US Strengthens Foreign Investment 'Security Review' to Counter China

[Asia Economy Reporter Jeong Hyunjin] Starting next month, the procedures for foreigners investing in the United States are expected to become more stringent. The U.S. government has decided to apply regulations requiring foreign investors in U.S. real estate and businesses to undergo security-related reviews on a permanent basis from February. This measure is intended to prevent the potential leakage of U.S. technology or information through mergers and acquisitions (M&A) or real estate purchases by Chinese capital.

On the 13th (local time), the U.S. Department of the Treasury announced two regulations containing these details ahead of the enactment of the Foreign Investment Risk Review Modernization Act (FIRRMA). The main points include strengthening the scope of foreign investors who must undergo review by security experts from the Committee on Foreign Investment in the United States (CFIUS) before investing in U.S. businesses, and adding review regulations for real estate transactions. These measures were taken following the passage of FIRRMA by Congress in August 2018, which will take effect in February, with full implementation starting on the 13th of next month.

According to the regulations, the review targets industries handling sensitive personal or technical information in the U.S. These include telecommunications, energy, mass transit industries, major infrastructure projects, and companies handling sensitive personal information such as health, biotechnology, and geographic data. In particular, real estate transactions near airports, ports, and certain military facilities are subject to review. However, general residential properties are excluded. Treasury Secretary Steven Mnuchin explained in a statement, "These regulations will strengthen our national security and modernize the investment review process."

The general consensus is that these regulations were introduced with China in mind. Although the country name "China" is not explicitly mentioned in the regulations, serious concerns about security and technology leakage to China were considered when the law was passed by Congress in 2018. The U.S. has previously warned that it would halt information sharing with countries that allow Chinese Huawei equipment. On this day as well, Matthew Pottinger, U.S. National Security Council (NSC) advisor, personally went to London to pressure the British government not to use Huawei equipment in the UK's 5G mobile network servers. Recently, the U.S. Department of the Interior also banned the use of Chinese drones, citing concerns that they could be used for espionage.

The U.S. Treasury decided to exclude Australia, Canada, and the United Kingdom from the regulations among the "Five Eyes" countries. CFIUS stated that this decision was made considering these three countries' active information sharing and integration mechanisms with the U.S. defense industrial base. Among the Five Eyes, only New Zealand was excluded from the exemption. The Treasury emphasized that exempt countries must meet certain conditions to maintain their status. The exemption will be applied for two years, and additional countries may be added to the list.

However, there are also forecasts that once these measures become permanent, they could act as obstacles to investments from countries other than China into the U.S. According to a report released by CFIUS in November last year, many foreign companies that underwent security-related reviews by CFIUS after Donald Trump became president decided to abandon investments in the U.S. In 2017 alone, 14% of investigated companies chose not to invest in the U.S., and in 2018, 11% gave up on investing in the U.S. Considering that the rate was around 4-5% before Trump's administration, this represents a sharp increase. CFIUS explained that before the passage of FIRRMA, in 2016-2017, China was the country with the highest investment in sensitive U.S. technologies, followed by Canada, the United Kingdom, and France.

Seemingly aware of this, the U.S. Treasury emphasized in the Q&A materials released with the regulation announcement that "the United States welcomes foreign investment and is one of the most open countries in the world to foreign investors," stressing that these regulations provide clear information to investors.

This content was produced with the assistance of AI translation services.