Managing U.S.-China relations is “the biggest geopolitical test of the 21st century.”1 This Article explores a crucial, delicate part of that test: national security review of Chinese foreign investment. To address emerging threats from China, Congress passed the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), greatly strengthening the federal multi-agency body responsible for foreign investment screening—the Committee on Foreign Investment in the United States (“CFIUS”)—and vastly expanding its jurisdiction. This Article presents the first ever survey-based empirical study of FIRRMA’s impacts on Chinese investments in the United States. By analyzing a unique set of survey data, we find that a large percentage of Chinese investors lacked CFIUS awareness and those cognizant of the CFIUS process generally considered it to be politicized and nontransparent and reported negative impacts of FIRRMA on their U.S. businesses. Further analysis of considerable intercompany variations revealed associations between CFIUS awareness and four firm-specific attributes: past mergers or acquisitions in the United States, in-house legal capacity, access to the U.S. securities market, and the degree of business internationalization. Additional tests connected the varying FIRRMA impacts on Chinese investors’ U.S. businesses to their ownership type and plans for conducting mergers or acquisitions in the United States. Apart from FIRRMA’s investment effects, we also present a detailed account of the diffusion of the U.S. foreign investment screening system and its institutional implications in China. This Article offers a new direction forward for the literature on national security and investment, U.S.-China economic decoupling, and state-owned multinationals of authoritarian regimes in the liberal global order. It also offers crucial empirical evidence for policymaking and lawmaking in all major economies seeking to strike an optimal balance between promoting an open environment for foreign investment and safeguarding national security.
a. Ji Li is Professor and the John S. & Marilyn Long Chair of U.S.-China Business and Law at UC Irvine Law School (jli@law.uci.edu).
b. Ruonan Tang received her J.D. from UC Irvine Law School and is currently working at the Beijing office of Clifford Chance LLP (ruonant@lawnet.uci.edu).The authors would like to thank Ji Ma, Deepa Badrinarayana, Peter Reich, Wayne Sandholtz, Alex Wang, Chris Whytock, and other participants in the 2022 Southern California International Law Scholars Workshop at UCLA School of Law for valuable comments.
The full text of this Article is available to download as a PDF.