WASHINGTON — Chinese interest in American companies continues to increase the caseload examined by the Committee on Foreign Investment in the United States (CFIUS), according to the panel’s annual report to Congress.
CFIUS examines deals that involve foreign investments in US assets for their national security implications. In its latest report on Feb. 19, the total cases CFIUS covered jumped to 358 for the three year period 2012–2014, up from 322 from 2011–2013 and 318 from 2010–2012.
China had the most cases reviewed with 68, an increase of 26 percent from the previous year’s totals, ahead of the United Kingdom’s 45, Canada’s 40, and Japan’s 37, according to the new figures. From 2011-2013, those four countries represented 54, 49, 34 and 34 cases, respectively. In the previous year’s report, the UK ranked first with 68 cases, followed by China’s 39, Canada’s 31 and France’s 28.
“I think that the spike in Chinese cases reflects the level of investment by China in the United States generally,” said Christopher Brewster, an attorney with Washington-based Stroock & Stroock & Lavan. “While we knew the number of cases was going to be large, it is instructive that the jump from 2013 to 2014 is as large as it is. It shows a fairly healthy investment in the US national security sector.”
The number of cases involving China is also high because those deals receive careful scrutiny, he said.
“Any investment that would result in control of businesses in the national security sector by China is going to be reviewed by CFIUS,” he said.
The report noted that 12 cases were withdrawn from consideration, and only one of those opted to refile.
“The takeaway is, deals continue to get cleared,” Brewster said. “China continues to be the dominant player in these reviews, but the process is still no day at the beach. It’s a rigorous process, and there are transactions that plainly either get turned away or elect to walk away.”
In 2012, the Ralls Corp., owned by the Chinese conglomerate Sany Group, took CFIUS to court over the Obama administration’s rejection of its purchase of an Oregon wind farm over its proximity to Naval Weapons Systems Training Facility near the city of Boardman. The case eventually settled with undisclosed terms, but it was a groundbreaking case, with a three-judge panel from the US Court of Appeals for the District of Columbia determining that the Obama administration had not presented Ralls with evidence to support its decision or the chance to refute it.
Before that ruling, most assumed that because the statute under which CFIUS operates bars judicial evaluation, it was not subject to judicial review, said Brewster.
What the Ralls case shows is “that the parties before CFIUS are still entitled to due process protection,” he said.
This year’s report also specifies that four cases were related to real estate transactions. This is a relatively new development, Brewster observed.
“In the early days, the idea that a real estate deal would end up before CFIUS was simply beyond imagination, just didn’t happen. What we’ve seen over the last several decades is an evolution of thinking, not surprisingly, about how we view national security and how we view the threat,” he said.
The purchase of the Waldorf-Astoria hotel in New York by a Chinese insurance group in 2014 would be a recent example, he said. The property had historically been the residence for the US ambassador to the United Nations, and many visiting heads of state, including the president, traditionally stayed at the landmark hotel. Last year, Obama broke with tradition and stayed elsewhere during a trip to New York.
“What we’re seeing is a burgeoning of the cases and a broadening of the scope so that CFIUS now will look at a transaction that is nominally a real estate transaction but because of who the buyer is, and where the property is, the transaction is actually deemed to have national security implications,” said Brewster.