The United States maintains an “open door” policy on foreign investment, and generally welcomes overseas investors, including from mainland China.
The key organisation responsible for reviewing inbound investment is the “Committee on Foreign Investment in the United States” (CFIUS). CFIUS is an inter-agency group chaired by the Department of Treasury, and is responsible for ensuring that any foreign investment does not undermine national security. National security in this context is broadly defined to include the defence, energy and infrastructure sectors. While CFIUS reviews are voluntary, a successful review guards against the possibility of a transaction being challenged or unwound after it closes. It also preserves the commercial terms of the deal struck by the parties.
In 2014, the most recent year for which statistics are available, Chinese entities filed the largest number of CFIUS notices, 24 out of 147, or 16% of the total. This trend has been discernible over the past three reporting years, with Chinese acquisitions generating the highest percentage of CFIUS filings, followed by UK-based entities.
While Chinese investment in the United States continues to grow, significant opposition remains to investment in key sectors. As a practical matter, certain transactions will inevitably attract opposition and be subject to heightened scrutiny. Indeed, in recent years the CFIUS process has sometimes become a vehicle for opponents of a transaction to block foreign investment for reasons other than a threat to national security, which was the original rationale for establishing CFIUS.
It is revealing that the only instances of the President exercising his authority under CFIUS to block or unwind a foreign acquisition have involved investments by Chinese entities. Equally, parties have walked away from other proposed deals involving China because of real or anticipated complications arising from a CFIUS review, including directions by CFIUS that the parties enter into formal agreements to mitigate national security concerns.
In short, Chinese investment is increasing and most inbound investment proposals are likely to receive CFIUS approval. However, political and national security issues are a growing concern. Investors are well-advised to have a transaction reviewed by CFIUS specialists in the early stages of any proposed acquisition.