It’s nearly impossible to talk about the current climate of cross-border business transactions between China and the U.S. without mentioning the Committee on Foreign Investment in the United States (CFIUS), a nine-member federal panel that reviews acquisitions of foreign investments in the U.S.
In May, Reuters reported that CFIUS pressured Beijing’s Kunlun Group to sell Grindr, a California-based gay dating app, which boasts more than 27 million global users. The intervention was propelled by the agency’s concerns over national security, specifically how the Chinese conglomerate collected and handled personal data through the popular app.
The Kunlun-Grindr decoupling was vital to understanding the increasingly complex environment of cross-border deals because it was not an isolated event. Previously, CFIUS had blocked the acquisitions of MoneyGram and AppLovin by Chinese companies, citing similar reasons regarding transmission of sensitive information and potential transfer of intellectual property.
According to Tom Shoesmith, a Palo Alto–based partner who specializes in international M&A, foreign direct investment, and joint ventures, the areas that seem to have attracted the most critical attention from CFIUS are in the data privacy and telecommunications technology area. And when it comes to Chinese firms, investment in American social media has come under particular scrutiny from CFIUS.
“CFIUS’s mandate is to protect the national security of the United States. These days, that means technology, data privacy, and critical infrastructure. In those areas, CFIUS is focused on whether foreign parties, and especially foreign state actors (governments and state-owned enterprises), are gaining a level of influence over U.S. businesses,” Shoesmith says, adding that the interagency committee is even more restrictive when foreign investors gain access to critical technology of U.S. business.
While CFIUS has been around for more than 40 years, it’s been especially gaining a lot of attention from Chinese firms since Trump took office in 2016. With a comprehensive revision of its foreign investment review process, the committee appeared to be specifically targeting investors from China amid the trade war. Per Shoesmith, Chinese deals seem to clear at a rate of 50–60 percent under the Trump administration, whereas the percentage was over 95 percent when Obama was in office.
The significant drop in Chinese foreign investment in the U.S. has affected the growth of some American industries, such as the semiconductor and social media sectors. But although Shoesmith thinks the legal environment will not get better anytime soon, he believes that businesses will continue to find ways to prosper.
Interested in learning more about how to navigate CFIUS’s review process and what new opportunities might arise in the landscape of cross-border investment? Shoesmith and his colleagues at King & Wood Mallesons are going to host a breakout session at SupChina’s NEXT China Conference, which will take place on Thursday, November 21, in New York. Grab your tickets today before they are gone!