Trump Provides New Restrictions on Chinese Investment and Technology Exports in China

The Treasury Department is developing rules that would prevent companies holding at least 25% Chinese ownership from buying companies involved in what the White House calls a "technology of industrial importance." The ceiling could be lower than that. plans.

In addition, the National Security Council and the Commerce Department are implementing "strengthened" export control plans designed to prevent these technologies from being shipped to China, say those familiar with the proposals.

"We have billions of dollars in search of our gems of technology," said the White House's trade advisor.

Peter Navarro

last week. "There must be a defense against that."

Before the rules come into force, the individuals said, the US industry would have a chance to comment.

Industry groups, particularly in the finance and technology sectors, have tried to track the progress of the proposal as it goes through various iterations in the administration.

They are especially concerned that export controls are hurting their businesses by preventing them from using their technological advantage. Although many oppose investment restrictions, they are perceived as having less practical impact because Chinese investments have dropped drastically. Most of the lobbying activities of the industry have been focused on Congress, which is debating how to strengthen national security reviews of foreign investment.

Both measures would continue to use the argument of national security of the administration to justify economic measures. The steel and aluminum tariffs for Canada, Mexico, the European Union and other allies were put into effect earlier this year under the Act on the expansion of the trade of 1962. For investment restrictions, the administration provides 1977 Powers Act, or IEEPA, which gives the president broad authority in the event of a dispute. "Unusual and extraordinary threat," said people familiar with the internal debate.

IEEPA was widely used after the terrorist attacks of 11 September 2001 to impose sanctions on other countries. Some trade associations are looking into whether they can challenge the use of the law in a continuing commercial struggle. "The administration says," If we declare that everything is a matter of national security, we can do what we want, "said

Derek Ciseaux,

an expert from China at the American Enterprise Institute. "It's a misuse of executive power."

"The President has clearly expressed his desire to protect American technology," said the Secretary of Commerce.

Wilbur Ross,

in a statement to the Wall Street Journal Sunday. "All possibilities that would better protect US technology, including potential changes in export controls, are being revised."

The plan has not been finalized and some details may change. As part of the plans being considered by the administration, the United States would ban purchases of US technology companies from entities in which Chinese investors hold at least 25 percent – the exact threshold is still under discussion. Investments below this mark could still be blocked if the administration determines that Chinese investors could obtain the technology through board seats, licensing agreements or other measures.

The administration would only seek new agreements and would not attempt to abolish existing agreements, said the individuals. But existing joint ventures between China and the United States would be barred from making additional investments in advanced technology from the United States because of Chinese influence. Although much of the efforts of the administration has been focused on the role of Chinese state-owned enterprises, the investment bar would not distinguish between the Chinese state-owned enterprises or private because the administration believes that the Chinese government exerts a huge influence on all Chinese companies.

In order to ensure that some US technologies are not routed to China via trade, the administration would also reduce exports of Made-in-China-2025 technologies. The National Security Council prepares policy recommendations on how to proceed. The Department of Commerce 's Bureau of Industry and Security regularly reviews technology to allow companies to sell the product without an export license if the technology is commercially available.

Josh Kallmer,

Vice President of the Information Technology Industry Council, a professional association of high-tech companies, said that he expected that many companies would offer their comments on the proposal.

"There is an opportunity for the administration to come up with a formula for a policy that addresses national security risks in a targeted way and does not put a hedge on the activities that our companies are involved in every day" , he said.

The increase in investment and export restrictions add to last week's threats from Mr. Trump to impose tariffs on up to 450 billions of dollars of Chinese products. On July 6, the first tariffs, of 25%, come into effect on 34 billion dollars of Chinese imports. Beijing has threatened to match US tariffs the same day, dollar by dollar.

Foreign investments must already be the subject of an inter-agency review within the Foreign Investment Committee in the United States, to see if they violate national security. CFIUS exams – or the threat of exams – have largely halted Chinese purchases by US semiconductor companies. They also put a brake on other Chinese investments. According to Rhodium Group, a market research company, Chinese investment fell 92% in the first half of 2018 compared with the previous year, to 1.8 billion, due to Chinese restrictions on credit and examination of Chinese transactions.

A bill to make the CFIUS exams even tougher is making headway in Congress. It would also create a new export control system to examine whether joint ventures abroad are inappropriately transferring critical technologies to foreign firms.

Treasury officials have argued that a more stringent CFIUS would go a long way to protecting American technology, and any additional restrictions need to be narrowly focused.

Other government officials, including Mr. Navarro and the US Trade Representative

Robert Lighthizer,

argued that the Chinese have been able to make progress, despite the CFIUS project, using US technology in many areas, particularly biotechnology and agriculture. Additional checks are needed, they argue.

Under the Obama administration, CFIUS approved the acquisition by China National Chemical Corp. Swiss seed giant Syngenta AG. The Trump administration gave final approval to the agreement last year. The administration is also worried that CFIUS will not miss out on small investments – sometimes disguised – by Chinese venture capital firms in technologies that could bear fruit years later, according to people close to the deliberations. .

A White House briefing by intelligence agencies in the spring of 2017 on China's efforts to obtain US technology through acquisitions, licenses and theft has been particularly influential in stimulating new restrictions, say people familiar with the proposals. Intelligence officials explained how all levels of the Chinese state were involved in the effort, said one person familiar with the meeting.

The discussion made such an impression that intelligence agents quickly gave Mr. Trump his own briefing on the issue.

Write to Bob Davis at [email protected]