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US security reviews now extend to Chinese acquisitions never filed with government

  • Given new funding and expanded authority, watchdog Committee on Foreign Investments in the United States is pursuing ‘non-notified transactions’
  • While CFIUS was strengthened during the Trump administration, the tough scrutiny on Chinese deals is seen as continuing under President Joe Biden

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US President Joe Biden has continued the push his predecessor Donald Trump began to increase national security reviews of Chinese acquisitions of American businesses. Photo: EPA-EFE

A little over a week ago, Magnachip Semiconductor was notified by the US Treasury Department that it had identified national security risks in the Delaware chip company’s proposed US$1.4 billion sale to Chinese private equity firm Wise Road Capital. Soon after, the department would recommend US President Joe Biden block the deal.

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Treasury’s outreach to Magnachip was the latest example of the new level of scrutiny US regulators are a pplying to Chinese acquisitions of American businesses. Instead of waiting for foreign buyers to submit transactions to be reviewed for any possible national security implications, they are investigating deals that were never filed with the government.

This new focus on “non-notified transactions” illustrates how comprehensively the US is trying to limit China’s opportunities to obtain Americans’ personal data and intellectual property.

We know for a fact that CFIUS has reached out to investors for deals going back almost a decade.
Mario Mancuso of Kirkland Ellis

The spotlight on these mergers added to other measures – the Treasury Department’s blacklist of Chinese companies that allegedly have ties to China’s military and the Commerce Department’s export control regulation – that prohibit American capital from investing in Chinese firms and restrict sensitive technologies from being sold to China.

Even before this heightened examination, the sharp focus the US put on Chinese acquisitions during the Trump administration had already depressed deal activity to a fraction of its 2016 peak. The new effort signals the business and financial decoupling of the world’s two largest economies that is unlikely to roll back under President Joe Biden.

Last year, the regulatory gatekeeper – the Committee on Foreign Investments in the United States (CFIUS), an inter-agency body led by the Treasury Department that scrutinises the national security implications of cross-border deals – sifted through hundreds of non-notified transactions and identified 117 for potential review.

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What is CFIUS, anyway?

What is CFIUS, anyway?

For context, Chinese buyers have completed 107 transactions in the US since 2017, according to PitchBook, a deal data provider. All the deals done in the past five years would have been put on possible review.

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