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Tighter US foreign investment rules aimed at China start in November

The US Treasury Department said that it would expand its reviews of Chinese and other foreign investments in the United States, using new powers approved by Congress. Photo: The New York Times

The federal government will tighten rules on foreign investment in sensitive industries like technology and telecommunications next month, the US Treasury Department said on Wednesday, as it starts to enforce a law aimed at curbing Chinese investment in 27 sensitive sectors.

The US Treasury Department said that it is expanding the power of a federal panel, called the Committee on Foreign Investment in the United States (CFIUS), to review foreign investments beyond takeovers and controlling stakes to include noncontrolling stakes in US businesses that are involved in technology that could be deemed critical to national security.

The expanded review includes transactions in which the foreign investor would get nonpublic technical information, a place on the board of directors, or involvement in decision-making.

This applies to businesses in several industries including telecommunications and semiconductors as well as aircraft manufacturing.

The CFIUS reviews mergers and stock purchases to ensure they do not harm national security. It was strengthened by legislation in the National Defense Authorization Act that was signed into law in August.

CFIUS will have the option to approve a deal within 30 days or open a fuller investigation, the department said.

"These temporary regulations address specific risks to US critical technology while informing the development of final regulations," said Treasury Secretary Steven Mnuchin in a statement.

The pilot program is scheduled to begin on November 10 and run for more than a year while formal, permanent rules are being written, a senior administration official said.

The interim regulations would likely lead to more filings with the committee, said Sylwia Lis, of the law firm Baker McKenzie. "It has a significant impact," she said.

Other portions of the legislation, such as rules allowing CFIUS to stop foreign purchases of land near military installations or ports, will be addressed later, an official said on Tuesday.

The toughened investment regime will apply to all countries but is aimed largely at China, which US President Donald Trump has accused of trying to gain access to valuable American technology through nefarious means, reported the New York Times.

The White House has criticized China for trying to obtain trade secrets by investing in United States companies, pressuring domestic firms doing business in China to hand over intellectual property and committing outright cyberespionage.

On Wednesday, a Chinese intelligence official was arrested in Belgium and brought to the United States to face espionage charges, further escalating the China crackdown. Law enforcement officials said that the official tried to steal trade secrets from GE Aviation.

The Trump administration has already taken several steps to stop Beijing from harnessing American technology in critical sectors, such as the next generation of 5G wireless technology, and to thwart China's strategic plan to dominate cutting-edge industries, known as Made in China 2025. It has imposed tariffs on $250 billion worth of Chinese goods as a form of punishment and has threatened to tax all Chinese imports if Beijing does not change its trade practices.

But the foreign investment review takes things up a notch and threatens to exacerbate tensions between the world's two largest economic powers, which have engaged in a tit-for-tat trade war and increasingly harsh exchanges about each other's policy and approach.

Chinese officials canceled a trip to Washington late last month to resume trade talks after Trump moved ahead with a second round of tariffs. On Monday, China's foreign minister, Wang Yi, chided the Trump administration for "ceaselessly elevating" trade tensions and "casting a shadow" over relations between the two countries. US Secretary of State Mike Pompeo, who was visiting Beijing for talks, said that the United States had a "fundamental disagreement" with China on the issues that it raised.

In a briefing with reporters on Tuesday evening, senior Treasury Department officials emphasized that the pilot program would not be focused on China and would apply to any foreign investors.

China has increasingly been looking to invest in high-tech industries in the United States. According to data from Public Citizen, a liberal advocacy group and think tank, 56 percent of Chinese investments in the United States last year were in industries that Beijing defines as "strategic,' such as aviation, biotechnology and new-energy vehicles — up from 25 percent in 2016.

But the administration's trade measures have already chilled Chinese investment in the United States, which fell more than 90 percent from the first half of 2017 to the first half of 2018, to its lowest level in seven years, according to tracking by Rhodium Group.

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