Chinese Deals Under the Microscope: Looking at the Evolving CFIUS Process
Chinese corporations filed only six notices with the Committee on Foreign Investment in the United States (CFIUS) during 2010. However, in 2012 the number of filings by Chinese entities had risen to 23, representing a nearly four-fold increase, and the value of the proposed acquisitions had leapt to US$11.5 billion. Out of a total of 114 filings in 2012, 20% were filed by Chinese companies. This meant that Chinese entities were, for the first time in history, the number one CFIUS filers. They had significantly increased their share of filings over the 2009-11 period, when they accounted for just 7% of filings and ranked behind the United Kingdom, France and Canada in total filings.
It is abundantly clear that Chinese companies have a strong desire to continue investing in the U.S. But at the same time, there is a strong feeling among Chinese businesses that their investment is not entirely welcome and there is little doubt that the CFIUS process has contributed to this belief.
CFUIS – a federal inter-agency committee empowered to review inbound foreign investments for national security concerns – plays a pivotal role in determining the outcome of proposed transactions in the U.S. Under CFIUS’s broad authority, it has the ability to require deal parties to mitigate concerns, and if this is not possible, a proposed transaction can be blocked. As such, it has a profound influence on transactions and on the major shifts that are taking place in global markets.
That said, CFIUS’ relationship with Chinese companies has never been more critical. Evidence abounds that China’s meteoric economic rise over the past few decades has significantly impacted the global economy – initially through trade and in more recent years increasingly via direct investment. Since China’s ascendency to the World Trade Organisation (“WTO”) in 2001, when it was the world’s sixth largest economy with an annual GDP of US$1.3 trillion, it has rapidly grown and today ranks as the second largest economy.
Today China is looking to reshape its economy and the acquisition of enhanced capabilities will be necessary to facilitate this transition. International cross-border mergers and acquisitions will be a significant factor in China’s next phase of global integration.