In order to better shield sensitive technologies seen as vital to U.S. national security, current and former U.S. officials told the media that the United States appears poised to heighten scrutiny of Chinese investment in Silicon Valley.
The fields like artificial intelligence and machine learning have increasingly attracted Chinese capital in recent years and therefore these are areas that are of particular concern related to China’s interest. China could bolster its military capabilities and perhaps even push it ahead in strategic industries with the use of cutting-edge technologies developed in the United States and that is the cause of the worry.
The inter-agency committee that reviews foreign acquisitions of U.S. companies on national security grounds is the Committee on Foreign Investment in the United States (CFIUS), and the U.S. government is now looking to strengthen its role.
Sensitive technology through transactions that currently don’t trigger CFIUS review is being accessed to by China and it is skirting U.S. oversight, warns an unreleased Pentagon report that has been viewed by sections of the media. Joint ventures, minority stakes and early-stage investments in start-ups are included in such deals.
“We’re examining CFIUS to look at the long-term health and security of the U.S. economy, given China’s predatory practices” in technology, said a Trump administration official, who was not authorized to speak publicly.
Calling CFIUS “outdated” and telling a Senate hearing: “It needs to be updated to deal with today’s situation”, Defense Secretary Jim Mattis weighed into the debate on Tuesday.
Including representatives from the departments of Defense, Justice, Homeland Security, Commerce, State and Energy, CFIUS is headed by the Treasury Department and includes nine permanent members. After it makes a decision on a deal, the CFIUS panel is so secretive it normally does not comment.
CFIUS stopped a series of attempted Chinese acquisitions of high-end chip makers under former President Barack Obama.
A Cornyn aide said that a legislation that would give CFIUS far more power to block some technology investments is being drafted by Senator John Cornyn, the No. 2 Republican in the Senate.
“Artificial intelligence is one of many leading-edge technologies that China seeks and that has potential military applications,” said the Cornyn aide, who declined to be identified.
“These technologies are so new that our export control system has not yet figured out how to cover them, which is part of the reason they are slipping through the gaps in the existing safeguards,” the aide said.
For buyers hailing from nations identified as potential threats to national security, CFIUS will need to heighten scrutiny, the legislation would demand.
Specific technologies that would be subject to CFIUS scrutiny would not be singled out by Cornyn’s legislation. But with input from the U.S. technology sector, the Commerce Department, and the Energy Department, it would provide a mechanism for the Pentagon to lead that identification effort.
The U.S. government is playing catch-up, said James Lewis, an expert on military technology at the Center for Security and International Studies.
“The Chinese have found a way around our protections, our safeguards, on technology transfer in foreign investment. And they’re using it to pull ahead of us, both economically and militarily,” Lewis said.
“I think that’s a big deal.”
Chinese investment should not be “politically overinterpreted” or “interfered with politically”, Chinese Foreign Ministry spokesman Lu Kang said in Beijing.
“We hope the United States can provide a good environment for Chinese companies investing in the United States,” Lu told a regular news briefing on Wednesday.
According to the Rhodium Group, a research firm, with $45.6 billion in completed acquisitions and greenfield investments, China made the United States the top destination for its foreign direct investment in 2016. It said that representing a 100 percent increase against the same period last year, was investment from January to May 2017 which totaled $22 billion.
“There will be a significant pushback from the technology industry” if legislation is overly aggressive, Rhodium Group economist Thilo Hanemann said.
(Adapted from Reuters)