US mulling over use of emergency law to block Chinese investment in sensitive technologies

A woman using her mobile phone in front of the Guangzhou Tower in Guangzhou, China on April 19, 2018.
A woman using her mobile phone in front of the Guangzhou Tower in Guangzhou, China on April 19, 2018.PHOTO: EPA-EFE

WASHINGTON (BLOOMBERG) - The US Treasury Department is considering using an emergency law to curb Chinese investments in sensitive technologies, as the Trump administration looks to punish China for what it sees as violations of American intellectual property rights.

The US government is reviewing the possible use of a law known as the International Emergency Economic Powers Act, said Mr Heath Tarbert, an assistant secretary in the agency's international affairs office.

Under the 1977 IEEPA law, President Donald Trump could declare a national emergency in response to an "unusual and extraordinary threat", allowing him to block transactions and seize assets.

Mr Trump is pushing his administration to crack down on what he considers unfair trade practices by China.

He has threatened tariffs on as much as US$150 billion (S$196.86 billion) in Chinese imports in response to intellectual property theft and forced technology transfer.

Beijing has retaliated by proposing tariffs on US$50 billion of American goods, and pledged further action if necessary.

The President asked Treasury Secretary Steven Mnuchin to consider investment restrictions on Chinese firms after the administration released the results of its probe into China's IP practices last month.

Mr Mnuchin has until around May 21 to propose executive action to address concerns about investments in the US "directed or facilitated by China in industries or technologies deemed important", according to the March 22 presidential memo.

While investors have so far focused on Mr Trump's plan to impose tariffs on Chinese imports, new restrictions could deepen a slowdown in Chinese investments in the US since Mr Trump took office, hurting the ability of American companies to raise capital and holding down valuations.

Acquisitions by Chinese firms in the US fell to US$31.8 billion last year from US$53 billion the year before, according to data compiled by Bloomberg. The directive from Mr Trump to consider investment restrictions deals only with China, Mr Tarbert said.

Treasury officials are working on plans to identify technology sectors in which Chinese companies would be banned from investing, such as semiconductors and so-called 5G wireless communications, according to four people with knowledge of the proposal, who described the matter on the condition of anonymity last month.

China state-supported companies such as Tsinghua Unigroup Co have already had to back off plans to buy or invest in American technology companies.

Yet private sector companies, led by Tencent Holdings Ltd, Alibaba Group Holding Ltd and Baidu Inc have been active in the US.

Tencent has invested in more than 50 companies in the country in the last five years, according to data compiled by Bloomberg, including artificial intelligence startups like ObEN Inc and satellite equipment developer Satellogic USA Inc.

Treasury officials are also looking at ways to impose tougher conditions on Chinese firms using legislation that underlies the Committee on Foreign Investment in the United States, which reviews transactions for national security concerns.

Mr Tarbert, who spoke on Thursday at an event in Washington, said Treasury is also supporting a bipartisan Bill that would expand the authority of the inter-agency panel, known as CFIUS, which currently vets foreign takeovers on a case-by-case basis.

"That's a separate process that's ongoing, but the CFIUS office is not working on that. We have separate offices in Treasury which are considering those two issues distinctly," Mr Tarbert said, referring to both IEEPA and CFIUS.