Washington’s investment concerns

Washington’s investment concerns
The United States may be moving towards restricting Chinese investment in sensitive sectors such as semiconductors and robotics. The US Treasury is investigating..

The United States may be moving towards restricting Chinese investment in sensitive sectors such as semiconductors and robotics. The US Treasury is investigating the possibility of implementing the International Emergency Economic Powers Act against China. Washington has indicated that technology and telecommunication are serious security issues. 

Background

In recent years, the United States has grown increasingly sceptical of allowing foreign entities into its telecommunication systems. In the February hearing of the Senate Intelligence Committee, FBI Director Christopher Wray said, "We're deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments that don't share our values to gain positions of power inside our telecommunications networks”.

In January this year, Washington blocked a deal between Chinese telecommunications giant Huawei and AT&T due to security concerns. Huawei was founded in 1987 by a former People’s Liberation Army officer and is thought to have close ties to the Chinese Government. Recently, US President Trump also blocked the sale of Qualcomm to Broadcom. The former is a US-owned semiconductor and telecommunications company, while the latter is a technology firm based in Singapore. The sale was blocked due to reports that Broadcom could restrict Qualcomm’s investment in 5G Research and Development. This week, it was announced that Washington had slapped Chinese telecommunication company, ZTE, with a seven-year ban on purchases of crucial American technology.

US-China trade tensions

Current US President Donald Trump has been vocally critical of China. He blames the country for the loss of jobs within the US. He has often criticised the “very unfair and one-sided” trade relationship. In 2017, China’s trade surplus with the United States was $347 billion.  

In recent months, experts have sounded the alarm about an impending trade war between US and China.  These fears solidified in March, when US President Donald Trump announced global import tariffs of 25% on steel, and China promised retaliation.  Since then, tensions have escalated. The US has imposed tariffs worth over $150 billion; Beijing responded with $50 billion worth of tariffs.

Earlier this month, Trump unveiled a list of Chinese imports that targeted sectors including robotics, information technology, communication technology and aerospace. Analysts noted that this list could target Beijing’s “Made in China 2025” policy. This policy, which stresses on development in 10 key sectors, including robotics, aerospace, computing and cloud, and clean-energy cars, is seen as an attempt to make China a global leader in high-end technology.

Analysis

According to reports, the United States Treasury is now considering emergency laws to control sensitive Chinese investments in the United States. Washington is also considering security reforms for corporate acquisitions. Washington’s concerns regarding China’s alleged intellectual property theft is one of the main reasons behind these reforms.

President Trump has said that US companies are forced to transfer intellectual properties if they want to do business in China. Washington’s “Section 301” investigation is currently inspecting alleged Chinese theft of US intellectual property. According to the New York Times, America loses almost $600 billion a year to IP theft, and China is a key suspect.  

The US treasury is investigating whether to use the 1977 International Emergency Economic Powers Act (IEEPA) to prevent Chinese companies from investing in sensitive US industries. Sensitive industries reportedly include 5G communications, semiconductors, and robotics. Under IEEPA, the US President could declare a national emergency in a particular sector, in response to an “unusual and extraordinary threat.”  IEEPA was previously used after the September 11 attacks in 2001 to block terrorist finance networks.

The latest developments are part of an investment crackdown ordered by President Donald Trump last month. The US Treasury is also reportedly working to pass legislation to strengthen the powers of the Committee of Foreign Investment in the United States (CIFUS). This legislation is known as the Foreign Investment Risk Review Modernization Act, or FIRRMA. Republican John Cornyn, the legislation’s chief sponsor said, “The CFIUS process wasn't originally designed and is now insufficient to address today's rapidly evolving technology as well as the threats to our technological edge.”

Counterpoint

China has accused the United States of “hegemonic attitudes” and “thinking and acting like a bully”. “On the one hand the U.S. wants us to open our markets further yet on the other hand it sets restrictions for Chinese trade and investment in the name of national security,” Chinese foreign ministry spokeswoman Hua Chunying said told reporters on Friday. “With regard to the high tech restrictions, they are citing the reason of national security, but their motivation is protectionism. Is the U.S. really that fragile?" Hua added.

Fears of a trade war have already begun to curb Chinese investment in the United States. Acquisitions by Chinese firms in the US fell by over $20 billion last year. Chinese withdrawal could negatively impact numerous jobs in the United States. Companies such as Tsinghua Unigroup have already backed down from US investment. However, private corporations such as Tencent and Alibaba have maintained an active presence in the market.

Assessment

Our assessment is that the United States has increasingly indicated that technology and telecommunications are critical to US security. Beijing has accused Washington of using security as an excuse for protectionism. However, as stated previously, we believe that Washington is growing wary of deals linking American businesses to foreign entities that can create a backdoor for international companies. The US is also highly sensitive to the transfer of technology and intellectual property, and is keen to maintain its global technological leadership in fields such as robotics.

Comments