The US is starting to wise up on Chinese investments
It’s been cracking down by closing loopholes But not all the loopholes have been closed
Which means China could be getting US trade secrets
Welcome to China Uncensored, I’m Chris Chappell. The US is finally wising up on Chinese investment.
Better late than never. This feels like your grandparents finally learning how
to unplug and plug back in the WiFi router. Shouldn’t have taken this long
to figure out something so obvious, but glad they eventually got there.
After years of letting China buy up sensitive US technology, property, and companies, the US
government is finally putting its foot down. In 2018, Trump signed the Foreign Investment
Risk Review Modernization Act, orFIRRMA. This changed how the Committee on Foreign
Investment, or CFIUS, screened investments in the US for national security issues.
Before, CFIUS could only review foreign investments if they
resulted in a controlling stake. Now CIFIUS can review any investment.
A controlling stake gives an investor a say in how the company or fund is managed.
You know how some Uber passengers tell the driver what routes to take and how
fast or slow they should be going? It’s kind of like that, but if the passenger was paying
a huge portion of the driver’s rent. “Knock over pedestrians on the sidewalk? You’re the boss!”
Then later, when Biden got into office,
he ordered CFIUS to look at all investments that affect critical aspects of the US supply chain,
or Americans’ personal data, and several other things.
As you might imagine, this has not gone over well with Wall Street,
which loves Chinese money more than Snoop Dogg loves marijuana.
And Snoop *loves* Mary Jane.
Now I’m no doctor, but I would say Wall Street’s love for Chinese money looks like an addiction.
“Wall Street now stands as an increasingly lonely voice arguing for more engagement with China.”
This was going on even as China was taking a
wrecking ball to its economy with its zero covid policy,
committing genocide against an ethnic minority,
and selling the organs of political prisoners for profit.
Find someone that loves you the way Wall Street loves Chinese money. They’re ride or die… and the
people that die are political prisoners. Back when Trump was considering FIRRMA,
Wall Street opposed him. They went to bat for China—and tried to water
the bill down. Private equity firms wanted an exception for—you guessed it—private equity.
And unfortunately, their lobbying was successful. I’ll tell you more, after the break.
Welcome back. While the US has been
shoring up its defenses against malign foreign investors, there are still cracks in the walls.
Private equity and venture capital firms were able to get an exception granted in
FIRRMA for limited partners. That means that if a foreign entity becomes a limited
partner in say a private equity fund, CFIUS doesn’t have any jurisdiction over it.
Should have seen something like this coming. Finding loopholes is what Wall Street does
best. Kind of like what Snoop Dogg does best is baking… with Martha Stewart .
According to the Foundation for Defense of Democracies, this is a huge liability.
Limited partners don’t get a say in management, which is the excuse they use for not getting
scrutinized by the US government. But they could still theoretically get access to sensitive data.
And the type of investments that private equity firms are involved in means that Chinese companies
could get access to critical technology. Stuff that could affect national security.
“Portfolio details could hold national economic or intelligence value.”
But I’m sure Americans have nothing to worry about. I mean,
if powerful people in America are known for anything,
it’s being super careful with keeping classified documents secure.
This is especially concerning with venture capital. That’s when people invest in a
startup. Some of these startups are on the cutting edge of innovation.
Foreign investors could be individuals, but they could also be sovereign wealth funds,
which are controlled by a country’s government. For example, the China Investment Corporation or
CIC. At $1.3 trillion US dollars, it’s the largest sovereign wealth fund in the world.
“CIC has said repeatedly that it separates commercial activities from
governmental functions and makes its investment decisions independently.”
Which I believe about as much as a cat saying the plant jumped off the counter by itself.
CIC’s board of directors includes representatives from the Chinese government. Like from the State
Administration for Foreign Exchange, the Ministry of Finance, the National
Development and Reform Commission, the Ministry of Commerce, and the People’s Bank of China.
Unfortunately for CIC, its own words are blowing its cover.
“CIC’s Deputy General Manager Qi Bin . . . has explained that cooperation
with developed economies . . . is to be leveraged to obtain advanced technology.”
CIC getting intel through owning parts of individual US companies
is one thing. But it’s more than that. CIC is also partnering with large investment
companies, like Goldman Sachs, Japan’s Nomura Holdings, and France’s BNP Paribas.
CIC’s Deputy General Manager Qi Bin has talked about leveraging
these partnerships for the “win-win” “mutual benefit” …. of Chinese companies.
Somehow I’m getting the sense that “win win” has a different meaning in China.
I think in English we would call this “short-term win for long-term loss”. I’ll give you my
money and you give me your trade secrets. So what can the US do about this liability?
The Foundation for Defense of Democracies suggests that the US government close the loophole that
allows Chinese companies to invest in firms as limited partners without being approved by CFIUS.
US regulators could also focus on restricting the type of information
that’s shared with foreign investors. So US companies could still get foreign investment,
but this would at least limit how many of their trade secrets get stolen.
That’ll hopefully tide Wall Street over while they try kicking their Chinese money addiction.
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