Sinica Pecunia Olet

In New Slap at China, U.S. Expands Power to Block Foreign Investments

By Alan Rappeport

The Treasury Department said it would expand its reviews of Chinese investments in the United States, using new powers approved by Congress.

WASHINGTON — The Trump administration said on Wednesday that it would more aggressively police foreign investment in the United States, outlining a rigorous review system that is aimed primarily at preventing China from gaining access to sensitive American technology.
The investment restrictions will allow the United States to block a far wider array of Chinese transactions that are deemed a threat to national security, including minority stakes and joint ventures in technology, telecommunications and other cutting-edge companies.
While Congress passed the expanded review system into law this summer, the administration signaled that it would apply its new authority very broadly and would review any foreign transaction involving a business that designs or produces technology related to 27 industries, including telecom, semiconductors and computers. 

Foreign investors will be required to submit declarations notifying the panel of their intentions when making a bid and could be assessed a fine up to the value of the transaction if they fail to comply.
The toughened investment regime will apply to all countries but is aimed largely at China, which President Trump has accused of trying to gain access to valuable American technology through nefarious means. 

The White House has criticized China for trying to obtain trade secrets by investing in United States companies, pressuring domestic firms doing business in China to hand over intellectual property and committing outright cyberespionage.
On Wednesday, a Chinese intelligence official was arrested in Belgium and brought to the United States to face espionage charges, further escalating the China crackdown. 

Law enforcement officials said the official tried to steal trade secrets from GE Aviation.
The administration has already taken several steps to stop Beijing from harnessing American technology in critical sectors, such as the next generation of 5G wireless technology, and to thwart China’s strategic plan to dominate cutting-edge industries, known as Made in China 2025. 

It has imposed tariffs on $250 billion worth of Chinese goods as a form of punishment and has threatened to tax all Chinese imports if Beijing does not change its trade practices.
But the foreign investment review takes things up a notch and threatens to exacerbate tensions between the world’s two largest economic powers, which have engaged in a tit-for-tat trade war and increasingly harsh exchanges about each other’s policy and approach.
Chinese officials canceled a trip to Washington late last month to resume trade talks after President Trump moved ahead with a second round of tariffs. 

On Monday, China’s foreign minister, Wang Yi, chided the Trump administration for “ceaselessly elevating” trade tensions and “casting a shadow” over relations between the two countries. 

Secretary of State Mike Pompeo, who was visiting Beijing for talks, said the United States had a “fundamental disagreement” with China on the issues that it raised.
The Treasury Department said on Wednesday morning that it would begin a pilot program using new powers under the Foreign Investment Risk Review Modernization Act. 

The law expanded the purview of the Committee on Foreign Investment in the United States, or Cfius, an interagency panel led by the Treasury Department that can block acquisitions on national security grounds, and the department is moving swiftly to take advantage of its new tools.

Until now, only takeovers and controlling stakes in American companies could be reviewed. 

Under the pilot program, Cfius will be able to review a much wider array of deals, including joint ventures and smaller investments by Chinese in American businesses that make technology deemed critical for national security reasons.
Beginning on Nov. 10, the panel can review — and block — a deal if a Chinese investor takes a stake in a business that makes sensitive technology and if that investor gains potential access to nonpublic technical information or can engage in substantial decision-making over the company, such as getting a board seat.
The new law, which passed with bipartisan support, gave the Treasury Department 18 months to develop rules to put the panel’s new powers into effect, but the program announced on Wednesday will allow it to be put in place more quickly.
“These temporary regulations address specific risks to U.S. critical technology while informing the development of final regulations that will fully implement Firrma,” Steven Mnuchin, the Treasury secretary, said, referring to the Foreign Investment Risk Review Modernization Act.
China has increasingly been looking to invest in high-tech industries in the United States. 

According to data from Public Citizen, a liberal advocacy group and think tank, 56 percent of Chinese investments in the United States last year were in industries that Beijing defines as “strategic,” such as aviation, biotechnology and new-energy vehicles — up from 25 percent in 2016.
But the administration’s trade measures have already chilled Chinese investment in the United States, which fell more than 90 percent from the first half of 2017 to the first half of 2018, to its lowest level in seven years, according to tracking by Rhodium Group.
The panel has already stepped up its scrutiny of deals under the Trump administration as the president looks to employ a more protectionist “America First” agenda.
Earlier this year, Cfius scuttled a proposed takeover of Qualcomm, the San Diego-based chip maker, by Broadcom, a rival that at the time had headquarters in Singapore, over concerns that it would pose a national security risk by depriving the United States of a telecom leader. 

It also refused to approve a $1.2 billion deal between MoneyGram, a money transfer company based in Dallas, and Ant Financial, a Chinese electronic payments company.
Republicans and Democrats in Congress have been generally united in their desire to crack down on Chinese theft of American intellectual property.
At a Senate hearing on homeland security on Wednesday, Senator Rand Paul, Republican of Kentucky, called on Cfius to review Broadcom’s proposed $18.9 billion acquisition of CA Technologies. 

He noted that the network systems of CA Technologies were deeply embedded in critical infrastructure facilities and national security agencies.
Nicole Lamb-Hale, head of the Cfius advisory practice at the risk management firm Kroll, said that the global nature of the new pilot program could have a chilling effect on businesses seeking foreign investment and that it would create additional hurdles for transactions. 

However, she acknowledged, with recent reports that Chinese spies have been using chips to infiltrate American companies, there is greater urgency to protect American intellectual property.
“I think that really brings into focus the concern that we are at a point where if we don’t do something very quickly, we’re going to be in a position where from a national security standpoint we’re at risk,” said Ms. Lamb-Hale, who previously handled Cfius matters at the Commerce Department.
President Trump was considering a more draconian plan that would have imposed sweeping investment restrictions on China last summer, but instead decided to support the proposal to grant Cfius more power. 

That decision was seen as a win for Mr. Mnuchin, who has been working behind the scenes to defuse the trade dispute.
But Mr. Mnuchin has also been showing signs of being less accommodating recently. 

In an interview with The Financial Times that was published on Wednesday, he said he was closely monitoring China’s currency, the renminbi, and noted that it had been falling this year. 

The administration has been concerned that China has been manipulating its currency to mitigate the effects of the tariffs, and he said the issue of competitive devaluations should be part of the broader trade negotiations.
Mr. Mnuchin is traveling this week to the annual meeting of the World Bank and the International Monetary Fund in Bali, Indonesia, where he will have the chance to explain the new changes to his counterparts from countries around the world in person.

Trade War

Trump economic advisor Larry Kudlow bashes China for decades of misdeeds on trade

By Berkeley Lovelace Jr. 

NEC's Kudlow says to China: "You're no longer a developing nation, act like it" 

White House economic advisor Larry Kudlow told CNBC on Monday that President Donald Trump is warning China about its trade practices with tariffs.
"This president's got some backbone, others didn't and he's raising the issue in full public view, setting up a process that may include tariffs. Hopefully, it will be mostly negotiations," Kudlow said on "Squawk on the Street." 

"I don't know if we'll have tariffs or not."
"[Trump] is responding to decades of misdeeds by China [on] trade," said Kudlow, an ex-CNBC contributor and a former Wall Street economist. 

"It's high time we did that."
"Somebody's got to do it. Somebody's got to say to China, 'you are no longer a Third World country. You are a First World country and you have to act like it,'" he said. 

"The president's got to stick up for himself and the United States."
In a tweet early Monday, Trump called out China again for what he has said are unfair trade practices by the world's second-largest economy.
The president unveiled a list of Chinese imports last week that his administration aims to target as part of its crackdown on China. 

Shortly after the announcement, China announced additional tariffs. 

China's Foreign Ministry blamed the United States on Monday for trade friction and said that it was impossible for negotiations to take place under current conditions.
Stocks were higher Monday as the Trump administration tried to soften its tone regarding trade relations. 

During a "Fox News Sunday" interview, Kudlow tried to calm trade war fears but added Trump was "not bluffing" on tariffs. 

Treasury Secretary Steven Mnuchin said Sunday he does not expect a trade war between the U.S. and China to take place.
Trump last month picked Kudlow to succeed Gary Cohn as director of his National Economic Council. 

Cohn, former No. 2 executive at Goldman Sachs, resigned from the White House role shortly after losing his fight to persuade the president not to impose import tariffs on steel and aluminum, an earlier move separate from the latest China tariffs over Chinese companies' theft of American intellectual property.
Saying he supports almost all of Trump's policies, Kudlow on Monday reminded viewers he did not like the across-the-board steel and aluminum tariffs announced last month. 

But he said Trump fixed that with the exemptions that included Canada and Mexico, pending a successful reworking of the 1994 North American Free Trade Agreement.
"I have no specifics to offer this morning, but I will say progress is being made on renegotiating and recalibrating NAFTA. Good progress is being made on that," Kudlow added.

Chinese theft of sensitive US military technology is a huge problem -- Defense analyst

• One of the reasons China is narrowing the military-technology gap with the U.S. is because of the theft of designs and other sensitive data.
• Donald Trump may bring up China's theft of American intellectual property during his talks with his Chinese counterpart this week
• Beijing is still up to its old tricks and using various ways to camouflage its cyber-warfare

By Jeff Daniels 

A J-20 stealth fighter of China flies at the 11th China International Aviation and Aerospace Exhibition in Zhuhai, south China's Guangdong Province, Nov. 1, 2016.

As Donald Trump uses his meeting with Xi Jinping to address trade and North Korean issues, he also may bring up China's theft of American intellectual property.
Despite a cyber-warfare truce, one defense analyst said China is probably still engaged in the theft of sensitive U.S. military technology. 

Hacking over the years is one of the reasons China has been able to narrow the gap with the U.S. in advanced missiles, drone technology and even stealth aircraft.
Also, a report predicts that by 2030 the Chinese could dominate artificial intelligence and exploit it for military purposes.
At the same time, China is pressing its domestic tech firms to help the country's military "to speed up" the application of advanced technology.
For example, when China wanted to build the J-20, a new stealth fighter jet, they were reportedly helped by industrial espionage. 

The J-20 became operational in September.
There were said to be several prototypes of the plane, but the final sleek design resembles the F-22, a stealth fighter made by Lockheed Martin. 

China's smaller stealth fighter, called the FC-31 Gyrfalcon, in development is seen as a knockoff of Lockheed's F-35.
"What Beijing has been very good at is targeting U.S. defense contractors, getting into their computer systems through various types of essentially cyber warfare and stealing the designs of America's best military assets," said Harry Kazianis, director of defense studies at the Center for the National Interest, a think tank founded by former President Richard Nixon.
Although a U.S.-Chinese cyber-hacking truce was announced in 2015, Kazianis and others remain skeptical it will matter over the long term. 

He says China has agents in other countries still doing hacking or "camouflage" such activity through various methods.
"So we don't even have a good idea if they stopped," he said. 

"It's obviously a huge, huge problem."
According to Kazianis, the Chinese have been able to hack into computer networks to steal designs and other information on U.S. carriers, advanced defense systems as well as the F-22 and F-35 jets.
Indeed, a federal grand jury in 2014 indicted a Chinese national for a computer hacking scheme that involved the theft of trade secrets from Boeing's C-17 military transport aircraft. 

The individual, who last year entered a guilty plea, also was accused of working with two co-conspirators based in China to steal military data about the F-22 and F-35 jets.
The concern is China's supersonic J-20 could one day become a threat to the F-22 and the smaller F-35 fighters.
The Center for Strategic and International Studies, a think tank based in Washington, said Beijing's "J-20 has the potential to considerably enhance China's regional military strength."
For one, the J-20's could give China an advantage should it want to use the warplane in a dogfight with the U.S. or allies. 

Also, depending on its stealth capabilities, the J-20 could be used for strikes on Taiwan or U.S. airbases.
Then again, the J-20's design may make it susceptible to detection. 

It features angles that allow it to deflect radar emissions from the front but reports suggest its signature reduction falls short elsewhere. 

Portions of the J-20's engines also "may work against its stealth capabilities," according to CSIS.
"Almost every fighter in the world has some kind of emissions that come out with radar or communications devices just like radios that we can detect," said John JV Venable, a senior research fellow for defense policy at the Heritage Foundation, a Washington conservative think tank. 

"When we can pick those [emissions] up, then we can actually find, fix and kill that fighter."
Venable, a retired Air Force colonel, said the U.S. military's ability to "mask emissions is very good, and our ability to detect is very good. We just don't know what theirs is [with the J-20]."