This is a personal blog, please observe Think Hour for ad hoc quasi-diary writings and Big Ideas for my ratified longform items. I will see you there.


2021-01-29


Let me talk myself through another night of web surfing.

CFIUS // Gerald Ford

CFIUS Make-Up

All the avenues opened in my previous post on the subject of foreign investment formed a very taxing whole. I do want to visit another topic here however: the Committee on Foreign Investment in the United States. This committee is where concerns about foreign investment into American industry, pertaining to national security, might be aired and investigated with input provided by representatives from many major departments and agencies that form the greater government. It came about formally after an executive order was signed by Gerald Ford, and the powers and operation of the committee have been augmented by further legislation over time - of recent note the FIRRMA Act called for an overhaul due to increasing validity of “Yellow Peril”.

Mao Kissinger

Current American policy is to grant foreign investors “national treatment.” We freely admit foreign investors and treat them the same as American investors. Foreign investment has increased at a record level recently (70’s). While foreign investments do not yet constitute a significant percentage of total U.S. investment, the rapid increase has caused some fears that control over certain industries may be passing to foreign investors. [Link]

There’s a list of notable cases kindly surfaced on the Wikipedia page. Back in the old days, before they looked into SinoTex Wind Farms for Mr. President Trump, the late Mr. President H.W Bush, citing a recent executive order of his own which amended the CFIUS-initiating order above while implementing an act passed by congress and signed by Reagan (which is also cited) that imbued POTUS with investment-blocking power by way of the “Exon-Florio Amendment” that came about due to concerns in regard to Japan, ordered China National Aero-Technology Import and Export Corporation (CATIC) to divest itself of interests in Washington based aircraft part manufacturer MAMCO, who . In this case we see the typical procedure of a company voluntarily informing CFIUS meet an atypical end in full intervention.

The sources, who spoke on condition that they not be identified, said that when CATIC purchased two CFM-56 engines from General Electric in 1984, it agreed not to disassemble them and not to pass the engines on to the Chinese military.

While this all sounds pretty serious, the President himself outlines the status of each company. While CATIC, by way of providing an import/export arm for a broader Ministry of Aerospace in China, is involved in military industry, MAMCO is stated to be entirely civilian in nature, meaning there’s no contracts concerning classified government materials to be reaped by harvesting them. So why was divestiture ordered? Seattle Times, local to MAMCO, published an article in 1990 highlighting the innocuous nature of the domestic company, and heavily implies the action was somewhat retaliatory for prior grievances with CATIC (quoted above and below) amongst other things. The President, again in his statement to Congress, does however indicate that classified evidence lead to the decision, and unfortunately for us it will take a time machine, election and face to face discussion with CFIUS to find out fully.

But, the sources said, the engines were given to the military and disassembled. “While they were messing around, they broke them,” one source said. “Then the military agency had the chutzpah to contact General Electric and ask for parts and service.”

Scary Document

I have however discovered more info in the so-called Cox Report, ominous even in its declassified 20 year-old edition, which portrays the scope of China’s operations in copying America’s homework prior to the turn of the millennium. This Clinton-Era tome is the work of a “select committee” chaired by U.S. representative Christopher Cox. Swerving away from all the new avenues it opens up, we can inspect then-new details via expounding of the CATIC/MAMCO case (Page 45). It’s revealed here that the initial order did in fact come from fears of MAMCO providing a venue for accessing the extended aerospace industry and circumventing export controls, and not much else of substance unless we’re still not getting the whole story. However, substance is added at later dates when the order is met with an absurd series of proposals from CATIC to divest MAMCO interests laterally to other Chinese firms, which are repeatedly denied by CFIUS. The last denial details the lack of business rationale, quite funny. It may or may not be worth noting the criticism this report garnered among apparent sinophiles, prior co-operation with/counter-soviet usage of China is often seen as exigible excuse for their re-roll into covert tech-nicking - alongside more tenable complaints, of course.

ThinkPad

This kind of investigation, let alone a presidential intervention, is rare though. One chart I have discovered indicates 1,593 notifications given to CFIUS up to 2005, with only 25 investigations and 12 of those getting a moratorium from the Big Executive Man. One big-time instance that was given an executive go-ahead is the acquisition of IBM’s beloved PC division by Lenovo for $1.75bn. On W’s go, smooth sailing ensued, with the “57 percent government owned” Lenovo handing cash to hardware-sales-ailing IBM

“This is a vanguard deal - the first major Chinese acquisition of a Fortune 100 company,” Bruce Rosenthal, a merger attorney at Nixon Peabody LLP in New York, said in an interview at the time. “It’s a harbinger of deals to come.” … Also at stake in the deal are about $18 million in investment-banking fees for Goldman Sachs Group Inc. and Merrill Lynch & Co., based on Bloomberg estimates. [Link]

Lenovo

Now, in a modern realm of hyper-digitization, the topic of China grows even hotter, and things like this have been making headlines routinely. President Trump called a halt to the acquisition of Qualcomm by Broadcom in 2018, which would have been the largest tech merger of all time. Qualcomm, a major league behind-the-scenes tech giant responsible for a cascade of patent-based entertainment, would have a domineering future in domestic 5G tech potentially subverted if acquired by Broadcom, leaving an opening for Chinese competitor Huawei to expand without competition. It’s an interesting case, because Broadcom is not a Chinese firm. In fact, they were once (and are once again at time of writing) an American firm.

In 2019, the Committee raised concerns over Beijing Kunlun Company’s investment in Grindr LLC, an online dating site, over concerns of foreign access to personally identifiable information of U.S. citizens. Subsequently, the Chinese firm divested itself of Grindr. [Link]

The homosexual dating and hook-up utility Grindr, from who prospective oriental holders were decoupled, came to the committee’s attention in 2019. Similar utility “TikTok” exploded in popularity around the same time, and garnered much higher levels of scrutiny, executive attacks and press coverage - this was a natively Chinese service that took hold of the US phone-app market where WeChat couldn’t. The subject of the app’s influence is enmeshed with fellow hot-topics like fake news, Hong Kong disobedience, propaganda and political biases, confounded with freedom of speech/expression and triple mode complicated by the extent of power to be an America First interventionist in the free market capital of the universe… all within a data-centric interconnected decentralized info-paradigm. TikTok seems to have weathered the storm regarding Mr. Trump, pending potential sales, but who knows what Biden will do, if anything. These are more stories for more days.

CFIUS re:Iran