US panel urges ban on China State firms buying US companies

US (L) and Chinese national flags flutter on a light post at the Tiananmen Square ahead of a welcoming ceremony for U.S. President Barack Obama, in Beijing – REUTERS

Reuters: US lawmakers should take action to ban China’s State-owned firms from acquiring U.S. companies, a congressional panel charged with monitoring security and trade links between Washington and Beijing said on Wednesday.

In its annual report to Congress, the U.S.-China Economic and Security Review Commission said the Chinese Communist Party has used State-backed enterprises as the primary economic tool to advance and achieve its national security objectives.

The report recommended Congress prohibit U.S. acquisitions by such entities by changing the mandate of CFIUS, the US Government body that conducts security reviews of proposed acquisitions by foreign firms.

“The Commission recommends Congress amend the statute authorising the Committee on Foreign Investment in the United States (CFIUS) to bar Chinese State-owned enterprises from acquiring or otherwise gaining effective control of US companies,” the report said.

CFIUS, led by the US Treasury and with representatives from eight other agencies, including the departments of Defense, State and Homeland Security, now has veto power over acquisitions from foreign private and state-controlled firms if it finds that a deal would threaten US national security or critical infrastructure.

If enacted, the panel’s recommendation would essentially create a blanket ban on US purchases by Chinese state-owned enterprises.

The panel’s report is purely advisory, but could carry extra weight this year because they come as President-elect Donald Trump’s transition team is formulating its trade and foreign policy agenda and vetting candidates for key economic and security positions.

Congress also could be more receptive, after US voter sentiment against job losses to China and Mexico helped Republicans retain control of both the House and the Senate in last week’s election.

Trump strongly criticised China throughout the US election campaign, grabbing headlines with his pledges to slap 45% tariffs on imported Chinese goods and to label the country a currency manipulator on his first day in office.

“Chinese State-owned enterprises are arms of the Chinese state,” Dennis Shea, chairman of the US-China Economic and Security Review Commission, told a news conference.

“We don’t want the US Government purchasing companies in the United States, why would we want the Chinese Communist Government purchasing companies in the United States?”

The recommendation to change laws governing CFIUS was one of 20 proposals the panel made to Congress. On the military side, it called for a government investigation into how far outsourcing to China has weakened the US defense industry.

The 16-year-old panel also said Congress should pass legislation that would require its pre-approval of any move by the US Commerce Department to declare China a “market economy” and limit anti-dumping tariffs against the country.

The United States and US businesses attracted a record $64.5 billion worth of deals involving buyers from mainland China this year, more than any other country targeted by Chinese buyers, according to Thomson Reuters data.

The push into the United States is part of a global overseas buying spree by Chinese companies that this year has seen a record $200 billion worth of deals, nearly double last year’s tally.