lawmakers led by Republican Rep. Robert Pittenger of North Carolina say the Government Accountability Office (GAO) needs to take a fresh look at the matter. Pittenger and others wrote a letter to the GAO requesting to:
Determine whether [the committee’s] statutory and administrative authorities have effectively kept pace with the growing scope of foreign acquisitions in strategically important sectors in the U.S. As we prepare for the upcoming presidential transition, now is an opportune time for GAO to review what has worked well, and where CFIUS authorities may need to be expanded, especially given the rise in state-owned enterprises and state-controlled enterprises from China and Russia, among other designated countries.
Direct Chinese investment in the American economy is expected to mushroom to between $20 billion and $30 billion this year, a sizable increase from $11.9 billion in 2014 and $15 billion in 2015.
Much of the worry is based around the high-tech sector, as cyber intrusions and theft of technical secrets have been monthly occurrences for the last several years.
“I’m not opposed to Chinese investment, but I am concerned about Chinese-affiliated entities that would make these investments and particularly those that have a strategic security threat, and the intent is to identify which ones have a threat,” Rep. Pittenger explained.
“When you’re talking today about technological providers, semiconductor technology that’s important to our defense system and information warfare — this is all new relative to the Ford administration. This is a more complex global economy, and we have a complex relationship with China. As China is pursuing cyberwar and currency manipulation, the saber-rattling they’ve had against America, we need to be prudent in terms of our oversight.”
Some of the deals Pettinger is concerned about include the sale of the Chicago Stock Exchange to the Chongqing Casin Enterprise Group; the latter company was founded based on assets originally belonging to the Chinese government. Another deal is the $43 billion takeover of Syngenta, a chemical and seed company, by Chinese state-owned enterprise ChemChina.
And still another transaction is the acquisition of movie companies Paramount Studios and Legendary Entertainment and theater chains Carmike and AMC by Chinese conglomerate Dalian Wanda. This latter transaction had been flagged as a possible national security “soft threat” due to Dalian Wanda’s ability to disseminate pro-Chinese propaganda.
In Washington, think tank Center for a New American Security has launched a project to warn about possible connections between Chinese buyers of American assets and the Chinese government. There have been security warnings in the past about American telecommunications firms doing business with Chinese telco equipment manufacturers such as ZTE Corp. and Huawei Technologies.
Currently, the Chinese enjoy unfettered access to the American tech marketplace, while American companies such as Google, Facebook and Twitter have seen their offerings blocked and other companies such as Bloomberg and The Wall Street Journal have had to scale back their attempts to enter the Chinese market in the face of censorship or government barriers.
Russia also has given lawmakers cause for concern, although according to Pettinger, that country’s acquisitions have not risen to the same level of strategic danger as China’s has. “They have some real estate holdings that I’m aware of… I think we should always be vigilant and be on guard [against them]. There are four nation states we have enormous threats from — Iran, North Korea, Russia, and China. China is the country we do the most trade with… We do virtually no trade with North Korea and Iran and minimal trade with Russia, so that’s why China is the focal point [now].”
It should be noted that in the past, China has been one of the main buyers of American Treasury bills at auction — essentially loaning the United States government money on a grand scale. As of June 2016, the outstanding debt to China stood at $1.24 trillion.
But fears about possible future returns on these T-bills may now have got Beijing thinking that hard investments in U.S. businesses and assets might be sounder economic policy.
In the past several years, two large Chinese oil enterprises that are virtually state-owned, the China National Offshore Oil Corporation (CNOOC) and Sinopec Corporation, have purchased large U.S. gas and oil deposits.
In 2012, CNOOC paid $570 million for a one-third interest in 800,000 acres of land with shale formations in Wyoming and Colorado. It paid $2.16 billion for a similar interest in land in Texas. And Sinopec owns $10 billion worth of interests in resource-rich land in Louisiana, Michigan, Ohio and Oklahoma.
The Chinese have made major purchases of New York real estate including at the high-profile Atlantic Yards project in Brooklyn and of 1 Chase Plaza near Wall Street, the former operational headquarters of top U.S. bank JPMorganChase. Chinese companies have also leased large swaths of space at 1 World Trade Center and the Empire State Building.
Last year the American trade deficit with China stood at $367 billion. Millions of jobs continue to migrate to China from the U.S.
And all of this has happened on President Obama’s watch and would be almost certain to continue under the administration of Hillary Clinton, who has countless Chinese (and many Russian) donors to her family’s Clinton Foundation, which itself has a Chinese subsidiary in Hong Kong.
Republican presidential nominee Donald Trump is quite correct when he says we should be highly concerned about China; these are not matters to be taken lightly.
Finally, it should not be forgotten that China’s human rights record is poor, according to watchdog organizations such as Human Rights Watch and Amnesty International. In light of that fact, the rewards we give China in terms of trade are like giving doggie treats to a Shar Pei that bites. Instead of rewarding the world’s most populous country, we should be enacting new limits on its ambitions.
Regards,
Ethan Warrick
Editor
Wealth Authority
