The United States’ Strengthened National Security Review Of Chinese Investment: Implications From The Tech War

Authors

Charles C. Wang, Durham Law School, Durham University, Durham, UKFollow
Ulia LiuFollow
Holden H. Dong, School of Law and Politics, Guangzhou College of Applied Science and TechnologyFollow

Abstract

In recent years, the national security review system of United States (U.S.) foreign investment has entered into a period of intensified scrutiny of Chinese investment. This article analyzes the latest development of the U.S. foreign investment national security review system after the enactment of the 2018 Foreign Investment Risk Review and Modernization Act (FIRRMA) and relevant Executive Orders. The U.S. review of Chinese investment has been greatly strengthened in terms of the expanded scope of review in high-tech areas and prolonged and unpredictable review time. China has become the primary target of the U.S. national security review, especially in the finance, information, and manufacturing industries. Among Chinese investment review cases, successful Chinese investors usually fully employed the advantages of abundant capital and managed to balance economic benefits with security risks by negotiating mitigation agreements with the Committee on Foreign Investment in the United States (CFIUS). Unsuccessful Chinese investors often failed to make “declarations,” ignored the deterrent power of the U.S. long-arm jurisdiction, and chose to invest in sensitive areas without reaching mitigation agreements. In the regulation of TikTok and other apps from foreign adversaries, the 2024 Protecting Americans from Foreign Adversary Controlled Applications Act (PAFACA) has profoundly reshaped the national security review system in the U.S. high-tech industries. Compared with the Trump Executive Order 13942, the 2024 PAFACA has stronger legal force and its severability can defeat the litigation strategies that may be used by Chinese investors. It tends to prohibit TikTok in an indirect manner, which is a wiser and more flexible approach. Moreover, it has a wider scope of application and provides the possibility of mitigations and exemptions. The U.S. national security review regime reforms have exerted significant impacts on China. With the escalation of the Sino-U.S. political and economic tensions, China has gradually abandoned its original national security strategy, adopted a policy restricting outbound technology transfers, overhauled the foreign investment national security review law, and adopted retaliatory laws against U.S. sanctions.