Two years ago, I wrote about Congress’ efforts to reform the Committee on Foreign Investment in the United States (CFIUS), the interagency body that vets acquisitions of sensitive U.S. assets. The Foreign Investment Risk Review Modernization Act (FIRRMA), which Congress passed in August of 2018, expanded the powers CFIUS has to review, and potentially block, investments by foreign entities that could pose as a threat to U.S. national security. Among its expanded powers, CFIUS now can review small investments, particularly in the technology, data, and infrastructure industries, that do not result in foreign control, and acquisitions of real estate near sensitive ports or military bases.
However, one important category of foreign transactions was left out of the bill — “greenfield investments,” particularly by Chinese state-owned enterprises (SOEs). Greenfield investments result in the control of newly built facilities in the U.S., and they were not addressed inf the reform bill mostly because governors and state governments embrace them. That is understandable; they typically bring the promise of creating American jobs.
However, greenfield investments by Chinese SOEs pose a unique threat, and should be met with the highest scrutiny by all levels of government. This was certainly front of mind when Secretary of State Mike Pompeo addressed the National Governor’s Association’s winter meeting this past February. During his speech on U.S. and China competition, Secretary Pompeo warned state officials of how closely the Chinese government is watching them and looking for opportunities in their states:
Indeed, last year, a Chinese Government-backed think tank in Beijing produced a report that assessed all 50 of America’s governors on their attitudes towards China. They labeled each of you “friendly,” “hardline,” or “ambiguous.”
I’ll let you decide where you think you belong. Someone in China already has. Many of you, indeed, in that report are referenced by name.
So here’s the lesson: The lesson is that competition with China is not just a federal issue. It’s why I wanted to be here today, Governor Hogan. It’s happening in your states with consequences for our foreign policy, for the citizens that reside in your states, and indeed, for each of you.
And, in fact, whether you are viewed by the CCP as friendly or hardline, know that it’s working you, know that it’s working the team around you.
Competition with China is happening inside of your state, and it affects our capacity to perform America’s vital national security functions.
Secretary Pompeo’s speech occurred right before the COVID pandemic, which has highlighted American dependence on Chinese pharmaceuticals. Right now, a Chinese SOE could build a greenfield pharmaceutical plant in the U.S. making an essential medicine, use Chinese state financing to corner the market and destroy competition — and the U.S. government would be powerless to address this based on the national security risk.
Last month, Senator John Kennedy of Louisiana introduced a bill that would fix this CFIUS loophole. The “Exposing China’s Belt and Road Investment in America Act” would give CFIUS the jurisdiction to review greenfield investments made by entities controlled by the Chinese government for any potential national security threats. Senator Kennedy’s bill will also make it mandatory to file a declaration with CFIUS if China has a substantial interest in a particular greenfield investment. Note that this would not actually block any investments; it would merely give CFIUS the authority to assess whether a threat exists and address it accordingly.
In its report to Congress last year, the U.S.–China Economic Security Review Commission outlined several recommendations Congress and the Federal government must take into consideration as it makes decisions — particularly about foreign investments.
The Commission’s recommendations would make clear the scope of Chinese influence in their investments on U.S. soil through aggressive disclosure requirements, including disclosure of any financial backing from the Chinese government and any ties to the Chinese Communist Party.
Beijing’s influence reaches far and wide, and a national-security threat to the U.S. can arise from Chinese control of certain U.S. businesses, regardless of whether they acquire an existing company or through a greenfield investment. Senator Kennedy’s bill is an important step to curbing these predatory actions by China here at home and protecting our national security.