The China Question

www.worldecr.com 19 ThE ChInAquESTIOn CHINA law firm Steptoe, observes that one reason the United States has encouraged international partners to develop their own foreign investment review regimes to protect sensitive technologies, is to plug the holes where those technologies could escape. ‘e concern that the US had sometimes stated is, for example “If we approve a UK investment in the United States, what’s to stop that UK investor from turning around and then selling that investment to a party that would be of concern to the US government,’ Egan explains. ‘So they’ve really tried to move a US-style foreign investment review regime out into the world.’ Egan says that investors have had to become savvy about CFIUS regulations: ‘is has led to investors, either sovereign wealth funds or private equity funds who are frequent players in this space with start- ups or others, asking: “Has the start-up company done what it needs to do to be sure that it’s protected from a CFIUS perspective? Have they gone through filings where they are required or otherwise warranted?”’ Egan notes that there have been instances where the CFIUS mandatory filing rules have caused problems among some investors. ‘ere’s friction that’s been created by these rules where some parties think, “ere is no reason the US government should be concerned about me; why should a filing be triggered just because I’m investing in a company that manufactures sensitive equipment in the United States?”’ Egan adds that concerns over legal costs and filing fees, as well as the time that CFIUS takes to process a query, ‘has created some friction, I think, particularly with European investors who think that some of the rules are really unnecessary, and almost offensive in some cases.’ With the authority to unwind even years-old business ties with foreign partners, CFIUS has made no secret of its hunt for deals that it thinks threaten national security and should never have been made, particularly in relation to China. ‘It’s absolutely true that CFIUS is investing a lot of resources in identifying and reviewing transactions that have already been consummated, some of which are several years old,’ says Egan. ‘ere’s no kind of statute of limitations, if you will, on how far CFIUS can go back – and they’re going back in some cases three, four, five years – maybe even longer.’ Egan adds that, while overall foreign investment in US hi-tech has not fallen due to the tougher regulations, ‘Chinese investment in the United States really has fallen off a cliff.’ ‘e publicly reported data reflect that, and I think the reality of the marketplace also reflects that there was at some point in time when Chinese investors were really trying to figure out ways to continue investing without triggering CFIUS review or by avoiding areas where CFIUS would have the greatest interest,’ Egan says. ‘But I think that what we’re seeing increasingly is Chinese investors taking a pass on the US market for other marketplaces,’ he says. o ‘I think that what we’re seeing increasingly is Chinese investors taking a pass on the US market for other marketplaces.’ Brian Egan, Steptoe Books from the publisher of WorldECR www.worldecr.com/books