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US plans curbs on Chinese investment, citing security risk

WASHINGTON - The Treasury Department is planning to heighten scrutiny of Chinese investments in sensitive United States industries under an emergency law, putting Washington’s trade war with Beijing on a potentially irreversible course.

US President Donald Trump and China's President Xi Jinping shake hands in Beijing in Nov 2017. The Treasury Department is planning to heighten scrutiny of Chinese investments in sensitive US industries under an emergency law, putting Washington’s trade war with Beijing on a potentially irreversible course.

US President Donald Trump and China's President Xi Jinping shake hands in Beijing in Nov 2017. The Treasury Department is planning to heighten scrutiny of Chinese investments in sensitive US industries under an emergency law, putting Washington’s trade war with Beijing on a potentially irreversible course.

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WASHINGTON - The Treasury Department is planning to heighten scrutiny of Chinese investments in sensitive United States industries under an emergency law, putting Washington’s trade war with Beijing on a potentially irreversible course.

Under the plan, the White House would use one of the most significant legal measures available to declare China’s investment in US companies involved in technologies such as new-energy vehicles, robotics and aerospace a threat to economic and national security, according to eight people familiar with the plans.

Reuters reported that the US Treasury Department is drafting curbs that would block firms with at least 25 per cent Chinese ownership from buying US companies with "industrially significant technology".

The report, citing a government official briefed on the matter on Sunday (June 24), said Chinese ownership threshold may change before the restrictions are announced on Friday by Treasury Secretary Steven Mnuchin.

Mr Mnuchin is expected to suggest administering an emergency law - known as the International Emergency Economic Powers Act of 1977 (IEEPA) - through an inter-agency government panel called the Committee on Foreign Investments in the US, or CFIUS, the people said, requesting anonymity to discuss the plans.

The IEEPA, will target prospective investments, meaning existing ones cannot be undone, according to four of the people. It’s unclear what would happen to deals that have been announced but not yet completed.

Treasury officials are said to be trying to settle on legal definition of  “Chinese entities" that would be affected.

A Treasury spokesman did not immediately reply to a request for comment.

China’s Ministry of Commerce didn’t immediately respond to Bloomberg’s inquiry about the report of planned investment curbs from the US.

One concept under review would be to create a two-tracked CFIUS process to review investments, with one specifically for China, two of the people said.

"It is now clear that Trump’s policy is not about the trade deficit," said Mr Raymond Yeung, chief greater China economist for Australia & New Zealand Banking Group Ltd in Hong Kong.

"Security risks can be applied to every aspect in a bilateral relationship, investment restrictions in particular."

Stocks fell in Asia with US equity-index futures and the yen advanced as investors assessed prospects for continuing trade tensions.

Mr Mnuchin has been working on the plans since as early as December, though he’s argued for taking a less aggressive approach, the people said.

In the end, he’s been persuaded by other members of the Cabinet and the president to use blunt tools to address growing national security risks from Chinese investments, the people said.

The Treasury chief has kept a low profile in recent weeks. People familiar with Mr Mnuchin’s thinking said that after he lost an internal battle on how to handle the trade dispute with Beijing, he’s signaling his disagreement with the president’s approach through silence.

Some administration officials are concerned that declaring a national economic emergency could hammer the stock market or hurt US firms operating in China, they said.

The South China Morning Post reported on Sunday that China has no plan to target US companies operating in the nation amid escalating trade tensions, but additional steps by the White House may change that assessment.

Following talks on Monday in Beijing, Vice Premier Liu He - President Xi Jinping’s top economic adviser - said China and the European Union had agreed to defend the multilateral trading system.

They vowed to oppose protectionism and unilateralism, saying those actions could push the world into recession in an apparent rebuke to the US.

Mr Trump’s top trade adviser, Peter Navarro, has been laying the groundwork to escalate what he’s so far called a “trade dispute.’’

Mr Navarro recently issued a 36-page report on “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World.”

The report is seen as part of the evidence the administration will use to justify the investment curbs on economic security grounds.

Much of China’s “behaviour constitutes an economic aggression," Mr Navarro said during a phone briefing with reporters.

“It is critical both for the interests of the United States as well as for the integrity and proper functioning of the global economy that the Chinese cease these kinds of behaviours."

Treasury’s move is part of the Trump administration’s actions taken under Section 301 to respond to China’s alleged theft of US intellectual property and follows rounds of tit-for-tat tariff threats between the two largest economies.

The IEEPA statute allows the president to unilaterally impose the investment limits. Congress, in parallel, is working on reform legislation to the CFIUS, That would scrutinize inbound investment in the US on national security grounds.

People familiar with the administration’s plans said Treasury’s investment limits are seen as complementing the CFIUS reform efforts, which are not only focused on China and don’t limit investments on economic security grounds.

The people briefed on the latest action said the Treasury limits will be rolled out in phases, meaning not all Made in China 2025 sectors will be covered at once. AGENCIES

 

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