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July, 2018

Congress set to restrict Chinese investment in US tech

Original article: The Wall Street Journal

Congress is set to tighten restrictions on foreign investment in a bid to safeguard the U.S.'s most advanced technology. While the provision does not specifically mention China, Beijing’s unfair trade practices and the theft of American intellectual property by Chinese companies were cited as reasons for strengthening scrutiny of foreign investment in the U.S.  


“America’s technology will now have stronger protections commensurate with the challenges from China and other nations seeking to exploit our current laws,” Representative Robert Pittenger (R., N.C.) was quoted as saying by The Wall Street Journal. 

Analysis:

Washington is pushing back against the perceived threat of a Chinese juggernaut dominating global supply chains with technology it either stole from U.S. firms or obtained through shady deals. There is plenty of evidence of theft. Most recently, the Justice Department fined Chinese wind-turbine maker Sinovel $1.5 million for stealing trade secrets from the Massachusetts-based energy-technologies company American Superconductor (AMSC).  


In that case, AMSC and Sinovel were supposed to jointly develop wind turbines in China. That type of technology-sharing partnership overseas remains outside of the authority of the Committee on Foreign Investment In the United States (CFIUS). Some lawmakers, concerned that certain U.S. firms might inadvertently danger national security in a bid to boost their bottom lines, argued that CFIUS should have the power to review overseas deals. Multinationals - IBM and General Electric in particular - didn't like the idea, and it was dropped from the provision, The Wall Street Journal notes. 


The problem is that firms serving as suppliers to the U.S. military and civilian government blithely enter into close partnerships with companies who are backed by Chinese government money or even have suspected links to China's security agencies. Washington can cripple the inbound deal flow but has few options to review the activities of U.S. tech firms in China.   


That could change. In May Senator Marco Rubio (R, FL) introduced the "Fair Trade with China Enforcement Act. The bill doesn't just target inbound Chinese investment in U.S. tech. It also would raise taxes on American multinationals' China income. Undoubtedly, U.S. multinationals will fight to kill the bill. But if the Sino-U.S. trade dispute escalates, the Trump administration will likely more carefully scrutinize the activity of U.S. companies in China. If The Donald concludes they aren't putting America first, there's no telling what may come next. 


As for China, its grandiose tech ambitions fomented the legislative backlash in Washington. Beijing understandably wants to wean itself off of foreign technology and develop advanced manufacturing capabilities. It is following a similar trajectory to Taiwan, South Korea and Japan. However, with the Made In China 2025 policy, it directly challenged U.S. primacy in advanced technology. 


Beijing is now trying to play down Made In China 2025. In recent weeks, mention of the policy has been sharply curtailed in state media. A June South China Morning Post report quoted a Beijing Normal University professor, Zhong Wei, as saying that the initiative is a "guiding document," not an official policy blueprint, like China's Five-Year Plans.

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