The US’s Strengthened National Security Review of Chinese Investment: Implications from the Tech War

In recent years, the national security review system of US foreign investment has entered into a period of intensified scrutiny of Chinese investment. This article analyzes the latest development of the US foreign investment national security review system after the enactment of the 2018 FIRRMA and relevant Executive Orders. The US review of Chinese investment has been greatly strengthened in terms of expanded scope of review in high-tech areas and prolonged and unpredictable review time. China has become the number one target of the US’s national security review, especially in finance, information and manufacturing industries. Among Chinese investment review cases, successful Chinese investors usually fully employed the advantages of abundant capital and managed to balance economic benefits with security risks by negotiating mitigation agreements with the CFIUS. Unsuccessful Chinese investors often failed to make “declarations”, ignored the deterrent power of the US’s long-arm jurisdiction, and chose to invest in sensitive areas without reaching mitigation agreements. In the regulation of TikTok and other apps from foreign adversaries, the 2024 PAFACA has profoundly reshaped the national security review system in the US high-tech industries. Compared with the Trump Executive Order, the 2024 PAFACA has a stronger legal force and the severability can defeat the litigation strategies that may be used by Chinese investors. It tends to prohibit TikTok in an indirect manner, which is a more flexible and wiser approach. Moreover, it has a wider scope of application, and provides the possibility of mitigations and exemptions. The US’s national security review regime reforms have exerted significant impacts on China. With the escalation of the Sino-US political and economic tensions, China has gradually abandoned its original national security strategy, adopted a policy restricting outbound technology transfers, overhauled the foreign investment national security review law, and adopted retaliatory laws against US sanctions.