As mergers and acquisitions in the United States continue at a quickening pace, legislation is urgently needed to make regulators aware of any Chinese Communist Party (CCP) influence or control over foreign firms merging with U.S. companies, U.S. Reps. Scott Fitzgerald (R-Wis.) and Greg Stanton (D-Ariz.) said on Feb. 11.
The two congressmen are championing the Foreign Merger Subsidy Disclosure Act of 2021, which Fitzgerald, a Republican, officially introduced in October 2021. The measure would require any company seeking to merge with U.S. firms to disclose to U.S. antitrust regulators whether it has received financial support or subsidies from a foreign government.
It has been referred to the House Judiciary Committee.
Fitzgerald, during a virtual event hosted by the Hudson Institute on Feb. 11, said he got the idea for the proposal in the course of discussions with congressional staff. He said he was surprised that the loophole by which the Chinese government or other foreign actors can access sensitive technology and corporate information through a merger has gone largely unaddressed.
The congressman and his colleagues were startled to learn that 3 percent of China’s gross domestic product is being set aside to subsidize firms that undertake or explore the possibility of acquiring the assets of companies in the United States and elsewhere through one means or another.
“The [Chinese] government subsidies are often used to acquire U.S. assets, particularly those that deal not only with strategic and emerging technologies, but also those that have a direct effect on industrial policy,” Fitzgerald said. “The subsidies are now being moved to garner U.S. assets, and certain parts of those assets are very sensitive and quite honestly should be protected.”
Describing China as highly active in the U.S. economy, Fitzgerald said it’s all the more urgent to track where dollars go and see to what use they’re put. Hence, he welcomes the opportunity to join in what he sees as a thoroughly bipartisan effort, with Stanton, a Democrat, leading efforts on the other side of the aisle.
Stanton, who noted that his district in Arizona is home to some of the tech company Intel’s most important manufacturing facilities, said economic competition between the United States and China isn’t in itself a bad thing, but that all parties must pursue it fairly and with all appropriate disclosures.
“A lot of people would be surprised that as the government of China is subsidizing both industries in China and those doing investments outside the country, there isn’t full disclosure of information. As there’s so much merger activity going on in the U.S., it is very important for the regulators to know which companies are subsidized and at what level,” he said.
“We want the free flow of information, but we want to make sure it’s for the appropriate capitalistic purpose. That is the reason for this bill.”
Both congressmen anticipate the possibility that some in the business community might raise objections to granting further regulatory oversight to antitrust authorities. But in the end, this more rigorous oversight is the best thing for investors, Stanton says.
“If we don’t get a better handle on this problem, there may be foreign entities that are less willing to invest in the American system. We want a clean, transparent system.”
