Written by Wu Qisheng and Li Canran
The Committee on Foreign Investment in the United States (CFIUS) was established by the U.S. Treasury Department in the 1970s as a mechanism to address national security risks associated with cross-border capital movements. Historically, it has focused on scrutinizing foreign investment activity within the U.S., but recent developments could bring about an unprecedented change in this operating paradigm.
The United States is strengthening cooperation with allies and partners to expand the scope of its foreign investment security review system and build a cross-border investment review network.
Currently, the United States is taking actions to influence other countries’ policies to align their efforts with those of other countries in promoting cooperation on foreign investment screening. The United States is encouraging allies to develop screening systems similar to ours that are capable of identifying foreign investments that pose security risks. We are also asking allies to develop mechanisms for information sharing and coordination.
This includes analyzing trends in cross-border capital flows, sharing best practices on assessing and eliminating national security risks associated with certain transactions, and coordinating responses to investments from certain countries. To enhance cooperation, CFIUS has introduced a whitelist system covering countries with similar screening processes and those that cooperate with the United States on investment screening. Transactions from these countries are given preferential treatment.
U.S. President Joe Biden’s administration has consistently pursued these goals since taking office. CFIUS Annual Report 2022 It details measures taken by the Ministry of Finance to strengthen its review capacity, including expanding its team of experts specializing in international cooperation in investment review.
In testimony submitted to the House Committee on Financial Services on September 12, 2023, Paul Rosen, the Treasury Department’s Assistant Assistant for Investment Security, emphasized the U.S.’s intention to work with foreign allies and partners on investment screening issues, advocate for the global adoption of a similar national security-based investment screening framework, and provide technical assistance to countries interested in establishing such a system.
The 2023 G7 Summit highlighted efforts to prevent the unauthorized transfer of sensitive technology through foreign investment reviews, followed by other efforts such as the US-UK Transatlantic Declaration. A joint statement by the United States and European Union Trade and Technology Councils further strengthens these objectives.
The move is part of a continuation and escalation of the United States’ competition with China that began during the tenure of former President Donald Trump. In 2017, the National Security Report designated China as a “strategic competitor” and recalibrated its approach to addressing the comprehensive competition. Economic issues, including investment screening, have emerged as key tools in Trump’s confrontational stance toward China. Foreign Investment Risk Review Modernization Act of 2018 This was a seminal moment: the law contained provisions specifically targeted at China, resulting in a significant decline in Chinese direct investment in the United States.
For Biden, the investment review is of strategic importance not only for safeguarding U.S. technological leadership, but also for strengthening supply chain resilience. The “100-Day Review” report on supply chains released by the White House on June 8, 2021, highlighted the U.S.’s excessive reliance on China in various strategically important industrial sectors. In response, the Biden administration adopted “de-risk” measures against China, including eliminating the footprint of Chinese capital in U.S. supply chains. The report explicitly called for CFIUS to continue sharing information with partners and urged allies and partners to strengthen their oversight of foreign investments.
The Biden administration believes relying solely on domestic U.S. foreign investment screening may not be enough, because China could circumvent U.S. barriers by investing in third countries. The White House is also concerned that investments could provide a pathway for China to acquire advanced technology from allies or indirectly access U.S. technology.
Biden’s plan, unlike Trump’s “America First” and unilateral approach, aims to work with allies and partners to restrict Chinese investment in key sectors and ultimately exclude China from vital supply chains and weaken China’s position in the global production system. This is the logic behind Biden’s attempt to expand the investment screening mechanism to third countries, which could explain why the countries currently cooperating with the United States are mainly those that share special economic and trade ties with Washington and its political and military allies.
The Biden administration has taken various measures to address Chinese investment in third countries, including shaping public opinion through the media to amplify concerns about Chinese investment, implementing a “carrot and stick” strategy of creating a whitelist of cooperating countries for investment screening and leveraging third countries’ security dependency on the United States to secure cooperation.
A recent United Nations report predicted that “global investment is likely to remain subdued” in the near term due to growing geopolitical uncertainty. Increased cooperation between the United States and third countries in investment screening could discourage investment by related industries and companies, with implications beyond China to other countries and exacerbating the challenges facing the international investment environment.
About the author:
- Wu Qisheng is an associate professor and executive director of the Department of American Studies at the Institute of International Relations, Shanghai Academy of Social Sciences (SASS).
- Dianzan Li is a graduate student at SASS.
