US House committee chief wants to know if CFIUS will be used to limit investments in China

The US House Financial Services Committee Chairman Patrick McHenry has written a letter demanding to know whether the Committee on Foreign Investment in the United States (‘CFIUS’) intends to extend its reach and limit US investments in China through a presidential Executive Order (‘EO’). He warned that such a move will help advance Beijing’s goals.

In his recent letter to Treasury Secretary Janet Yellen, McHenry expressed ‘concern that restricting outbound investment to China would prove futile in its intended effect and further serve the Chinese Communist Party’s goal of limiting the influence of Western firms in Chinese markets,’ according to a statement on his website, 26 May.

‘I am writing in regard to the Administration’s proposed Executive Order on outbound investment, the imminent release of which has been rumoured since last year,’ wrote the Republican from North Carolina.

‘According to briefings provided by the Administration, the Department of the Treasury (Treasury) may transform CFIUS into a committee on foreign investment in the United States and China, prohibiting deals in certain Chinese technology sectors and mandating investor notifications in others,’ he said.

His letter noted that last year, China recorded a current account surplus of $417.5 billion, the highest level since 2008.

Referring to previous efforts to restrict investment into Russia, he said, ‘The last time an Administration tried to restrict financing against a large current account surplus country, in 2014, it failed. Do the Treasury and the Administration really believe that investment restrictions will be effective this time – particularly against a surplus country that holds $3 trillion in reserves?’

McHenry added: ‘The Administration further claims that U.S. investments in early-stage Chinese companies may require the declaration of a national emergency. However, U.S. venture capital deals in China have fallen by 87 percent since 2018. At their height, these investments were concentrated in later-stage companies. Moreover, U.S. venture capital firms typically acquire control, substantive decision-making rights, board seats, or material nonpublic technical information when they invest. As your colleagues in the Office of Investment Security know, these represent potential national security risks to the target country – in this case, China. It is inexplicable that the Administration hopes to rescue China from these risks before Beijing can. At a time when the Chinese Communist Party is already cracking down on Western firms and business intelligence services, the Administration should reject an E.O. that advances Beijing’s goals.’

https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=408822