By Heidi Vogt
WASHINGTON -- Lawmakers are moving to stanch the flow of U.S.
technology to foreign investors, creating potential problems for a
number of American companies that have bet big on partnering with
China.
The Senate and House, with the backing of the White House, are
working on bipartisan legislation to broaden the authority of the
Committee on Foreign Investment in the U.S., a multi-agency body
that has oversight of deals that could lead to the transfer of
sensitive technology to rival countries. The current CFIUS statute
doesn't single out any country, but in recent years, the committee
has often been focused on deals involving China.
Currently, CFIUS can recommend the president block foreign
entities from buying majority stakes in U.S. companies; the new
bill would let the committee make similar recommendations for deals
involving minority investments and joint ventures, along with
transactions that it determines involve "emerging
technologies."
The scope of the proposed legislation is broad. China requires
foreign investors to form ventures with local partners, and
Washington law firms say they are receiving a surge in inquiries
over what it might mean for the large number of U.S. firms active
in China. The country's huge size has made it a market of interest
for companies ranging from auto makers like General Motors Corp.,
technology companies like Cisco Systems Inc. or other manufacturers
like Caterpillar Inc. -- all of which have local ventures in
China.
It isn't clear how broadly the new law would be enforced. For
now, the most vocal corporate opponents are a handful of U.S.
companies that have determined the new law might crimp business
prospects by requiring companies to get the blessing of CFIUS for
some joint ventures that involve shared U.S. technology.
IBM Corp., for instance, last year agreed with China's Wanda
Internet Technology to share the cloud computing technology used in
its Watson artificial intelligence system. Behind the strategy is
the belief that embedding IBM's technology in China's business
infrastructure would steer Chinese customers toward IBM as they
seek future growth.
Other large U.S. corporations, from General Electric Co. to
Microsoft Corp., see China as a crucial market for similar
reasons.
IBM, among others, has said the bill -- known as the Foreign
Investment Risk Review Modernization Act -- would hurt U.S.
companies' ability to compete globally. "Foreign competitors that
do not face similar regulatory restrictions will seize global
market opportunities while American companies are left watching
from the sidelines," IBM"s vice president of government and
regulatory affairs, Christopher Padilla, testified at a recent
Senate hearing.
Supporters of the bill, who think it could be signed into law
later this year, aren't convinced. "I am concerned that some of the
recent witnesses before the House and Senate have major financial
conflicts of interest that prohibit an objective evaluation of the
security threats we face," Rep. Robert Pittenger (R., N.C.) -- one
of the drafters of the bill -- said in an email.
"The business models for IBM, Microsoft, and GE, for example,
have led to the transfer of military applicable technologies to
China that have likely aided the modernization of the Chinese
military and intelligence agencies," said Mr. Pittenger. The bill's
supporters say it complements and strengthens export regulations
rather than duplicating them.
IBM and other opponents, while acknowledging national-security
concerns, have suggested existing export controls to counter China
rather than expanding the reach of CFIUS. IBM didn't respond to
requests for comment.
In an email, GE said while it supports the idea of changes to
CFIUS, "it's also important that any reform support America's
historical leadership in attracting foreign investment, not
duplicate existing and well-established export control regimes, and
preserve the ability of American companies to compete globally."
The company declined an interview. Microsoft declined to
comment.
Several security experts say China has been sidestepping
controls by taking minority stakes in U.S. technology companies or
entering joint licensing ventures.
"There's a very sophisticated and well-organized plan [by China]
to acquire the technology and the reality is there are people here
who want to sell it," said William Reinsch, who was the Commerce
Department's undersecretary for export administration under
President Bill Clinton.
And for many who have watched China easily avail itself of gaps
in the CFIUS review process, the bill is the minimum that can be
done in a fight that is likely to get much bigger. CFIUS blocked 10
deals between 2014 and 2016 over national-security concerns; China
in recent years has accounted for the largest number of reviewed
transactions.
"There's a big trade war shootout coming up with China that I
think, frankly, is overdue," said Adm. Dennis Blair, co-chair of
the Commission on the Theft of American Intellectual Property and a
former U.S. director of national intelligence. He said among the
key technologies right now are those involving artificial
intelligence, data mining and pattern recognition.
Supporters point to recent deals that they say deserve greater
scrutiny because they give China access to critical technology,
such as Advanced Micro Devices Inc.'s 2016 joint venture with
China's Tianjin Haiguang Advanced Technology Investment Co., which
gave the company access to Intel Corp.'s chip technology. Tianjin
Haiguang didn't respond to requests for comment.
AMD spokesman Drew Prairie said in an email that "some
commentators have mischaracterized" the venture and that AMD
received a "U.S. government classification confirming that the
technology was not restricted for export" -- a reference to
Commerce Department export controls. As for the CFIUS overhaul
bill, Mr. Prairie said AMD supports strengthened security but wants
to make sure it doesn't have "unintended consequences." Dawning
Information Industry Co., the largest shareholder of Tianjin
Haiguang, didn't respond to an email.
Many businesses are also supportive of the bill, including
software maker Oracle Corp., telecommunications firm Ericsson Inc.,
steelmaker Nucor Corp. and railroad-car-equipment maker Greenbrier
Cos. Many say an expanded CFIUS would set needed ground rules for
working with Chinese firms.
Even openly supporting the bill, some companies worry, could
expose them to problems -- not in the U.S. but in China. They don't
want to be blocked from entering deals in China, or prevented from
selling products in its booming economy.
"We're quiet about our support because of fear of retaliation,"
said an executive at a large U.S. technology company.
--Kersten Zhang and Ted Greenwald contributed to this
article.
Write to Heidi Vogt at heidi.vogt@wsj.com
(END) Dow Jones Newswires
January 29, 2018 14:36 ET (19:36 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
International Business M... (NYSE:IBM)
Historical Stock Chart
From Aug 2024 to Sep 2024
International Business M... (NYSE:IBM)
Historical Stock Chart
From Sep 2023 to Sep 2024