Congressional Commission Urges Ban on Sale of American Assets to China’s State-Owned Enterprises

A gas station of the state-owned oil company PetroChina in Chengdu, Sichuan Province, on Aug. 25, 2005. China Photos/Getty Images

WASHINGTON–A new report by the U.S.–China Economic and Security Review Commission (USCC) calls for a complete ban on allowing China’s state-owned or state-controlled companies to buy U.S. assets. The policy recommendation reflects the growing concern among China experts that China’s incursions into the U.S. economy, especially in areas sensitive for national security, might eventually help the Chinese regime to attack the United States.

The annual report by the USCC on developments in U.S.–China economic and security issues includes recommendations for U.S. policymakers, including “prohibiting the acquisition of U.S. assets by Chinese state-owned or state-controlled entities, including sovereign wealth funds.”

Chinese foreign direct investment in the United States has been booming for years, reaching a record high of $45.6 billion in 2016—triple the total from the year before, according to a report by the economic research firm Rhodium Group. Many of these investments are made by China’s state-owned enterprises (SOEs), which are controlled by the Chinese regime.

The USCC report states: “Chinese [foreign direct investment] is targeting industries deemed strategic by the Chinese government, including information and communications technology, agriculture, and biotechnology. These investments lead to the transfer of valuable U.S. assets, intellectual property, and technology to China, presenting potential risks to critical U.S. economic and national security interests.”

Chinese SOEs can evade legal action in the United States by invoking their status as a foreign government entity under the Foreign Sovereign Immunities Act.

What makes the matter worse, according to the USCC, is the fact that Chinese SOEs can evade legal action in the United States by invoking their status as a foreign government entity under the Foreign Sovereign Immunities Act.

“The opaque nature of China’s financial system makes it impossible to verify the accuracy of Chinese companies’ financial disclosures and auditing reports. Chinese businesses continue to list on U.S. stock exchanges to raise capital, despite operating outside the laws and regulations governing U.S. firms,” the report states.

At the report’s release, Michael Wessel, a USCC commissioner, said that although the report only recommends the banning of Chinese SOEs, private Chinese companies would still be subjected to security reviews to examine their acquisition of U.S. assets in the context of national security.

‘Long Overdue’ Scrutiny

According to Gordon Chang, an analyst who specializes in East Asia economic and security issues, Chinese acquisition of American assets is a serious issue to which policy responses have been “long overdue.”

“China has been buying technologies that have military applications, and no one [in the United States] wants to see that,” said Chang.

While the USCC’s report in 2016 also made the same recommendation to completely ban Chinese SOEs from acquiring U.S. assets, Chang points out that there is now a higher chance for it to be enacted. With the Trump administration in power, new people are steering U.S. policy on China.

Congress has also launched its own initiative to tackle Chinese investments. On Nov. 8, the Senate’s No. 2-ranking Republican, John Cornyn, introduced a bill known as the Foreign Investment Risk Review Modernization Act (FIRRMA), which he said will prevent foreign investments in the United States that pose a risk to national security.

While the bill does not specifically name China, it was clearly in the crosshairs when Cornyn delivered a speech on Nov. 14 in which he said “it’s time for the U.S. to adopt a new policy on China” as it is “vacuuming up U.S. technologies whenever it can.”