Author: Zhu (Judy) Wang*
Published: December 2019
On August 13, 2018, President Donald Trump drastically changed the structure of foreign investment reviews in the United States with the enactment of the Foreign Investment Risk Review Modernization Act (“FIRRMA”). The Committee on Foreign Investments in the United States (“CFIUS”), the gatekeeper of all foreign direct investments into the United States, received a major revamp in its review powers and mission. Whereas CFIUS only had power to conduct national security reviews of transactions resulting in foreign “control” of a United States company, it now will review a much broader set of deals. Undoubtedly, the impetus for this reform was China.
Chinese investments into the United States have exploded in recent years, increasing from $2 billion in 2005 to $14.9 billion in 2015. This dramatic increase in investments has unnerved Congress and many others in the national security community, as they fear China’s overt quest for industrial dominance, use of government-controlled enterprises for its ends, prevalence of state-owned enterprises, and practice of economic espionage. CFIUS has responded to this growing unease by blocking several high-profile Chinese deals on the basis of protecting United States national security interests. In further attempts to strengthen CFIUS’s review powers and close “loopholes,” Congress enacted FIRRMA.
This article reviews these recent CFIUS reforms in the context of China’s rising prominence. The article begins by providing an overview of foreign direct investments (“FDIs”) into the United States, the history and creation of CFIUS, and the functioning of CFIUS before the enactment of FIRRMA. It then reviews the recent trend of Chinese FDIs, articulated fears regarding China, and high-profile Chinese investments that have undergone CFIUS review. The ambitious FIRRMA is then reviewed in detail, particularly against the backdrop of these Chinese investments, and then placed into the context of both other recent actions against China and the Committee’s own history. Finally, the article considers some potential implications that the reform will have on future foreign investments.
*Zhu (Judy) Wang is an associate at Steptoe & Johnson, LLP where she helps advise clients on transactions before the Committee on Foreign Investment in the United States. She holds a J.D. from Columbia Law School, an LL.M. from University of Amsterdam, and a B.A. from Vanderbilt University. She would like to thank Brian Egan of Steptoe & Johnson, LLP for his guidance and input on this Article, and Laura Hillsman for assisting with research.