26 May 2020

CFIUS clearance rate on China deals drops 33 percent under Trump

This article was first published in Foreign Investment Watch.

According to a recent study conducted by an international law firm headquartered in Asia, Chinese deals have been “more difficult to clear during the Trump years than they were previously.” The analysis, conducted by King & Wood Mallesons, noted that overall clearance rate of China deals since President Trump took office in January 2017 is “no better” than 60%. 

By contrast, the firm showed a clearance rate of more than 95% during the Obama administration. According to KWM partner Tom Shoesmith, the analysis included 66 transactions. The largest group of those (44%) were technology and semiconductor deals. 

According to the report, Chinese deals outside of technology — including financial
services and media — cleared at a rate “almost as high as Chinese investors enjoyed under Obama.”

HARDER, OR EASIER?

The key question, of course, is whether past is prologue, and whether the 60% acceptance rate will continue to fall. That’s especially important considering political pressure to take a more cautious approach during the current pandemic; for examples of that more cautious approach, see President Trump’s recent Executive Order on energy equipment here; Congressional focus on agricultural deals here; and a new “Team Telecom” process here. Shoesmith of KWM says changes in the CFIUS acceptance rate are hard to predict. “There is a general perception that CFIUS is becoming more difficult,” says Shoesmith, “but reported cases don’t bear that out—the clearance rate has only fallen a few percentage points since the beginning of the Trump Administration.” 

Shoesmith also notes that, while it’s possible CFIUS is getting tougher on investors, those same investors are getting better at anticipating and addressing national security concerns. “That is certain true in my practice,” he notes. “We are counseling investors not even to try to clear deals that are obviously problematical, but to focus on deals that can be carefully
presented and stand a good chance of clearing.”

He also notes that U.S. companies are responding to the challenges of inbound investment by locating new operations outside of the US, where they can take foreign money. “This is an unanticipated consequence of a more aggressive stance toward foreign investment,” says Shoesmith, “and it is not positive for the U.S.”

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