The Trump administration's intense scrutiny of Chinese acquisitions is not likely to diminish under a Biden administration, according to foreign investment analysts, though the latter could bring more certainty to the process.
According to data released in annual reports to Congress by the Committee on Foreign Investment in the United States, which reviews the national security risks of foreign investments in the U.S., Chinese transactions dropped substantially from 2017, the first year of the Trump administration, to 2019. Whereas 60 Chinese transactions were covered by CFIUS in 2017, just 25 were covered two years later.
Under the Trump administration, the information technology and telecom sectors have seen a number of high profile deals blocked or unwound after a CFIUS review. These have included Broadcom Inc.'s thwarted purchase of QUALCOMM Inc. and the forced U.S. sale of TikTok Inc. by China's Beijing Byte Dance Telecommunications Co. Ltd. Foreign investment experts expect this increased scrutiny to continue in the coming years, particularly for deals involving Chinese buyers, whether President Donald Trump or Democratic hopeful Joe Biden wins the U.S. presidential election in November.
Martin Chorzempa, research fellow at the Peterson Institute for International Economics who has studied CFIUS trends, believes one reason there were so many covered transactions right around Trump's 2016 election is that his administration immediately took a "much, much stricter look" at certain foreign transactions. Anticipating this, a number of deals that would not have traditionally filed with the committee for review did so to avoid a "disorderly unwinding" after the deal is made.
One such unwinding is ByteDance's ongoing sale of the video-sharing app TikTok. Following a CFIUS investigation into ByteDance's 2017 acquisition of Musical.ly and its merger with TikTok, Trump in August gave ByteDance 90 days, or until mid-November, to divest TikTok's U.S. business. While a deal initially seemed straightforward with plenty of interested buyers, matters have been complicated by Trump's pronouncement that some portion of sale proceeds should go to the U.S. Treasury and also by China's new tech export restrictions, which include "personalised information recommendation services based on data analysis."
Since the election, Chorzempa said the number of filings from Chinese investors has gone down because there is a sense among Chinese investors that there is a "not for sale" sign on U.S. companies through CFIUS.
In a recent blog post, Chorzempa wrote that while Chinese investors now largely shy away from investments that could be perceived as posing national security risks, in the past, Chinese investors would try to reach a compromise with CFIUS that alleviated security concerns.
If the current administration wins reelection, Timothy O'Toole, leader of the white collar defense practice group at Miller & Chevalier law firm, said in an email that he expects that CFIUS reviews will remain a substantial and unpredictable impediment to Chinese investment in the U.S.
However, O'Toole cautioned that a Biden administration would not open the flood gates for Chinese transactions that raise national security issues.
"Even in a new presidency, the risks for Chinese tech M&A will remain," added O'Toole. "There are real disputes between China and the US with respect to data collection and national security issues. I expect those issues to endure."
Chorzempa similarly sees bipartisan "skepticism" about the security implications of China's investment in the U.S., especially in areas like technology and telecom. "And so I don't think that there would be a significant break if you see a Democratic versus a Republican administration," added Chorzempa.
He noted that concerns around Chinese firms buying companies with access to Americans' personal data predate the Trump administration.
"I think it's a part of the overall recognition over the past few years of just how important data is," he said.
For example, in its 2015 report to Congress during former President Barack Obama's administration, CFIUS highlighted concerns about foreign control of U.S. businesses that produce advanced technologies or that involve network and data security.
Between 2010 and 2019, approximately 36% of CFIUS covered transactions were in the finance, information and services sector, with 572 notices filed during the 10-year period.
Despite bipartisan interest in the topic, O'Toole said a Biden administration would bring more predictable political risks to foreign investments.
"Because the open trade war between China and the U.S. would likely be scaled back and/or resolved, it seems likely that these risks would be more predictable in a new administration than in a current one, where CFIUS review appears to be used as a tool in the trade war," he said.
Between July 2018 and August 2019, the U.S. announced plans to impose tariffs on more than $550 billion of Chinese products, and China retaliated with tariffs on more than $185 billion of U.S. goods. While the trade war has been on hold somewhat amid the coronavirus pandemic, its impact has stretched beyond tariffs to include negotiations around restrictions on individual firms like Chinese telecommunications equipment provider Huawei Technologies Co. Ltd.
Regarding broader trade issues, Aidan Yao, senior China economist with AXA Investment Managers, said in an email, that he thinks a Biden administration would seek a more multilateral approach in trade, tech and financial competition.
"Contrary to some beliefs, we would see this as more palatable for Beijing, who strives to continue globalization and cooperation, and adhere to international (not unilaterally imposed) rules," he wrote.
However, David Law, a law professor at the University of Hong Kong, said in an interview that a Democratic administration could be tougher on China-related issues.
For example, he said Democrats may insist more on human rights issues and principles when making deals.
"Democrats will be more predictable," he said. "But it doesn't mean they are easier to deal with. It is more like, 'I know 100% that you will punch me.'"