US Foreign Investment Security Focuses on China... Also Attention on Korea and Japan

(Photo by Reuters)

[Asia Economy Reporter Yujin Cho] U.S. authorities have been focusing on investigating Chinese companies over the past six years as part of the national security review of foreign investments involving mergers and acquisitions (M&A). Following China, companies from Singapore, South Korea, and Japan have also become targets of attention by the U.S. administration.

The U.S. think tank Peterson Institute for International Economics (PIIE) stated that China has used overseas investments to gain access to sensitive data and infrastructure due to its military and technological ambitions. To prevent the leakage of advanced technology during Chinese companies' investments in the U.S., the U.S. Foreign Investment Risk Review Modernization Act (CFIUS) has expanded its jurisdiction.

According to a report by Martin Korzempa, a senior researcher at PIIE, between 2016 and 2021, Chinese companies accounted for 4% (by value) of foreign M&A deals in the U.S., but represented 15% of CFIUS investigations, the highest proportion.

For South Korea, the shares of M&A value and investigation cases were 2% and 4%, respectively, while Japan accounted for 8% and 12%, respectively.

Foreign investments related to core technologies such as semiconductor equipment or M&A activities by foreign state-owned enterprises in the U.S. must be mandatorily reported to CFIUS.

The report indexed the ratio of a specific country's share of CFIUS investigations relative to its share of total foreign M&A in the U.S., with China scoring the highest at 3.73. Asian countries such as Singapore (2.57), South Korea (1.87), and Japan (1.39) followed.

In contrast, Western countries such as Germany (0.56), Canada (0.54), the United Kingdom (0.36), Switzerland (0.30), and Ireland (0.19) had relatively lower figures.

A high index indicates a greater likelihood that companies from that country will be subject to CFIUS investigations during U.S. M&A transactions.

The report explained, "South Korea and Japan are positioned between Western allies and China," suggesting that companies from these two countries may have invested in more sensitive sectors than companies from Western countries.

Meanwhile, the number of CFIUS filings and investigations related to Chinese investors peaked at about 60 cases in 2017, before the outbreak of the U.S.-China trade war.

After China began regulating its companies' overseas investments and CFIUS strengthened its oversight in 2020, the number dropped to about 22 cases, then rose again to approximately 45 cases last year. This is the second highest number after the combined cases from Canada and all European Union (EU) countries.

The report also noted that another reason for the increase in filings and investigations related to Chinese companies is that CFIUS has been increasing the use of "security threat mitigation agreements," which allow M&A deals to proceed under conditions that address concerns rather than blocking them outright. Additionally, Chinese companies may be reporting less sensitive investments proactively to avoid future issues.

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