Pounding COFDI in the US in Search of a Better Playing Field in China

Dr. Jean-Marc F. Blanchard's picture

Since 2014, Chinese outward foreign direct investment (COFDI) in the United States (US) has grown dramatically. Of course, there were failed deals, some because of the US Committee on Foreign Investment in the United States (CFIUS), which vets transactions involving foreign firms for potential adverse national security implications. Of late, winning approval seems to have become even more of a challenge where (COFDI) in US companies is involved. For example, in January 2018, CFIUS rejected Ant Financial’s planned $1.2 billion investment in US money transfer firm MoneyGram, putatively due to worries about data security. More recently, the US Securities and Exchange Commission turned down Chongqing Casin’s effort to invest in the Chicago Stock Exchange because of a lack of clarity about who controlled the Chinese buyer. The US government also has torpedoed various deals involving Chinese investors in American technology companies. For instance, in September 2017, it rejected Canyon Bridge Capital Partners LLC’s $1.3 billion acquisition of Lattice Semiconductor because of Beijing’s involvement in the deal and the US government’s use of Lattice products. In February 2018, Xcerra, a semiconductor testing equipment company, terminated a deal with a Chinese investment group because it was not likely to get CFIUS approval. Many are wondering why the overall environment seems to have become so hostile. Idiosyncratic explanations have proliferated: the US does not want China to win access to advanced technologies, the US is worried about cybersecurity, and so on. While deal specific factors are important, we should not overlook the Donald Trump administration’s insistence on Chinese reciprocity and rising concerns about China as a competitor. COFDI in the US was once viewed as a promising venue for the US and China to boost their ties. It no longer seems so promising and indeed may have become a catalyst for new animosities.