U.S. GOVERNMENT PUBLISHING OFFICE

31–323 PDF WASHINGTON : 2018

EVALUATING CFIUS: CHALLENGES POSED 

BY A CHANGING GLOBAL ECONOMY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON MONETARY 

POLICY AND TRADE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

JANUARY 9, 2018 

Printed for the use of the Committee on Financial Services 

Serial No. 115–67 

( 

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HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

THOMAS MACARTHUR, New Jersey 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

CHARLIE CRIST, Florida 

RUBEN KIHUEN, Nevada 

SHANNON MCGAHN, Staff Director 

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SUBCOMMITTEE ON MONETARY POLICY AND TRADE

ANDY BARR, Kentucky, Chairman 

ROGER WILLIAMS, Texas, Vice Chairman 

FRANK D. LUCAS, Oklahoma 

BILL HUIZENGA, Michigan 

ROBERT PITTENGER, North Carolina 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

ALEXANDER X. MOONEY, West Virginia 

WARREN DAVIDSON, Ohio 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

GWEN MOORE, Wisconsin, Ranking Member 

GREGORY W. MEEKS, New York 

BILL FOSTER, Illinois 

BRAD SHERMAN, California 

AL GREEN, Texas 

DENNY HECK, Washington 

DANIEL T. KILDEE, Michigan 

JUAN VARGAS, California 

CHARLIE CRIST, Florida 

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C O N T E N T S 

Page 

Hearing held on: 

January 9, 2018 ................................................................................................ 1 

Appendix: 

January 9, 2018 ................................................................................................ 37 

WITNESSES 

TUESDAY, JANUARY 9, 2018 

Blair, Dennis C., Co-Chair, The Commission on the Theft of American Intellectual Property, and former Director, National Intelligence, National Security Council ........................................................................................................... 9 

Hunter, Rod, Partner, Baker & McKenzie LLP, and former Special Assistant 

to the President and Senior Director, National Security Council .................... 11 

Kassinger, Hon. Theodore W., Partner, O’Melveny & Myers LLP, and former 

Deputy Secretary, U.S. Department of Commerce ............................................ 10 

Kennedy, Scott, Director, Project on Chinese Business & Political Economy, 

Center for Strategic & International Studies .................................................... 7 

Scissors, Derek M., Resident Scholar, American Enterprise Institute ............... 5 

APPENDIX 

Prepared statements: 

Blair, Dennis C. ................................................................................................ 38 

Hunter, Rod ...................................................................................................... 43 

Kassinger, Hon. Theodore W. .......................................................................... 49 

Kennedy, Scott .................................................................................................. 55 

Scissors, Derek M. ............................................................................................ 63 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Blair, Dennis C.: 

Responses to questions for the record from Representatives Moore and 

Posey .............................................................................................................. 75 

Hunter, Rod: 

Responses to questions for the record from Representative Moore .............. 81 

Kassinger, Hon. Theodore W.: 

Responses to questions for the record from Representative Moore .............. 82 

Kennedy, Scott: 

Responses to questions for the record from Representative Moore .............. 84 

Scissors, Derek M.: 

Responses to questions for the record from Representatives Moore and 

Posey .............................................................................................................. 86 

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EVALUATING CFIUS: CHALLENGES POSED 

BY A CHANGING GLOBAL ECONOMY 

Tuesday, January 9, 2018 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON MONETARY POLICY AND TRADE, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:08 a.m., in room 

2128, Rayburn House Office Building, Hon. Andy Barr [chairman 

of the subcommittee] presiding. 

Present: Representatives Barr, Williams, Lucas, Huizenga, 

Pittenger, Love, Hill, Emmer, Mooney, Davidson, Tenney, Hollingsworth, Hensarling, Moore, Sherman, Green, Heck, Kildee, Vargas, 

and Crist. 

Also present: Representative Posey. 

Chairman BARR. The committee will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the committee at any time, and all members will have 5 legislative 

days within which to submit extraneous materials to the Chair for 

inclusion in the record. 

This hearing is entitled, ‘‘Evaluating CFIUS: Challenges Posed 

by a Changing Global Economy.’’ 

Without objection, the gentleman from Florida, Mr. Posey, is permitted to participate in today’s subcommittee hearing. Mr. Posey is 

a Member of the Financial Services Committee, and we appreciate 

his interest in this important topic. 

I now recognize myself for 5 minutes to give an opening statement. 

Napoleon famously said that an army marches on its stomach, 

meaning if it ran out of provisions, an army would quickly cease 

to be useful. To paraphrase that line, an economy marches on investment. And for that reason, the American economy always has 

welcomed foreign as well as domestic investment. 

But with increasing globalization has come an increased velocity 

of international investment and developing economies with geysers 

of money to invest, and, in turn, that has brought some caution to 

our welcoming posture. In 1975, concerned that barrels of 

petrodollars would distort the economy, President Ford created a 

multiagency panel to monitor foreign investment. In 1988, concerned that Japanese yen were flooding the United States, President Reagan signed legislation that gave him the authority, working through that panel, to actually block a foreign investment that 

threatened national security. Ten years ago, in the aftermath of the 

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first big wave of terrorism, Congress upgraded the panel’s enabling 

legislation again. 

Now, a new tide of money has hit the U.S. shores, but it comes 

from China, which many fear is not merely a business competitor 

that plays hard ball harder than most but, is actually, a threat to 

national security. 

To that end, our colleague Robert Pittenger and Senator John 

Cornyn have undertaken a yearlong study of that multiagency 

panel, the Committee on Foreign Investment in the United States, 

known by its acronym as CFIUS, and proposed some changes. 

To evaluate the challenges posed by this new global economic environment, the committee today is holding its second hearing on 

CFIUS in less than a month—part of an effort that I believe will 

consume much of the committee’s hearing in the first half of this 

year. 

We are fortunate to have, as we did at our first hearing, topflight witnesses to discuss CFIUS operations and the challenges it 

faces. We have a former Deputy Secretary of Commerce, the former 

Director of National Intelligence, a former Senior Staffer from the 

National Security Committee, and two top economists from a pair 

of the elite think tanks in this country. 

One theme we will discuss today is perhaps at the center of how 

we should consider any changes: Can we precisely define the technologies or ideas or techniques we need to protect, and can we find 

ways to protect them without unnecessarily affecting other flows of 

capital or creating an investment scrutiny regime so onerous that 

good money just decides to go somewhere else? Could we inadvertently make the U.S. investment climate so difficult that even U.S. 

companies move their research and development efforts—the labs 

that create the innovations that have kept our economy strong and 

vital for so many decades—to other countries, even to China? With 

the best intentions, could we do CFIUS reform that fails to improve 

U.S. national security or, worse, enact reforms that will make the 

American people less safe than when we started? 

I believe Congress can achieve the opposite. I believe we can 

modernize the CFIUS review process so that it better addresses security threats while avoiding undue harm to U.S. business at home 

or to its efforts to compete abroad. And I believe that with enough 

effort we can do that relatively quickly, even in what is likely to 

be a hard-fought election year, because protecting national security 

and protecting U.S. economic interests are bipartisan goals we always have been able to work together on productively. 

As evidenced by the first CFIUS hearing this committee held less 

than a month ago, members are engaged on the issue, educated 

about the process, and already working on solutions. And I am 

hopeful, confident even, that we will be successful in crafting an 

approach that will get to the President’s desk before the August 

work period. That is going to take a lot of work here and in the 

U.S. Senate, and it is going to require a lot of input from outside 

voices interested in a successful outcome, but I believe it is achievable and that it must be achieved. And I am anxious to get to work. 

Again, I would like to recognize the work of our colleague Mr. 

Pittenger and for his leadership on this issue. 

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With that, I yield back the remainder of my time and yield to the 

Ranking Member for an opening statement. 

Ms. MOORE. Thank you so much, Mr. Chairman, and thanks to 

our distinguished panel for appearing here today. I wish everyone 

a happy new year. 

I just want to start out by agreeing with the chairman that this 

is definitely a bipartisan issue. While on one hand we want to 

make sure that we become the destination of choice for foreign investment, we want to make sure that we don’t allow our open borders with regard to investment to make us prey to technological attacks and other attacks on our country. 

And we look forward to hearing from our distinguished panel 

here today about how we can achieve those reforms to CFIUS that 

wisely balance the need to protect our national security and other 

interests without needlessly cutting off the benefits that can be 

gained from foreign direct investment. And undergirding this debate are a variety of national security concerns, including countries 

attempting to use foreign direct investments in our country to access sensitive technologies. 

It has been over a decade since Congress last acted in response 

to concerns about the CFIUS process. I am most familiar with the 

DP World debacle, but the world has changed considerably even in 

the last decade. The last time we addressed this issue, it was 

through strong bipartisan legislation that came out of this committee, and I hope that this is the route we are going to take. It 

is going to really require that. And we have seen that that is what 

is occurring so far. 

As we consider what new authorities may be needed to address 

the modern-day threats, I do want to point out that this subcommittee’s previous hearing, the one we just had, the witnesses 

agreed that the greatest challenge facing CFIUS today is, Mr. 

Chairman, the lack of resources available to the Federal agencies 

to do thorough and extensive investigations and reviews. 

So, when we start thinking about standing up our national security efforts, we can’t always do it through a defense authorization 

bill. Financial crimes are a peril to our national security, and we 

need to fight for the resources to protect these agencies. And I really look forward to a good discussion on the key issues that we need 

to keep in mind as we look to reform CFIUS. 

At this point, I want to yield the balance of my time to our Vice 

Chair of the full committee, Mr. Kildee. 

Mr. KILDEE. Thank you to the Ranking Member and to the chairman and to the witnesses for being here today, our second hearing 

in as many months aimed at evaluating the operations and challenges that CFIUS faces. 

CFIUS plays an extremely important function in the area of national security. Congress has an important responsibility to ensure 

that CFIUS is balancing the benefits of our traditionally open investment climate with the requirement to protect U.S. national security. 

Given that we have not formally reviewed the CFIUS process in 

over a decade, in the evolving threat environment with respect to 

certain kinds of foreign investment, I appreciate the chairman’s intention to hold this series of hearings in the coming weeks so that 

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members can assess not only the challenges that CFIUS faces but 

also determine an appropriate set of policy responses. 

A primary concern that we face, that I am particularly challenged on, is the area of China’s aggressive industrial policy and 

their efforts to invest in early stage cutting-edge U.S. technologies 

with potential military applications, including artificial intelligence, robotics as well, in part to advance China’s military modernization and to diminish America’s technological advantage. 

If China represents the biggest threat to U.S. security with respect to foreign investment, I would argue that the second-greatest 

threat is an underfunded and understaffed U.S. Government. A serious problem facing CFIUS today is the lack of resources. Even 

without expansion of authority, CFIUS already has significant 

staffing and resource problems. As the volume of cases and the 

complexity of transactions continue to increase, along with the 

need for an aggressive use of intelligence resources, any expansion 

of CFIUS authority, absent additional resources, would not only 

jeopardize the existing mission but would also undermine U.S. national security. 

And I know there are members working on legislation—Mr. 

Heck, to my left, which is not something I often say, is working on 

legislation—sorry, Denny—which would not only address authority 

but would also provide a mechanism for additional resources. So 

that is important legislation. It is something that we need to seriously consider. 

And I appreciate the panel’s willingness to contribute— 

Mr. HECK. Time. 

Mr. KILDEE. —And I yield back. 

Chairman BARR. The gentleman yields back. 

The gentlelady yields back. The gentlelady’s time has expired. 

Today we welcome the testimony of several distinguished witnesses, and we thank them for their participation in this hearing. 

And we look forward to your insights. 

Dr. Derek Scissors is a Resident Scholar at the American Enterprise Institute, where he focuses on the Chinese and Indian economies and on U.S. economic relations with Asia. He is concurrently 

Chief Economist of the China Beige Book. Dr. Scissors is the author of the China Global Investment Tracker, which shows China’s 

investments throughout the world. Before joining AEI, Dr. Scissors 

was a Senior Research Fellow in the Asian Studies Center at the 

Heritage Foundation and an Adjunct Professor of Economics at 

George Washington University. He has worked for London-based 

Intelligence Research Ltd., taught economics at Lingnan University 

in Hong Kong, and served as an action officer in international economics and energy for the U.S. Department of Defense. 

Dr. Scott Kennedy is Deputy Director of the Freeman Chair in 

China Studies and Director of the Project on Chinese Business and 

Political Economy at CSIS, a leading authority on China’s economic 

policy and its global economic relations. Specific areas of focus include industrial policy, technology innovation, business lobbying, 

multinational business challenges in China, global governance, and 

philanthropy. For over 14 years, Dr. Kennedy was a Professor at 

Indiana University. From 2007 to 2014, he was the Director of the 

Research Center for Chinese Politics and Business. And he was the 

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founding academic director of IU’s China office. From 1993 to 1997, 

he worked at the Brookings Institution. 

Admiral Dennis Blair is Co-chair of the Commission on the Theft 

of American Intellectual Property. He serves as a member of the 

Energy Security Leadership Council and on the board of the National Committee on U.S.-China Relations. From January 2009 to 

May 2010, he served as Director of National Intelligence. During 

his distinguished 34-year Navy career, he has served as Director of 

the Joint Staff and held budget and policy positions on the National Security Council and has been Commander in Chief of the 

U.S. Pacific Command. He has been awarded four Defense Distinguished Service Medals and three National Intelligence Distinguished Service Medals. 

The Honorable Ted Kassinger is a partner in the Washington office of O’Melveny & Myers, LLP. Ted joined O’Melveny in late 2005 

after serving from 2001 to 2005 first as the General Counsel and 

then as Deputy Secretary of the U.S. Department of Commerce. 

Ted is a member of the Council on Foreign Relations and of the 

U.S. Department of State’s Advisory Committee on International 

Economic Policy, which he formerly chaired. 

Mr. Rod Hunter is a partner based in the Washington, DC office 

of Baker McKenzie. He previously served as Senior Director for 

International Economics at the National Security Council, the 

White House office that coordinates international trade policy and 

supervises national security reviews conducted by the Committee 

on Foreign Investment in the United States, CFIUS. In that role, 

he managed CFIUS cases, including negotiating resolution of the 

most sensitive cases, coordinating the Administration’s legislative 

communications and diplomatic outreach in particular cases, and 

developing the Government’s procedures for incorporating intelligence agencies’ assessments. He also served as Senior Counsel at 

the U.S. Trade Representative’s Office, where he litigated cases before the World Trade Organization. 

Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. Without objection, each of your written 

statements will be made part of the record. 

Dr. Scissors, you are now recognized for 5 minutes. 

STATEMENT OF DEREK M. SCISSORS 

Mr. SCISSORS. Thank you, Mr. Chairman. 

As you mentioned, I am the creator of the China Global Investment Tracker. I think that my contribution here is primarily going 

to be to provide facts about Chinese investment in the U.S. and 

around the world. 

The tracker is every Chinese construction and investment transaction globally, including the United States, worth $100 million or 

more since 2005. There are more than 2,700 of such transactions. 

And our main contribution is you get to see all of them. We don’t 

tell you what the totals are and it comes out of nowhere. You can 

see everything that we include, all of our numbers. They are tagged 

by year. They are tagged by sector. They are tagged by name of the 

company, so you can see if it is a state company or a private company. So I urge you to utilize that resource in the process of your 

work on CFIUS and other issues involving China. 

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Some facts: Chinese investment in the U.S. fell about 50 percent 

in 2017. In 2016, it was in the $50 billion range; 2017, in the $25 

billion range. 

However, this hearing is focused on the globe. Globally, Chinese 

investment rose mildly from a record-breaking 2016 to about $185 

billion globally last year. And the reason was that private Chinese 

firms investing in the U.S. were stopped by the Chinese government, but their investment was replaced by large Chinese stateowned enterprises investing primarily in Europe. 

I can go into detail, but that is the main event of 2017: Less private Chinese investment in the U.S.; more state investment in Europe. We can easily imagine security questions that arise out of 

that change. 

By sector, in the U.S., aviation led due to one large purchase. 

Real estate was second. There was almost no successful Chinese 

technology investment in the U.S. in 2017. However, there were 

multiple Chinese purchases of U.S. healthcare firms, which raises 

an issue that I think we are going to talk about more: Personal 

data. 

Again, there is a lot more information along those lines. I do 

want to make some nonfactual points, but I urge you, if you or your 

staff would have questions, we would be happy to help answer 

them. 

Point one I want to hammer home: State-owned enterprises and 

private Chinese firms are different with regard to economics. Stateowned enterprises are heavily subsidized; Chinese private firms 

usually are not. However, in my opinion, with regard to national 

security and the rule of law, there is no effective difference between 

Chinese state-owned enterprises and private firms. 

The reason is a private Chinese firm has no more recourse, it has 

no more protection against the Communist Party than a stateowned enterprise. So if a private Chinese firm has technology or 

personal data of Americans that the party wants, the party will get 

it. The private Chinese firm cannot protect that data even if its intent is to do so. Not all data, not all technology is important. But 

I don’t think anyone should think, in this room or outside, that private Chinese firms can protect anything they acquire in the United 

States from the Communist Party. They cannot. 

That is a factual statement, I think. Now we are getting into 

opinion, for sure. 

There is an obvious split over what to do about CFIUS between 

the economic community/business community on one side and the 

national security community on the other side. I am from the econ 

side. I like foreign investment. It increases competition in the 

United States. It creates or supports jobs. I don’t think all infrastructure is critical and needs to be protected from foreign competition, but I have watched Chinese investment since 2005, and the 

sophistication of both the firms and the government is still growing 

now. They will be better this year than they were last year or the 

year before in acquiring, coercing, stealing, and using technology, 

whether American, European, or otherwise. 

There has long been a risk, as Admiral Blair knows extremely 

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sonal data, as Chinese companies try to buy U.S. firms which hold 

Americans’ personal data. 

What can we do about this, in my last minute? We need to be 

transparent. In my opinion, for the foreseeable future, China is the 

threat. I don’t like the language in some bills that talk about ‘‘critical countries’’ or ‘‘countries of special concern.’’ We are talking 

about China here. Don’t put other countries in the crossfire. 

It has already been mentioned repeatedly, and I agree wholeheartedly, that we need to devote resources to this problem. Loss 

of technology could come back to harm the U.S. in national security 

terms in a huge way. It is a small investment to try to limit that 

now. 

I want action to be taken yesterday, if I were in charge. Our current rules have not been sufficient to stop the Chinese from acquiring or coercing American technology. We cannot look forward to 

‘‘well, we could do this better in the future’’ or ‘‘this could happen.’’ 

We need to take substantive action immediately, in my opinion. 

Finally, there is a global element to this, and I encourage U.S. 

global cooperation, but first we need to get our own house in order. 

So let’s do that first and then reach out to our partners. 

Thank you. 

[The prepared statement of Mr. Scissors can be found on page 63 

of the appendix.] 

Chairman BARR. Dr. Kennedy, you are recognized for 5 minutes. 

STATEMENT OF SCOTT KENNEDY 

Mr. KENNEDY. Thank you, Chairman Barr, distinguished members of the committee. I appreciate the invitation to appear before 

you. 

I have been asked to share my views about Chinese industrial 

policy, trends in technology flows, and the implications for American policy to limit diffusion of advanced technologies to China that 

could harm U.S. national security, including the role of CFIUS. 

Today I want to make three analytical points and then offer several policy recommendations. There are more details in my written 

statement. 

First, although highly wasteful and inefficient, Chinese industrial policy has been relatively effective at facilitating both the domestic development of technology in China as well as the acquisition of foreign technology from the United States and elsewhere. 

Chinese technology policy, I think, could long be defined as engaging in techno-nationalism, but under Xi Jinping in the last few 

years Chinese industrial policy is much more centralized than ever 

before, and steps have been taken to make industrial policy serve 

China’s economic and national security goals. Just recently, China 

formed a national commission on civil-military integration. Xi 

Jinping personally chairs that commission, and its goal is to find 

ways to take commercial technologies and use them to help Chinese national security. 

China has set specific targets for technology acquisition and 

growing market share across a vast range of technologies, including 

electric cars, renewable energy and storage, robotics, commercial 

aircraft, biologics and pharmaceuticals, and many other areas relevant for the U.S. economy and national security. If you just look 

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today at the Consumer Electronic Show, CES, which is opening in 

Las Vegas, fully one-third of all of the exhibitors, 1,500 of them, 

are from China. 

Relatedly, China is using globalization to pursue all of these 

goals through international trade, sending students to study 

abroad, hiring foreign employees, foreign investment in and out of 

China, opening R&D centers in Silicon Valley and other technology 

hubs. 

As Dr. Scissors said, there was a slight downward tick in overall 

investment out of China in the United States in 2017, but a growing share of Chinese investment is in high-tech overall. There are 

some investment deals which are in high-tech that aren’t covered 

by his database that are important even though at a dollar level 

they are relatively small. Some of these deals are acquisitions of 

mature companies, as well as minority stakes and also venture investment in startups. 

Second, the U.S.-China economic relationship brings both benefits and problems to the American economy. Industrial policy is inherently discriminatory, and, given China’s size, Chinese tech policy could harm global supply chains and business models. But, on 

balance, the United States, our companies, workers, consumers, 

still benefit in many ways from our commercial ties with China. 

At the same time, the U.S. and China have conflicting strategic 

interests in the Asia-Pacific. As a result, while the U.S. has to balance issues of fairness and opportunity in the economic realm, the 

security challenge should lead us to be more conservative and withhold more technology than would otherwise be the case. 

Third, American technology reaches China through a variety of 

channels, including investment, trade, employment, R&D centers, 

education, as well as cybertheft, industrial espionage. And constrained diffusion of technology in one area doesn’t necessarily stop 

diffusion of technology in other areas. In fact, it may be more like 

a balloon, where you plug one place and you will see expanding 

technology diffusion in another way. So an American response 

needs to be comprehensive; it can’t just focus on one avenue of 

technology diffusion. 

Let me just make a couple policy recommendations and then look 

forward to the discussion. 

In terms of the technology CFIUS covers, I can see it makes 

sense to expand the definition of critical technologies and infrastructure to include critical materials, data, and potentially IP, because of how acquisitions of technology, even in their early stages, 

can be misused against American interests. At the same time, in 

addition, I could see the benefits of expanding CFIUS’s mandate to 

cover nonpassive investments, not just majority acquisitions, where 

the foreign party doesn’t gain a controlling interest because Chinese, even as minority shareholders, can still get access to that 

technology, whether they are private or state-owned. 

I would suggest several limitations, including limiting some of 

these expansions to areas of countries of special concern. I actually 

like that terminology and can explain why in more detail. One area 

I would also limit is, I would try to explicitly be sure the legislation 

doesn’t cover American outward investment because it would be too 

broad and difficult for the Committee to manage. 

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[The prepared statement of Mr. Kennedy can be found on page 

55 of the appendix.] 

Chairman BARR. Thank you. 

The Honorable Admiral Blair, you are recognized for 5 minutes. 

STATEMENT OF ADMIRAL DENNIS C. BLAIR 

Admiral BLAIR. Chairman Barr, Ranking Member Moore, and 

members of the committee, it’s really heartening for those of us 

who have been involved in these issues for a while to see that Congress is tackling the task of governing the control of foreign investment into this country. And I am delighted to be able to participate 

in the process through testifying about the updating of the CFIUS 

statute, because it is dealing with a very major and growing threat 

to our national security. 

The changes that have been proposed under one potential statute, what is called the Foreign Investment Risk Review Modernization Act, or FIRRMA, I consider to be well-considered, very important. Widening the category of covered transactions, expanding the 

specific factors that are to be considered by the Committee, as well 

as the improved Congressional notification will go a long way toward plugging the loopholes in the application of the current statute. And I certainly urge adoption by this committee of those provisions of H.R. 4311. 

But I also think we need to think more widely about the risks 

of investment in this country by foreign companies. And I would 

urge the incorporation of an additional fairly simple principle into 

the CFIUS statute: If a foreign company has stolen American intellectual property or has taken actions against American security 

policies or interests, it should not be allowed to invest in this country. 

This committee needs no education on the damage to our precious technological edge that has been caused by the theft by foreign companies and governments of our intellectual property. As 

we on the Commission on the Theft of American Intellectual Property stated in our reports, it has robbed this country of up to $600 

billion a year, more than our trade deficit with all of Asia. It erodes 

the competitiveness of our companies and the combat capability of 

our Armed Forces. 

And FIRRMA would go a long way toward protecting our militarily relevant technology, but I recommend going further to prevent the investment in this country by any company that has stolen American IP—big, international Chinese companies like 

Sinovel, like Trina Solar, like Jiangsu Shinri Machinery Company. 

We should prevent investment in this country by companies that 

have harmed American security interests in other ways. The China 

Communications Construction Company, or CCCC, was the company that built the wall of sand in the South China Sea. It acquired a Houston-based American design firm, Friede Goldman 

United, in 2010. CNOOC then sent its oil rig, the HD–981, off the 

coast of Vietnam to assert China’s territorial claims. 

We should force foreign companies to make a choice. They either 

steal our intellectual property and otherwise undercut this country’s interests, or they invest in the United States. They can’t have 

it both ways. 

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10 

Finally, I would like to add my voice to those highlighting the 

resource consequences of expanding the scope of the CFIUS statute. Policy without capacity is frivolous. Right now, the CFIUS 

work in the Executive Branch is done by a group of the part-time 

and the willing. The application-fee funding mechanism, the special 

hiring authorities that are currently in H.R. 4311 will put the right 

people in greater numbers on the job to protect our national security interests. 

My business friends do not object to government regulation. They 

object to slow, incompetent government regulation. We owe them 

speedy, savvy decisions, and we owe the country the protection of 

its national security. 

Thank you. 

[The prepared statement of Admiral Blair can be found on page 

38 of the appendix.] 

Chairman BARR. Mr. Kassinger, you are recognized for 5 minutes. 

STATEMENT OF THE HON. THEODORE W. KASSINGER 

Mr. KASSINGER. Thank you, Mr. Chairman, Ranking Member 

Moore, members of the subcommittee. I very much appreciate the 

invitation to appear before you today. It is an honor to join my distinguished fellow panel members in contributing to your work assessing the operations and activities of CFIUS. 

I wish to emphasize that I appear today solely in my personal 

capacity, and the views that I express are my own. 

I concur in the sentiments expressed by several members that, 

10 years after Congress last amended section 721 of the Defense 

Production Act, it is time to take stock of how the purposes and 

processes that Congress put in to place in 2007 have worked, how 

they withstood the test brought by dramatically changing economic 

and geopolitical circumstances. 

Section 721 established the legal foundation for what is a critically important but nonlegal task of the Government, and that is 

to determine on a case-by-case basis whether specific foreign direct 

investment transactions present a threat to the national security 

and, if they do, what are the appropriate means, if any, to resolve 

those issues. 

Unlike some of my fellow panel members, I think that section 

721 has and continues to provide the fundamentally correct approach to balancing national security and economic interests of the 

United States and that the process administered by CFIUS works 

reasonably well. 

There are clear signs of stress in that process however, and there 

are serious questions to examine regarding whether CFIUS is optimally empowered and resourced to address current challenges. 

I think in any assessment of changes to the current process it is 

important to look back at what Congress created in 2007 and then 

what the Administration, through CFIUS, promulgated in its rules 

in 2008. These were thoughtful processes on all counts, and they 

leave us, I think, with certain principles that should be kept in 

mind as we look again at CFIUS in new circumstances. 

The first, to which many have alluded here, of course, is the 

longstanding U.S. commitment to welcoming foreign investment. 

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11 

Second is that, in the competition for global capital, the United 

States is well-served by regulatory processes that are transparent, 

predictable, and efficient. Foreign investors and U.S. business partners understand that the United States must be able to step in 

where business transaction presents a threat to national security. 

Nevertheless, before committing to transactions involving perhaps 

billions of dollars, they want to manage the business risks appropriately, including by structuring transactions to address potential 

national securities ahead of time, if possible. That is a natural 

business process. 

These two fundamental principles lead to a third overarching 

proposition. Any statutory or regulatory amendments to section 721 

should seek to replicate the principles that I think were achieved 

through the 2007 act and regulations. Those were models of deliberative consideration. They produced an unusually well-crafted set 

of Federal rules. The rules carefully define concepts and terms, provide numerous examples to indicate how the rules might apply to 

specific factual circumstances. 

That rulemaking process took about a year after the 2007 law 

was enacted. It was well worth it, not because the rules answer 

every question that arises, but because, as a whole, they faithfully 

implemented the balance struck by section 721 while providing 

useful guidance to private enterprises and entrepreneurs, who are 

the primary sources of investment capital. 

CFIUS does face, as the country faces, many current challenges 

that were not present in 2007. The rise of China as an increasingly 

assertive strategic adversary and global economic power lie at the 

heart of most of those concerns. You have heard from experts, in 

the December hearing and here today, who can provide you far 

more insights on those concerns, which I fully share. 

I wish principally to observe that the complexity of the U.S.- 

China economic relationship itself provides reason not to lose sight 

of the basic principles of consistency, fairness, efficiency in a process that is adopted. Over the last 20 years, commerce between 

China and the United States has become evermore interdependent, 

and the rules going forward should address not only the threat 

from China but also the continuing value of foreign investment in 

the United States. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Kassinger can be found on page 

49 of the appendix.] 

Chairman BARR. Thank you. 

Mr. Hunter, you are recognized for 5 minutes. 

STATEMENT OF ROD HUNTER 

Mr. HUNTER. Thank you, Mr. Chairman, Ranking Member 

Moore, and members of the subcommittee. I appreciate the invitation to speak, and I would like to offer a couple of observations 

based on my experience in a prior Administration and as a practicing attorney. 

The highest priority for public officials is, of course, ensuring the 

national security. Our national security depends, however, on the 

innovation and the productivity of our economy. And the open investment environment and open investment regime enables us to 

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12 

draw the capital and ideas and talent from around the world to 

make America more productivity, innovative, and prosperous. 

As my fellow panelists have pointed out, recent increases in Chinese investment has created concerns here in the United States but 

also across advanced markets. Now, there are legitimate reasons 

for Chinese investment in the United States: Diversification, proximity to customers/consumers, a number of others. Still, the deep 

involvement of the Chinese Communist Party and the state in the 

Chinese economy gives reasons for concern and particularly in this 

increasingly tense strategic competition with the United States and 

China. 

The CFIUS law was designed to secure the benefits of open investment while ensuring that the President had broad authority to 

block or unwind foreign investments in order to protect national security. The President is assisted by CFIUS, made up by economic 

and security agencies and, importantly, by the Intelligence Committee, which forms in many ways a key component of the analysis 

that guides the CFIUS work. 

In my personal experience, national security was never given 

short shrift in those debates, though there were, as all the people 

who participated in CFIUS know, long and extensive, vigorous debates within CFIUS about the proper analysis of risk and balancing. 

In practice, any agency can force the escalation of an issue of a 

case up to the President for guidance—something which, in my experience, happened with some frequency. As the subcommittee considers CFIUS going forward, I would highlight four questions: 

First, does CFIUS have adequate legal authority to reach foreign 

investments of concern? CFIUS can reach any investment in the 

United States in a U.S. business enabling a foreign person to acquire control. The ‘‘control’’ definition in the legislation and as it 

is applied is actually quite low so that CFIUS’s jurisdiction is quite 

encompassing. 

There is one gap in particular, around real assets where there is 

no commercial activity and, hence, no business. This can be a problem when someone acquires land next to a sensitive government 

site, something that Congress may want to consider. 

A second question is whether CFIUS is adequately resourced, 

and Ranking Member Moore highlighted this at the very beginning. 

The caseload has doubled in recent years. Resources have remained 

essentially constant. The most visible indication of the stretching 

of the resources has been the lengthening of timelines as applied 

to individual transactions. Indeed, the uncertainties around 

timelines, as much as outcomes, are going to have an impact on investment decisions of people from diverse nationalities. And no 

doubt the protraction is caused in part by policy debates within the 

Committee but also, I would believe strongly, because of the resource constraints. 

A third question is, should CFIUS’s mandate be expanded to 

technology control? Technology transfer, as many have highlighted, 

is the right issue; CFIUS emphatically is the wrong tool. CFIUS 

was designed to manage risks arising from foreign ownership or 

control of U.S. businesses. It is a reactive instrument. It is laborintensive, time-consuming, and, frankly, is straining under its curmcarroll on FSR431 with DISTILLER

13 

rent workload of 240 cases or so. Imposing a committee process vetting the international licensing, joint development projects, even 

hiring by U.S. technology companies could, in fact, drive the R&D 

that is so essential to our economy and defense industrial base offshore. 

The export control regime, however, was crafted for just this purpose. And while there may be important issues to look at in terms 

of a legal basis for the export control regime and whether it is 

adapting to policy—and those are, in fact, issues worthy of Congressional attention. 

With that, I would stop and thank the committee. 

[The prepared statement of Mr. Hunter can be found on page 43 

of the appendix.] 

Chairman BARR. Thank you all for your testimony. 

And the Chair will now recognize himself for 5 minutes for questioning. Let me start with Mr. Kassinger. 

Are Chinese and U.S. companies routinely structuring deals to 

avoid CFIUS jurisdiction presently? 

Mr. KASSINGER. Not in my experience, Mr. Chairman. I think 

there is a narrative that all minority investments are somehow designed to avoid CFIUS jurisdiction. I just don’t think that is true. 

I have never seen that. Investments are structured for business 

reasons. The rules themselves, until recently, provided certain safe 

harbors for sizes of investments, and people often, actually, to the 

benefit of U.S. national security, have pushed Chinese and other 

investors to maintain minority positions. 

So I think CFIUS has jurisdiction currently to cover virtually 

any transaction that it seeks to cover. I don’t think circumvention 

is an issue. 

Chairman BARR. Admiral Blair, do you believe that CFIUS jurisdiction should be more defined or perhaps even expanded in order 

to capture all the transactions that you believe CFIUS should be 

scrutinizing? 

On a related note, do you believe that there could be a risk of 

giving CFIUS too many different things to do so that it could not 

do any of them well? 

Admiral BLAIR. I would say that the definition should be expanded and then the application of that expanded definition should 

be worked out in practice and that it should be governed by the 

size of the competent staff that can be assembled under the new 

procedures. So I think it is a balance of the staffing of it. 

But I don’t think we should simply limit the CFIUS-controlled 

transactions definition to what we see today and just narrowly tailor it. I think we need to leave some room to be able to adapt without coming back and getting a new piece of legislation, a new review process, so that smart people can interpret a fairly broad set 

of guidelines to protect the interests of the United States. 

Chairman BARR. So, in your judgment, should the Committee 

make ad hoc decisions regardless of the structure of the deal in 

terms of whether or not to assert its jurisdiction? 

Admiral BLAIR. Yes. 

Chairman BARR. OK. 

Mr. Hunter, given your experience coordinating CFIUS, what is 

your sense of the Committee’s ability to handle a broader caseload? 

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14 

There has been a lot of discussion about resourcing, but including 

these nonpublic transactions, contributions of intellectual property 

to foreign persons through licensing, joint ventures, and the like? 

Mr. HUNTER. Thank you, Mr. Chairman. 

I think that it would overwhelm the Committee. The Committee 

is stretched by resources, but it is, on top of that, a committee, and, 

as we all know, committees often require considerable deliberation 

to reach consensus. And going to the President for every significant, challenging decision would be, itself, not feasible. 

So I think the ultimate consequence of a dramatic expansion of 

jurisdiction would actually be a poorer performance by the Committee in dealing with those transactions that matter. 

Chairman BARR. Thank you. 

Dr. Scissors, most, if not all, of our major developed-world trading partners do not have a CFIUS-like process, or, if they do, it is 

much different than ours. Can a stricter CFIUS process be effective 

if it merely incentivizes investment and innovation to flow to lessregulated countries? 

Mr. SCISSORS. I think there are two answers. Yes, it can be more 

effective than we have now. We can debate about how to do that. 

The U.S. is still the primary source for dual-use in military technology. We are the leader in semiconductors, where the main Chinese research effort is devoted. So our actions, by themselves, are 

going to help. 

But, in terms of protecting our national security, of course it 

would be good to coordinate with our allies. Our allies, as you mentioned, don’t seem to have this process in place at all. In fact, I 

know and I am sure other panelists know from personal experience 

they look to us for an example. So the first step in coordinating 

with our allies is deciding what we want to do and then telling 

them why. 

I agree with your point, but I do think we have to handle ourselves first. 

Chairman BARR. Fair point. 

Dr. Kennedy, final question in my remaining time. Your fifth 

point in your written testimony was, I think, a good one. You state 

that ‘‘although it is important to protect the United States from unwise transfer of technologies, the United States also gains tremendous strength from having an economy open to flows of goods, services, people, and ideas.’’ 

What specific recommendations would you have to update the 

CFIUS process without unduly burdening foreign direct investment? 

Mr. KENNEDY. Mr. Chairman, I think clarifying the definitions of 

what CFIUS covers, the type of transactions related to the types 

of technologies and the type of investment inward to the United 

States, I think would help; also increasing funding for the Committee but not overburdening it by adding cases that could be better handled through export controls or other types of things that 

are better prepared to handle that increased burden. 

But the American economy benefits tremendously from being 

open. Even though it looks like China is catching up fast and passing, China’s economy also has lots of burdens as a result of its industrial policy. So we want to protect what is best about our econmcarroll on FSR431 with DISTILLER

15 

omy while also making sure that our national security is protected 

as well. 

Chairman BARR. Thank you. 

My time has expired, and the Chair now recognizes the distinguished gentlelady from Wisconsin, the Ranking Member of the 

subcommittee, Ms. Moore. 

Ms. MOORE. Thank you so much, Mr. Chairman. 

I have 1,001 questions, but just let me start out very quickly 

with Dr. Scissors. 

I noticed how cute your thing was, said, ‘‘Don’t listen to my colleagues on this topic, only me.’’ I am wondering about the difficulty 

of differentiating between legitimate economic motivations that 

China might have and strategic motivations that may be a threat. 

And I want to congratulate you on putting together the metric. 

I am sure I will be studying this for a long time. 

Could you give us some advice about what we ought to be looking 

for specifically, a metric for what are legitimate investments and 

what are not? 

Mr. SCISSORS. Thank you for the compliments. It has become an 

enormous amount of work. When I started, it was small and easy, 

and I think I may have made a mistake. 

Obviously, the first thing to do is to look at sectors. There are 

some sectors where it is very difficult to see any strategic rationale. 

The Chinese like to buy soccer clubs in Europe. If they want to buy 

the Redskins—please don’t take this as a political comment about 

the Redskins—I don’t think we see a strategic threat there. 

So I think the first thing to look at is that there should be some 

sectors that are open to China because they will benefit the American economy and they have no strategic element to them whatsoever. 

I will, however, then say, to provide a caution, as I try to drive 

home in my statement, you can’t use ownership of a Chinese firm 

to say it is strategic or it is not strategic. A private Chinese firm 

can be a strategic tool for the Communist Party just like a stateowned firm can be a strategic tool. And if it isn’t now, if it is a wellintentioned Chinese firm now just looking to operate on commercial 

principles, which is likely, 5 years from now it may not be. 

So I would use sector; I would not use ownership. 

Ms. MOORE. OK. Thank you so much. 

Let me ask Admiral Blair, given your extensive experience, if the 

President decides to not follow the recommendations of CFIUS, is 

this something that is made public? How will this committee—is 

there any mechanism for our supporting the Committee’s recommendations if the President decides not to act? 

Admiral BLAIR. It has been my experience that Congress has had 

no trouble in influencing CFIUS decisions that are of high consequence and category. Process is one thing, but once something 

gets into the press, once something becomes a big issue, it really 

gets higher than the CFIUS process. 

Ms. MOORE. So it would be public? 

Admiral BLAIR. Yes, it would be. 

Ms. MOORE. OK. Good. 

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I want to yield the balance of my time to the distinguished member, Mr. Heck on this committee, who has a lot of background in 

this area. 

Mr. HECK. I thank the Ranking Member. 

I would like to start with you, Admiral Blair, and begin by 

thanking you for your lifetime of service to this country in uniform 

and in so many ways. Your co-chairmanship of the IP Commission 

is something that I have specifically cited, and the data coming out 

of it, on numerous occasions here in this committee. 

My perspective is that we are here today, frankly, because there 

has been a problem that has been growing as a consequence of a 

lot of the trends and behaviors on the part of other actors, most 

specifically China, and so it brings us to the point of revisiting a 

10-year old-statute and its adequacy for the current challenges. But 

it is also my perception that this body doesn’t act unless we are at 

critical mass or threshold of perception of a problem that is going 

to get worse and going to be compelling. 

So I want to ask you the ‘‘what if’’ question. What if we don’t do 

anything? What if we don’t act? What if we don’t reform CFIUS? 

What if we don’t increase its resources? What if we don’t change 

it? Based on your considerable experience, look forward and describe as best you can what you think occurs if we fail to act. 

Admiral BLAIR. I think if we don’t make these changes our military technological edge erodes in key areas. Our choices are either 

accepting the consequences of a narrowing gap or else spending 

more money on defense. I think our economic competitive, similarly, erodes as those high-technology, high-innovation sectors, in 

which the United States really has a competitive advantage, are 

undercut by other competitors. 

So I think it contributes to negative trends in this country. It 

doesn’t mean we can’t overcome them by the inherent entrepreneurial nature of the country, by the dynamism of our people, and 

so on, but why make it harder, I guess is my— 

Mr. HECK. Well, they have been catching up. Are you suggesting 

that the velocity at which they continue to catch up increases? 

Admiral BLAIR. Yes, I think it has in recent years. And we 

should protect our own interest in order to slow it. 

Mr. HECK. Thank you, sir. 

Chairman BARR. The gentlelady yields back. 

The Chair now recognizes the Vice Chairman of the subcommittee, the gentleman from Texas, Mr. Williams. 

Mr. WILLIAMS. Thank you, Mr. Chairman. 

The preservation of our national security I think is every Member of Congress’s constitutional responsibility, and I and this committee remain committed to finding policy solutions which promote 

U.S. interests and keep bad actors away. 

I want to thank Chairman Barr and Ranking Member Moore for 

holding today’s hearing. I am also glad to see this subcommittee 

making CFIUS a priority. I look forward to learning more about 

this important interagency committee and the best ways that Congress can potentially improve it while at the same time still promoting foreign investment to the U.S. 

mcarroll on FSR431 with DISTILLER

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I thank the witnesses for their time, and I thank many of them 

for their service to this Nation and their prior involvement with 

CFIUS. Our Nation is indebted to your dedication. 

Mr. Hunter, I want to start with you. Thank you for being here 

today. And I, too, share your concerns about the gap existing where 

a foreign investor seeks to acquire an asset that is not a U.S. business. The example in your testimony of fallow land near a military 

base was particularly concerning to me because I represent a large 

portion of Fort Hood, the largest military base we have. 

So does a change need to be made to codify the inclusion of sensitive assets by CFIUS? And can you explain what a provision 

could look like to achieve that goal? 

Mr. HUNTER. Thank you. 

I think the solution is really quite simple. It is just to say specifically that real estate can be covered. At present, you need to have 

a covered transaction involving a U.S. business being acquired by 

a foreign person. The limitation of a U.S. business is an asset plus 

a commercial activity. Fallow land, land that is not being used, 

doesn’t have a commercial activity. 

So you just define specifically land. Easily done. 

Mr. WILLIAMS. OK. 

Another question. I agree with your assessment that foreign direct investment in the United States is positive for the economy. 

When companies invest in America, they bring jobs, they bring facilities and further development. But it is concerning to me that 

CFIUS delays could create uncertainty that drives away investment. 

So how can we modernize CFIUS in such a way that makes the 

U.S. more attractive to development but at the same time does not 

compromise our national security? 

Mr. HUNTER. Thank you. That is a great question. 

The timelines, as I have mentioned in my written testimony, 

have gotten longer in practice. The intelligence community does a 

fantastic job of producing their analysis very quickly, but it is a 

committee and so it requires a lot of debate internally within 

CFIUS. The resources that Ranking Member Moore highlighted at 

the outset I think are a key component of that. 

The second thing is, I would be very cautious about what additional responsibilities one gives to CFIUS. The export control issues 

are very important issues, in fact, maybe the most sensitive issues. 

But the CFIUS process would come to a grinding halt if one were 

to put all of that inside of CFIUS instead of doing it through a reform of the export control procedures. 

Mr. WILLIAMS. OK. Thank you. 

Dr. Scissors, I am concerned with patterns of targeted investment by Chinese state-owned enterprise into this critical U.S. infrastructure—for example, the investments that Chinese groups 

have already made into the U.S. rail manufacturing. 

Do you believe that involvement of Chinese state-owned enterprise in U.S. critical infrastructure has or could potentially jeopardize our Nation’s ability to effectively respond to national security threats? 

That would be my first question. 

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Mr. SCISSORS. The way I would put it is, again, I don’t think it 

matters that it is a state-owned enterprise, except that they have 

access to more Chinese government funding. So the size is what 

matters there, not the ownership. 

I think what we should consider, with regard to China, is not 

what is happening now. Right now, China is trying to expand its 

rail industry all around the world, not just in the U.S., not principally in the U.S., mostly in Southeast Asia, sub-Saharan Africa. 

But if it is owned by a Chinese entity, it is a future national security risk. I don’t know any other way to put it. 

So I think what you look at is the size of the transaction, the extent of Chinese involvement, and the future risk, not the current 

risk. At present, I would say the Chinese have no interest in disrupting U.S. national security preparations, but a Chinese entity is 

controlled by the party, and if the party changes its mind, so does 

the Chinese entity. 

Mr. WILLIAMS. Real quick, is there more that you think we can 

do to modernize our investment review laws to address the challenge we are talking about? 

Mr. SCISSORS. Yes. This is where my colleague and I disagree. 

We have heard people talk about not overburdening CFIUS. The 

way I would not overburden CFIUS is make it clear that there is 

one primary national security risk to the United States and it 

comes from China. Everything else is much smaller in comparison. 

So, when we give CFIUS additional tasks, whether they are a little bit of an additional task or a lot of additional tasks, we can 

focus on the primary country of concern, which is the Chinese side. 

We are not worried about the Iranians buying up U.S. rail assets. 

They don’t have the money. 

Mr. WILLIAMS. OK. Thank you for your testimony. 

And I will yield my time back. 

Chairman BARR. The gentleman yields back. 

The Chair recognizes the gentleman from Washington, Mr. Heck. 

Mr. HECK. Thank you, Mr. Chairman. 

Back to you, Admiral Blair, if I may. So I asked you to look forward before. Now, I do, in fact, want to ask you to look back a little, and characterize for us, if you would, the advances in technology and equipment made by the Chinese Armed Forces in, let’s 

say, the last decade, and indicate whether or not you think that 

those advances were materially advanced by IP theft by the Chinese and technology transfers. Was there a role there? 

Admiral BLAIR. The Chinese Armed Forces have done a remarkable job in transforming from the mid–1990’s when they were basically a pretty immobile, light-infantry-based defensive force to a 

much more advanced force capable of projecting in the near areas 

around China, with ambitions to go further. And they have, in fact, 

leapt several generations of technology that other countries have 

gone through over many decades. 

And I would say that a combination of strict theft, breaking into 

companies like Lockheed Martin and Northrop Grumman and pulling out information, which they accomplished, and taking advantage of the examples of other armed forces, chiefly the United 

States, they have used in a pretty savvy way. 

mcarroll on FSR431 with DISTILLER

19 

And when I was Commander in Chief for the Pacific Command, 

we could handle contingencies like Taiwan without scratching the 

paint on our ships and our airplanes. Now, it is going to be a tough 

confrontation if we get into it over an issue like Taiwan. And part 

of that has been Chinese ability to jump to the latest technology 

by acquiring it by fair means and foul, and the foul means have 

been a major part of that. 

Mr. HECK. So I realize there is an underlying disagreement here 

about how to deal with the outbound stuff. But, before we get to 

the solution to that, I want to size the bread box and have you 

maybe describe what role you think joint ventures, Chinese performance requirements, and the outbound stuff, has played in their 

absorption, if not theft, and acquisition of technology that has enabled this more rapid advance and the implication to our national 

security. 

Mr. BLAIR. The Chinese weapons designers and engineers are 

competent people. And when they are devising a new surface-to-air 

system, for example, they look around at what the most advanced 

systems are. A large part are American. 

They then issue orders to their intelligence service to go out and 

get as much of the specific data on wavelengths, design of components, sources, as they can. The Chinese actors, human intelligence 

and so on, know the companies and the— 

Mr. HECK. Excuse me for interrupting, Admiral, but do our outbound investments play a role in that? 

Mr. BLAIR. Oh, our outbound investments? 

Mr. HECK. Right. That is what I am getting at. Is it the fact that 

we enter into these joint ventures with them and they have performance requirements which— 

Mr. BLAIR. No. From the military point of view, the primary theft 

that has benefited China has been their penetration of our domestic defense industries and the cooperation with allies, the U.K., 

Japan, and all. There have been some losses through our allies, but 

most of the benefit has come from stealing from American companies in the United States that are building defense equipment. 

Mr. HECK. Not American companies that are operating in China? 

Mr. BLAIR. Correct, in the past, mostly through coming here. 

There are certain filters. American businesses are smart. They are 

not going to take their best stuff. They are going to be careful in 

China. So why go for the second rate stuff there when you can go 

into the United States and get it at its source? And that is what 

Chinese intelligence units have been tasked to do, and they have 

been somewhat successful in doing it. 

Mr. HECK. Dr. Scissors, would you agree with that? 

Mr. SCISSORS. Yes. I think there has been a progression in the 

way China has approached stealing IP. I work on the econ side, not 

the security side, so I can’t answer your national security question. 

But I agree with the admiral’s point that the Chinese are now skipping over whatever they think is secondary technology and moving 

to where they think the best technology is. I used to tell clients, 

if you don’t want China to steal your IP, don’t go to China. That 

doesn’t work anymore. 

Mr. HECK. Thank you. My time is up. I yield back, Mr. Chairman. 

mcarroll on FSR431 with DISTILLER

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Chairman BARR. The gentleman yields back. 

The chairman now recognizes the author of the Foreign Investment Risk Review Modernization Act, the gentleman from North 

Carolina, Mr. Pittenger. 

Mr. PITTENGER. Thank you, Chairman Barr. I sure appreciate 

your support and leadership on this important bill. 

And certainly I appreciate Senator Cornyn and the leadership 

and partnership he has been on this bill, and Secretary Mnuchin, 

who played a major role in writing the bill. 

And thank each of you for being with us today. 

I would like to say that the bill now has the full support of not 

only Secretary Mnuchin, but Secretary Mattis and Attorney General Sessions. Many others have commented about the bill and the 

need for reforms in CFIUS. 

Mr. Kassinger, I heard your remarks in terms of joint ventures. 

I would say to you respectfully that the Director of the CIA and 

Secretary of Treasury both would have disagreed with that, that 

they believe that they are an important, critical part of how the 

Chinese and others would pursue acquisitions. Mike Pompeo said 

CFIUS deals mostly with changing control of transactions and 

analysis. There are many other ways one could invest in an entity 

in the United States and exert significant control over that entity, 

and I think we need to look into that. So I would respectfully disagree. 

I would say that I would like to hear from Mr. Scissors regarding 

your perspective of the export control regime and its ability to adequately address our national security risk related to foreign transactions. In your opinion, do you believe that the control regime has 

adequately addressed national security risk, particularly Chinese 

investments? 

Mr. SCISSORS. I will give a disclaimer. I am not an export control 

lawyer. But on the Chinese side I do have a lot of information, and 

I would say our current export control regime has not been sufficient to prevent illegal Chinese acquisition of technology. It is not 

supposed to do all the work. But we can say for sure it is not doing 

the job. 

So we can argue about where we want the changes, whether to 

be in CFIUS, or in export controls, or elsewhere, some combination. 

But I would disagree with anyone who says, oh, export controls are 

handling this problem, we are fine. That is evidently not the case 

with China. 

Mr. PITTENGER. So you would then concur that the need to expand, reform, modernize CFIUS would be important to address the 

concerns in the future? 

Mr. SCISSORS. Yes. Again, how we do that and whether that is 

sufficient, whether we should locate all reform in CFIUS, I think 

those are big questions, and I don’t want to use up all the time. 

But I think modernization and improvement of CFIUS is indispensable. 

Mr. PITTENGER. I think underscoring our concern lies in a comment that Secretary Mattis made. He stated that rapid technology 

change is one of the several concurrent forces acting on the Defense 

Department. And as well he said that new commercial technologies 

will change society and ultimately will change the character of war. 

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21 

So I think looking ahead in the future, our objective is to have 

a structure that will address the needs and concerns as we proceed 

ahead. 

Admiral Blair, you have obviously worked a great deal on intellectual property and matters relative to national security. Can you 

please help us understand what we need to do to further tighten 

CFIUS regulations and the rules and procedures to protect the intellectual property of national security? 

Mr. BLAIR. We have talked a great deal about tightening CFIUS 

in order to protect militarily relevant technology. But I think 

CFIUS need not be simply limited to that. As the chairman said 

in the beginning, it was used in the 1970’s because of concern 

about petrodollar recycling. It was done in the 1980’s because of 

concern about Japan. These were not military secrets that we were 

worried about there. It was the economic competitiveness. 

And as the commission that I had the honor of co-chairing testified, this is a hemorrhage of profits and competitiveness of this 

country. And I think it is fully appropriate that CFIUS go beyond 

simple narrow military calculations and be used to punish, and 

therefore deter, companies that are stealing American-owned intellectual property, whether it is applied to military devices or whether it is putting companies out of business in many parts of this 

country. So I say go further with CFIUS. 

Now, put the statute on the books and then all the questions of 

implementing it in smart ways, getting the right people, those can 

be solved. But if you have the goal there, then you can build the 

capacity to do it and face these companies with a challenge: They 

either use the United States, they use our stock market, invest in 

our company, export to this country, and play it by the rules, or 

else they don’t. I think we ought to freeze them out if they don’t. 

Mr. PITTENGER. Thank you. I yield back. 

Chairman BARR. The gentleman yields back. 

The Chair recognizes the gentleman from Texas, Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman. I thank the Ranking 

Member as well. And I thank the witnesses for appearing. 

I am concerned about energy. I am a Representative from the 

State of Texas, so it seems that would be something that would be 

of concern to me and of course to the country as well. 

My concern emanates from technology that the Russians don’t 

have. They seem to have the ability to drill but not nearly as much 

ability and technology as is needed to drill in the Black Sea where 

it is exceedingly cold. 

In 2012, Secretary Tillerson signed a deal with Rosneft, the Russian-owned oil company, and that deal would allow drilling in the 

Black Sea by way of the Russian-owned company and our very own 

Exxon. 

The deal was thwarted, but the question still remains: How will 

our associating ourselves with a Russian-owned oil company that 

doesn’t have the technology necessary to drill in these cold waters, 

how will that possibly impact us long term? 

Who would like to take the first shot at my question? 

Mr. BLAIR. That is a very complicated question, Representative 

Green. And there is a tension there, because the increase of the 

world oil supply is a good thing for the economy of the United 

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22 

States and for all other countries. It gives the United States a flexibility in its security policies which we don’t have when the price 

is high and it is only countries in the Middle East that can quickly 

increase their production that will keep the price under control. 

So I don’t think any of us who watch this issue are against helping other oil companies provide more into the world market. Where 

we do have concerns is how that power is used for geopolitical purposes. And Russia has clearly demonstrated, particularly in the use 

of its gas lines, that it is perfectly willing to use that for political 

pressure. It has not been so successful in oil because of the 

fungibility of oil shipments around the world. 

So, in general, I think cooperative oil measures are OK, and 

ought to be entered into by U.S. companies. They are pretty savvy 

at not giving away the family jewels when they work with another 

company. They have been doing it for a long time. And then we 

watch the use to which these oil shipments are put, by countries 

like Russia or Saudi Arabia or Iran or other producing countries. 

Mr. GREEN. Would someone—yes, sir, if you would, please. 

Mr. KASSINGER. Just two quick points, Congressman Green. 

First, of course right now the Ukraine sanctions, both promulgated by Executive Order and by this Congress, preclude transfers 

of unconventional oil and gas technologies from U.S. persons, U.S. 

companies, to Russia. So at least for the time being that is not an 

issue. 

Second, I think in considering this issue I align with Admiral 

Blair but for another reason. And that is, U.S. companies don’t 

have a monopoly on offshore drilling technology. The question is, 

would we rather have U.S. companies there participating or cede 

that market, and the presence that goes with it, to others? 

Mr. GREEN. Just quickly, this point. It is my understanding from 

the intelligence that has been accorded me that, within that deal 

there is also an opportunity for Rosneft to do some drilling in the 

United States. Any response to this contingent? 

[Inaudible responses.] 

Mr. GREEN. Well, thank you very much. Madam Ranking Member, I greatly appreciate the time. Mr. Chairman, thank you. 

Chairman BARR. Thank you. The gentleman yields back. 

The Chair recognizes the gentleman from West Virginia, Mr. 

Mooney. 

Mr. MOONEY. Thank you, Mr. Chairman. 

So one issue was brought to my attention about a year ago where 

the Chinese—although any country could do it—but the Chinese 

tried to buy a company based out of Europe somewhere, use it as 

a third party, then have that company purchase an American semiconductor company. Lattice was the one that was brought to my attention. 

But I was just wondering—I guess anybody could answer this— 

but how do we detect when a company is being bought out by a 

foreign entity and then that company is also trying to buy American technology, a company that has access to sensitive American 

valuable technology. 

Dr. Scissors, but anybody else can jump in. 

Mr. SCISSORS. Well, we do it, so I assume the U.S. Government 

can do it. If you decide to focus on certain companies, like large 

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23 

Chinese entities who have funding from the state, you know what 

they have done in the past. So the biggest example, quantitatively, 

is not the failed Canyon Bridge-Lattice Semiconductor deal. It is 

the successful HNA—which is a Chinese private firm with very 

strange ownership—purchase of CIT Leasing in the U.S. 

HNA did that through its Irish subsidiary, Avolon, wholly owned 

Irish subsidiary. All the money came, supposedly, from Ireland. 

But if you know what HNA has done in the past, you know that 

is a Chinese entity. 

And I believe the U.S. is perfectly capable of tracking back companies of concern or of special interest and knowing who actually 

owns what. I don’t know that we do that, necessarily, on a consistent basis. 

And the evidence I would give is my number, our number at AEI, 

other numbers, not just ours, for Chinese investment in the U.S. 

are larger than the U.S. Government number, in particular because 

the U.S. Government treats that investment as being from Ireland. 

It is not. It is from China. We can determine that, but we may not 

be doing so on a regular basis. 

Mr. MOONEY. Sure. 

Mr. HUNTER. Thank you. 

So, first off, the legal structures, from CFIUS’ perspective, the 

legal structures don’t matter. CFIUS looks all the way up the chain 

to ultimate owners and control. So in terms of legal authority, that 

is there. What I think your question is getting to is the information, whether CFIUS is aware. 

Now, CFIUS does track transactions. They can see the public 

transactions that are reported and they do a pretty good job at 

that. When there are government contractors involved, there are 

rules under the government contracting rules that require notification. So there is visibility there. 

I think the bill that we were talking about a moment ago, 

FIRRMA, seeks to deal with what is perhaps one of the gaps that 

may be there, which is particularly smaller businesses, businesses 

which may not be publicly held companies, where there may not be 

visibility in terms of the transaction. And that may be most relevant to what I think has been the constant theme in this discussion today, is the concern about technology. So I think that is—and 

I think that was your focus in the legislation. 

Mr. MOONEY. Sure. And I guess also, to follow up on that, how 

do you determine if—normally a company is owned by somebody if 

they have 51 percent of the stock or more. They are a majority 

shareholder. But if a Chinese company or some other company in 

the world buys a third of the company, or 5 percent, or even 1 percent of the stock, are they then considered eligible to be reviewed 

by the CFIUS process because they have access to sensitive information? Or do they have to have a certain amount of stock? Like, 

how do you determine that, is my question. 

Mr. HUNTER. One of the virtues as a Government official, one of 

the virtues of CFIUS is its flexibility, both in its national security 

definition, but also the definition of control. Control is basically the 

ability to influence business decisions and financial decisions and 

personnel decisions. It doesn’t really matter what the threshold in 

terms of ownership is. 

mcarroll on FSR431 with DISTILLER

24 

Mr. MOONEY. And then another follow up, and you can answer 

both of these if you want. I only have a minute left. But I read an 

article about a port, or a trucking company, an exchange company, 

that would have access to the information for a short period of 

time. They don’t own the chip-making company, but they own the 

truck or the boat that is going to transport it, and there were some 

concerns about that. Is that also something that you look at? 

Go ahead, Dr. Scissors. 

Mr. SCISSORS. This is a very important point because you have 

to decide what constitutes control. And I agree that it requires 

flexibility and we are not always going to do a perfect job of this. 

My solution is, it is where firms respond to money. If the Chinese 

are putting money in a firm, directly or indirectly, I don’t care if 

they formally own it or whether they have seats on the board. So 

if you look at dependence on Chinese financing, that is when you 

know the Chinese have influence. That is when you know data 

could be compromised. 

Mr. MOONEY. I guess my last 20 seconds, Mr. Chairman, I would 

just suggest that if they control the port or the truck or the airplane and they have total control of that product for a few days, 

they can look in the product and get everything they want out of 

it, and then go ahead and ship it. So that could be something of 

concern that we need to watch more closely. 

Thank you, Mr. Chairman. 

Chairman BARR. The gentleman yields back. 

The Chair recognizes the gentleman from California, Mr. Sherman. 

Mr. SHERMAN. Thank you. 

I have asked the prior panelists the same question. CFIUS does 

not currently contain an explicit provision stopping state sponsors 

of terror or companies based in countries that are state sponsors 

of terror or other nations that support terror but are not formally 

designated from acquiring U.S. assets. 

Do you believe that we should put into the statute a requirement 

that we explicitly take into consideration whether the company 

seeking to invest in the United States is located and based in a 

country that supports terror? Does everyone agree with that? Let 

me know if anyone disagrees. 

Mr. BLAIR. If you use the phrase take into consideration, I don’t 

think any of us would disagree. Of course you should take into consideration. And Dr. Scissors has been quite eloquent about the control that authoritarian countries can have over the company. 

But I think you have to look at the company itself as well. Has 

it, in fact, connived in or supplied the materials for terrorism? Has 

it done it? And then you make a call. But take it into consideration, 

absolutely. 

Mr. SHERMAN. Yes. 

Mr. KASSINGER. Mr. Sherman, I would just add two things. 

One is most, if not all, of the countries designated as state sponsors of terrorism are, of course, a subject of U.S. sanctions, which 

would preclude investments in the U.S. in most cases anyway. 

Second, I don’t think there is any question that CFIUS would 

take into account, in its threat analysis, the status of the country. 

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25 

Mr. SHERMAN. I would point out that with our current trade relationship with China, they export goods here, they don’t allow us to 

export goods there. When they do, they require a co-production 

agreement. We have a huge trade imbalance. 

And we can try to have government stand in the way of this tidal 

wave, but those dollars do come back to the United States either 

as loans or investments in U.S. Government bonds or as direct controlling investments in our companies, and that the real solution 

to this is to impose such tariffs as are necessary to assure a balanced trade agreement. 

I am concerned with the CFIUS process that allowed China to 

control the AMC movie screens. Do we have sufficient provisions in 

CFIUS designed to prevent them from controlling what movies are 

made in the United States? Because I will tell you now, if you have 

another movie about Tibet and it can’t be shown on one quarter of 

the movie screens in the United States, they aren’t going to make 

the movie. 

Does anybody have a comment on that? 

Dr. Kennedy. 

Mr. KENNEDY. I agree that Chinese investment in Hollywood and 

influence over movies and China’s effort to influence popular opinion positively toward China is an issue that the U.S. needs to be 

aware of. 

Mr. SHERMAN. And I would also point out they also control, because we have accepted it, have not imposed massive tariffs in response to their limitation—first of all, the theft of our intellectual 

property. But, second, they limit us to 35 to 40 movies. So every 

studio is turning somersaults trying to make their movies favorable 

to China so that they can get in. 

Mr. KENNEDY. So I would agree that these are problems in the 

commercial relationship and things that Washington ought to be 

worried about. I just don’t think that the CFIUS process is the appropriate place to manage that, just because we have already 

talked about potentially adding all companies where we have all 

different kinds of IP problems or where it is not necessarily a deal 

in the United States. 

But I guess the question is, from a practical perspective, what is 

the best approach? And I am not sure that CFIUS would be the 

best approach. 

Mr. SHERMAN. If you buy one studio, you control one studio. If 

you control the entire Chinese movie market and a quarter of the 

screens or a fifth of the screens in the United States, then you control all the studios in the United States because not one of them 

will dare to make that next Tibet movie. 

I will try to squeeze in one more question and that is, does 

CFIUS adequately take into consideration, not only the technology 

that is being acquired in the target company, but the technology 

that company has the capacity to develop? Does someone have an 

answer to that? 

Mr. SCISSORS. I will say that, I consider that almost impossible. 

The great thing about the American economy is how innovative it 

is. And today’s company that is leading, is tomorrow’s loser because 

it has been surpassed. 

mcarroll on FSR431 with DISTILLER

26 

I think it is a legitimate concern that China would, or another 

country, potentially buys a lot of U.S. startups because some of 

them may pay off. But I think CFIUS has a difficult task in evaluating that security threat. 

Mr. SHERMAN. Is the solution there to have CFIUS have the 

right to force a divestiture? 

Mr. SCISSORS. I think the solution is for CFIUS to have a re-review right, yes. If the Chinese buy a company that we don’t consider a national security threat and it becomes one later, CFIUS 

should be able to re-review. 

Chairman BARR. The gentleman’s time has expired. 

The Chair recognizes the gentleman from Ohio, Mr. Davidson. 

Mr. DAVIDSON. Thank you, Mr. Chairman. 

Witnesses, I thank you all for your expertise on this subject matter and your willingness to come share it with us. So it is nice to 

spend some time talking about this very important topic for all of 

U.S. national security. 

Frankly, I spent my first years as an adult wearing our uniform 

in the United States Army. And I thought at the time I would 

probably never—well, back then, the cold war was going on. We 

were thinking about the Soviets and the threat. And then we think 

about China, and I thought I would probably never go there without a rucksack full of ammo, some body armor, night vision goggles, and all the kit. 

But I was fortunate to go there and do a fair bit of trade. So I 

have seen a lot from 2005 until the end of 2015 when I decided to 

run for this office. Now that I am here, I see things that we are 

doing from a policy thing in a different way. 

But I will highlight one of the concerns I had while I was at 

West Point was the technology transfer. Hughes transferred the 

ability to launch multiple satellites in this case—could be warheads—from one launch vehicle to China. In fact, that was one of 

the first things President Clinton did, was shift release authority 

for sensitive technology from Defense to Commerce. Unfortunately, 

shortly thereafter Secretary of Commerce Brown died in a plane 

crash. So we still aren’t able to ascertain some of his opinions 

about that transfer. 

But I am curious to know where the gaps are between technology 

transfer. Because if you think about a company like—let’s just take 

Apple. They don’t generally buy everything that they need. They license lots of things. So they don’t necessarily control it, but they 

have access to exactly how it works. 

So could you highlight that interplay between CFIUS, which 

deals with control, and export control, which nearly uniformly the 

panel seems to say, keep this separation between the two? But I 

think there is a pretty important gap to understand there. 

Mr. BLAIR. I will start, but there are practitioners here who have 

worked in this. 

The shortcomings right now in the Export Control Act, ITAR, 

and so on, are that it requires a more defined definition of the technology and it is generally at a more advanced stage and a license 

has to be granted and so on. 

The concern now in the fast-moving world of military technology 

and other technology are the potential, which has not formed itself 

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27 

into the technology to build a device but pretty applicable, whether 

it is artificial intelligence or high-speed computers or any of the 

others. 

Right now the Export Control Act does not reach far enough into 

those things which experts can figure out are pretty much a threat. 

So we need to fill in that gap between CFIUS and the export control pushing from one direction or another. You all are considering 

CFIUS. I vote for having CFIUS take up some of the burden of trying to protect that earlier-stage technology that will have military 

application soon. 

Mr. DAVIDSON. Thank you. 

Mr. Hunter, you highlighted some concerns. Could you please address them? 

Mr. HUNTER. Thank you. 

Well, first off, export control issues come up in CFIUS. And 

CFIUS does deal with those. Export control officials participate in 

CFIUS. So there is overlap. 

Second, while we have a pretty robust, well-thought-out export 

control regime, one, the legislation on which it is based has lapsed. 

It is being supported now through IEEPA, so the temporary authority. That is worth looking at. 

Second, the policy process, which Admiral Blair was highlighting, 

for designating which technologies need to be protected is not keeping pace with the evolution of the technology. That you might look 

at as something of a software problem, something that, again, Congress may want to look at, as well as the Administration. 

But the tools exist. And they are highly adaptable. They can deal 

with evolving technologies. They can deal with transfers outside 

the United States of U.S. technology. 

Mr. DAVIDSON. Thank you, sir. 

Mr. Kennedy, maybe, any concerns there, that you want to address? 

Mr. KENNEDY. I would agree. I am particularly worried about 

Chinese investment in Silicon Valley and elsewhere with investment funds that then go around scooping up garage-size companies 

that end up providing technology which has commercial and military applications, which I think needs to be covered. Whether that 

is through expanding CFIUS or through export controls, I think 

whatever is most practical makes the most sense. 

Mr. DAVIDSON. Thank you. 

And I would highlight, some of the things we look at that seem 

nefarious, it is good that you highlighted that CFIUS does have the 

capability to address. So if you think an investment through Ireland as a vehicle, for example, where beneficial control is Chinese, 

perhaps it is because of the tax haven. So, hopefully, we have done 

some good with our own tax laws. Thank you. 

Mr. Chairman, I yield. 

Chairman BARR. The gentleman yields back. 

The Chair recognizes the gentlelady from Utah, Mrs. Love. 

Mrs. LOVE. Thank you. Thank you very much for being here. 

Mr. Hunter, you mentioned in your written statement that the recent flow of Chinese investment, $46 billion into Europe and $48 

billion into North America in 2016, has spurred concerns across advanced markets. Since the United States is not the only advanced 

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28 

market generating cutting edge technologies, unilateral U.S. action 

is less likely to be effective over time. 

I would like to ask you, and maybe some of the other witnesses, 

if they have any comments to add on this, how the United States 

could best coordinate with other countries, either bilaterally or 

through forums such as G7 or OECD, to evaluate the implications 

of these transactions. And what should that coordination look like? 

For instance, should we coordinate on specific cases or do you think 

we should be more general in our coordination? 

Mr. HUNTER. Thank you, Representative Love. 

The substantial increase of Chinese investment, as we have discussed and Derek Scissors has highlighted, is having a political effect across advanced markets. You have seen legislative changes, 

regulatory changes in Germany. The United Kingdom is considering its own CFIUS process. The EU has proposed a framework 

as well. And then there are a number of very sensitive cases that 

have come up in a number of countries, like Australia. 

I think that the opportunities for coordination are two, as you 

highlighted. One is on the policy. I think it would be a wise thing 

for this Administration and Congress to engage with counterparts 

in other advanced markets to ensure that their legal systems, their 

regulatory systems, are adequate to the challenges, that are both 

transparent, predictable, but also address the national security 

issues that may be there. 

Second, on individual cases, the CFIUS legislation imposes strict 

constraints on confidentiality and the handling of information relating to transactions. That is entirely appropriate. However, those 

confidentiality rules could have an unintended consequence in restricting the ability of our national security officials to communicate with their counterparts. 

And it would make sense, it would seem to me, that just as our 

competition officials can communicate with their counterparts in 

other countries, that our national security officials can communicate with their counterparts about particular individual transactions. So I think both dimensions are possible. 

Mrs. LOVE. So you think it should be, as far as you are concerned, all of the of the above, just on general policy and also on 

specific transactions? 

Mr. HUNTER. Correct. 

Mrs. LOVE. OK. 

Does anybody else have anything? 

OK. Yes. 

Mr. SCISSORS. So we have an example of CFIUS working with a 

country that does not have an investment review process already, 

which is the U.S. coordinated with Germany to block a Chinese 

purchase of a German chip firm in 2016. We can do that on an ad 

hoc basis. What I think would be more useful is if the Congress, 

the Administration, laid out principles for how they would like to 

guide the regime. 

I spent a lot of last year in Australia, in Germany, talking to governments. They do see this as a concern, as Mr. Hunter just said. 

But they are behind us. We are considering more advanced questions than they are. And I think the number one thing the U.S. can 

do to its allies is tell them what we think is most important, as 

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29 

practical as saying not semiconductor investment right now, that 

is what we want you to close off. 

Mrs. LOVE. Are we not doing that currently? 

Mr. SCISSORS. Talking to Europe about their political process is 

very confusing, at least for me. But they don’t perceive that we are 

doing that. And one of the reasons is we are having an extensive 

and valuable debate here. 

My point is, at the conclusion of this debate, if we adopt some 

clear principles about what we want to do, that is the first step, 

and countries are waiting for that. 

Mrs. LOVE. OK. So the general consensus is to make sure we 

have at least our ducks in a row and then communicate that and 

let everyone know which standards that are OK. 

Would our European trading partners have any reservations 

about coordinating with the United States as far as you are concerned? Do you see any circumstances where they would have some 

trouble or reservations about coordinating with the United States? 

Mr. SCISSORS. Well, having just been there and had this discussion, they are not going to adopt the same tactics and strategies 

that we are. They are actually probably more concerned about personal data. But they are also not going to get into a war over Taiwan with technology that was taken from European firms because 

they don’t have the same military concerns. 

So I see the European side as more interested in economics than 

we are, less interested in national security. It is not that they will 

hesitate to cooperate, but they have their own priorities. 

Mrs. LOVE. OK. Thank you. 

Chairman BARR. The gentlelady’s time has expired. 

The Chair recognizes the gentleman from Arkansas, Mr. Hill. 

Mr. HILL. I thank the chairman and the Ranking Member for 

this second and a good hearing on discussing how we can improve 

our CFIUS process. And I certainly think it needs to have the flexibility that keeps up with the times, both in terms of style of investing in companies or technology, keep up with the changing times 

in how technologies develop. I thank the chairman for his work, 

and I certainly thank my friend from North Carolina for his work 

in bringing this to us. 

But we also need to keep in mind, we need a permanent reauthorization of our export control systematic process as well. These 

two work hand-in-hand. One doesn’t work without the other. Both 

need improvement. That is something that I think Congress should 

and must do. 

Also, listening to the testimony today in our first panel, this is 

something we have gotten right since World War II. We know how 

to do this over the years. We have led the world in trade liberalization during that period, but we have also protected what we 

thought was important here in our country, not just national security, but media ownership, control of the media was an equally important issue, telecommunications, utilities, and power generation 

in this country. 

All of these things are important. So I don’t want us to lose sight 

that we can do more than just the military application of technology in this work, and that is not inconsistent with standing as 

the world’s leader in trade liberalization. 

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Admiral Blair, I have a question for you. In listening to your testimony and reading it, very interesting in terms of your re-review 

recommendation that came from your panel, review acquisitions 

that have been previously approved when new evidence comes to 

light of damaging actions by foreign companies. I found that interesting. 

Are you suggesting that the U.S., through the CFIUS process, 

have a no-buy list, that we actually essentially put companies on 

a no-buy list for just general purposes because of their—maybe 

what country they are—this is a nonsanctioned country, let’s presume. What is your response to that? 

Mr. BLAIR. If I were DNI again, I would establish an organization somewhat like our National Counterterrorism Center where 

you have a fairly sizable, several dozen people, some of them fulltime staff, some of them detail personnel coming from other agencies, Commerce. They would have a different character from the 

combination of intelligence analysts and legally trained people that 

we primarily use now. 

And you would really have a group that knows about what is 

going on in this world of foreign companies dealing in the United 

States, dealing with technology. And you would have built up databases so that instead of having a research project for each new 

transaction that came along, you would have a sense of where 

these companies were, and who ought to be ruled out right from 

the start, and who requires more research. 

So in that sense, yes, it would develop a de facto, this company 

is dirty, we are not going to approve anything that they do. 

Mr. HILL. Yes. So we wouldn’t even entertain a transaction? 

Mr. BLAIR. No. And I think that would be a very powerful tool 

for the United States to develop. 

Right now, I would defy you to find that—Dr. Scissors has been 

very kind. But the people who work on export control within the 

intelligence community are part-timers who have other jobs. It is 

not that full time, intense, really understand the world. 

A lot of this information is done by private research firms. But 

we can tap that. We can bring them in. And then we know what 

is going on, and then we can make smart decisions. 

Mr. HILL. I thank you for your contributions to the debate and 

your leadership for our country. 

And I would like to yield, Mr. Chairman, what time I have remaining to my friend from North Carolina. 

Mr. PITTENGER. Thank you, my good friend, Mr. Hill. 

Again, thanks to each of you all. 

I would like to clarify that I am from North Carolina. We have, 

in my district, the largest hog processing plant in the world in 

Bladen County, and it is owned by the Chinese, a Smithfield processing plant. So I have a great respect for Chinese investments. 

Notwithstanding that, I do have a concern for their focus today. 

Admiral Rogers, Director of the NSA, stated that: ‘‘I think we 

need to step back and reassess the CFIUS process and make sure 

it is optimized for the world of today and tomorrow, because I am 

watching nation-states generate insight and knowledge about our 

process. They understand our CFIUS structure. They understand 

the criteria broadly that we use to make harder, broader policy demcarroll on FSR431 with DISTILLER

31 

cisions, and it is an investment acceptable from a national security 

perspective.’’ 

So I would just say to each of you, as we move forward with this 

deliberation, your perspective is welcome and appreciated because 

this is a very important area for us to address. 

Thank you very much. I yield back. 

Chairman BARR. The gentleman yields back. 

The Chair now recognizes the gentleman from Florida, Mr. 

Posey. 

Mr. POSEY. Thank you very much, Mr. Chairman, for having this 

hearing and for allowing me to participate in the discussion on the 

Committee on Foreign Investment in the United States, or CFIUS, 

as it is known. 

Is there anyone on the panel who would disagree with the statement that national security is a mission of the Committee on Foreign Investment in the United States? 

OK. We all agree on that. 

Out of curiosity, have any of you ever read the book ‘‘One Second 

After’’? It was a New York Times bestseller by William Forstchen 

who talked about an absolutely incredible threat to this country. It 

is a novel, but it is based on confidential and some public Congressional resources. Has anyone ever heard of that or read that book? 

Many are concerned about the entry of a Middle Eastern company as an investor and service provider in container operations at 

one of Florida’s seaports. Since 9/11, the Nation has been focused 

on the potential threats posed by containers as a vehicle for delivering terrorist activities to our shores. TSA is spending millions on 

screening of these containers. 

I am thinking that the entry of a firm like this with uncertain 

relationships to terrorist organizations should be reviewed by the 

Committee on Foreign Investment in the United States. And I am 

just wondering if you are aware of any current authorities that 

would require CFIUS to be involved in this. 

OK. Seeing none. 

Recently, my office attempted to contact the Committee on Foreign Investment in the United States, or CFIUS, at the Treasury 

Department to discuss this inbound foreign investment transaction 

and were told that one Federal staff liaison was managing 90 percent of the inquiries related to CFIUS filings. My understanding is 

that CFIUS does not have a dedicated staff at the U.S. Department 

of Treasury. 

Two questions. Given the information, do the current resources 

allocated to CFIUS seem adequate? I could take a quick yes or no 

from each of you. 

Secondarily, what types of mitigation requirements or agreements might be appropriate in a case between one of our Nation’s 

busiest ports—containing a nuclear sub base, by the way, and adjacent to Cape Kennedy, physically adjacent to Cape Kennedy—and 

a Middle Eastern cargo terminal operations company? 

Mr. BLAIR. So the scenario is, Mr. Posey, that the Middle East 

company that operates part of a cargo facility would actively allow 

a terrorist organization to use that access to introduce a device into 

the United States? I haven’t read the book so I am not quite sure 

of the— 

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32 

Mr. POSEY. Well, actually, the book is background material. In 

this particular case, we have a Middle Eastern company, a container company involved in a lease with a port, I think a very, very 

critical location of a port. 

And I don’t know even if it is even remotely true, but there have 

been posts and there have been statements to the effect that some 

of the principals in this cargo company might be terrorist sympathetic in one way or another. 

And it has amazed me that we have not been able to be find any 

Federal agency that vets people who lease property at our ports 

like this for our national security, for the interest of our national 

security. The agencies we have contacted have passed the buck, one 

to the other, and by definition it seems like that might fit in here. 

That is why I appreciate the kindness of the chairman to let me 

sit in on this and seek your information or input for this. 

Mr. BLAIR. Right. Well, I think you ought to keep on it until you 

get a good explanation. It sounds like something that should be— 

I am not sure if it is CFIUS, export control, antiterrorist legislation, or what the right legal thing is. But I think you are absolutely 

right to get a good investigation of this so you are satisfied whether 

this is a clean operation or not. 

Mr. KASSINGER. Mr. Posey, I would say there certainly are permanent employees of the Treasury assigned to CFIUS matters, including the CFIUS staff chairman, and you might well go directly 

there. 

Also, the Department of Homeland Security has comprehensive 

regulatory authority over port security matters, and I would think 

they would have resources here. 

Mr. SCISSORS. A comment has been made, starting with the 

Ranking Member, and I think everyone agrees, that resources are 

crucial. And CFIUS is not resourced properly, in my own view, because of a surge of Chinese investment in 2016 that we didn’t respond to in terms of resources. 

But I will add one other thing. You should be able to get an answer. One of the things that has been raised by other people, and 

I entirely agree with is, there are some ways in which this process 

can be more transparent. An answer like, ‘‘Yes, we reviewed this 

company and we did not find any embedded foreign intelligence assets’’, privately made to a Member of Congress, seems to be appropriate. 

Mr. POSEY. Thank you. 

Thank you, Mr. Chairman. 

Chairman BARR. The gentleman’s time has expired. 

And there is a request for a brief second round of questioning, 

and I will start with myself for an additional 5 minutes and then 

recognize a couple of other members. 

I want to revisit this issue of the interplay between the export 

control regime and CFIUS. It appears to me that there is a diversity of opinion about what CFIUS reform should look like in that 

regard and whether or not the CFIUS process should become a onestop shop. 

Admiral Blair, I take it that is your view, that the CFIUS process should be a one-stop shop and that there should be greater inmcarroll on FSR431 with DISTILLER

33 

tegration between CFIUS and export controls, and maybe Mr. 

Hunter disagrees with that. 

Could you all amplify that discussion a little bit and help us examine what is the right policy direction? 

Mr. BLAIR. Well, Mr. Hunter has worked on the other end of the 

organization. But I would say in this area that having both belts 

and suspenders is not a bad idea and that if there is some overlap 

in terms of the point in technological development at which you 

make a regulatory—a go/no-go, decision, is going to be moving. 

So if have you a company in which you have some of the top AI 

people in the world that are working on something that has a military application, and there is a minority Chinese interest in it that 

brings Chinese workers in to learn—and by technology, how to approach this, the human potential—that is something you ought to 

look at, at the early stage of the CFIUS level. 

Once this is turned into a device which can build a piece of 

equipment with a military application, then, of course, ITAR and 

export controls have to be considered. 

But there are a whole range of threats that exist ahead of time 

that I think can be handled better by CFIUS consideration at the 

beginning of the covered transaction rather than waiting until you 

know exactly what piece of militarily relevant equipment is there. 

And I think I would attack it from the CFIUS end as well as from 

the other end. 

Chairman BARR. Mr. Hunter, do you disagree with that assessment, and why? 

Mr. HUNTER. I think there is a consensus, probably across the 

table here, about the importance of the technology control. And I 

think to the extent that there are divergences, it is about the best 

tool to deal with the emerging technologies. 

My concern about CFIUS is that it is, as I mentioned earlier, reactive. It only deals with cases that are presented to it. It is very 

time consuming. And the beauty of the export control regime, when 

it is operating properly, is that it can be much more systematic. It 

can set rules that apply across the economy. 

Now, what has been missing, and I think this is where Admiral 

Blair is highlighting, and others, is the policy development, the 

identification of the technologies that need to be controlled. But 

certainly the tools exist. Indeed, Secretary Kassinger supervised 

the operation of those tools in his time as deputy secretary, so he 

could probably speak to it as well. 

But this is not a disagreement about the fundamental policy. I 

think it is about the tools. 

Chairman BARR. I am sensitive to the concern about the timeconsuming nature of the CFIUS process. I think the admiral painted out that we should be able to be identify—I think Dr. Scissors 

as well—there are some obvious cases of actors that are engaged 

in nefarious activities attempting to obtain technology transfer. 

I know, I think, in the last time the CFIUS process was updated, 

2007 timeframe, that there were some deadlines and timelines that 

were codified in that process. Could we do a better job in putting 

some better timelines in place that would allow the process to work 

so that the transaction would be approved or disapproved in a 

timely manner? Anybody want to comment on that? 

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34 

Dr. Scissors. 

Mr. SCISSORS. I am just going to take a couple of examples, and 

this is probably dangerous to generalize from. But I think the short 

timelines are now hurting us. What we have is CFIUS not responding within its allocated time, and companies, a lot of companies, refiling, refile, refile, refile. 

That is not the system we want to create. We want to think 

about what is an adequate amount of time, in the current environment, not 10 years ago, in the current environment, for CFIUS to 

respond to a company, and then tell them that, and they get a final 

decision. They don’t get a constant resubmission. 

So I am not sure short time is the solution. Sticking to the deadline, whatever it is, is a better approach. 

Chairman BARR. Mr. Kassinger. 

Mr. KASSINGER. Just quickly on that. I think timelines are misleading in the sense that CFIUS doesn’t even initiate a case until 

it has spent a lot of time with companies beforehand. 

But, second, I do think that the existent timeline should be extended. I think Mr. Pittenger’s suggestion in his bill of extending 

the initial review period is a good one. I think we need it in the 

current environment. 

Chairman BARR. My time has expired. And I will now recognize 

the gentleman from Washington, Mr. Heck, for an additional 

round. 

Mr. HECK. Thank you, Mr. Chairman. 

Dr. Scissors, back to you. You have written and I think asserted 

here again today that you think the basis for CFIUS evaluation 

ought to be restricted to national security considerations. I agree 

with you. Not everybody does. There are some people who advocate 

broadening this mission. 

So I think this is a very basic issue for our considerations. I 

know why I believe the way I do. But, as succinctly as possible, will 

you share with us why you think it is important to restrict CFIUS 

evaluations to national security considerations? 

Mr. SCISSORS. Two reasons, a U.S. reason and a China reason. 

The U.S. reason is, I really like foreign investment. It creates 

jobs. It improves competition. It gives better products to Americans. I want the default to be, we let in foreign investment unless 

we have a really good reason not to. 

The China-specific reason is that because of the rise of China, because of the rise of their investment around the world as seen in 

the last 12–13 years, it is a big job for CFIUS just to do national 

security. We have heard people who disagree on other issues all 

agree on that. I think we absolutely have to get the national security mission right before we think about anything else. 

Mr. HECK. So second and last, I was fascinated by your comment 

in your opening remarks about understanding, however, that national security may be more broadly defined than we have traditionally. It is not just software related to rocketry, for example, but 

it could include access to personal data that can then be 

weaponized in an effort against us. 

I assume that you are aware that section 15 of our proposed bill, 

which delineates factors to be considered, includes the following 

language in subsection 14, and I quote: ‘‘The extent to which the 

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35 

covered transaction is likely to expose, either directly or indirectly, 

personally identifiable information, genetic information, or other 

sensitive data of United States citizens to access by a foreign government or foreign person that may exploit that information in a 

manner that threatens national security,’’ end quote. 

So my question is what your reaction is to that. Is that adequate? Would you have any recommended changes to it? Or do you 

think this gets at the nubbins of what I thought you so appropriately raised at the top of this hearing? 

Mr. SCISSORS. I think it gets at it. I think there is a legitimate 

issue of when personal data actually threatens the national security. But I don’t think there is any question that as Chinese firms 

become more interested in U.S. firms which hold personal data, 

there is a potential national security risk there. 

This is one of the changes that has occurred and I think the bill 

responds appropriately to it, with the caveat that this is going to 

be hard. Not everything involving personal data is a threat to national security, but it should be one of the considerations for 

CFIUS. 

Mr. HECK. You are satisfied with this information? Remember, I 

am a cosponsor of this bill before you respond. 

Mr. KASSINGER. And the first thing I would say is your definition 

captures exactly current CFIUS practice. So I think it would codify 

it and that is a good thing. 

Second, I want to echo Derek’s comments about personal data 

being a very difficult issue. I thought his original comment was, 

any consumer-facing company would have to be off limits because 

they all collect personal data. That would include the Washington 

Redskins. Think how much personal data is collected by a sports 

team with its ticket buyers. 

So it is a very difficult issue. I don’t think there are any bright 

line tests that can be made. But ensuring that CFIUS takes into 

account appropriately how to deal with personal data issues is an 

important task of the committee. 

Mr. HECK. Thank you, sir. 

And with that, not only I do yield back, I want to reiterate my 

gratitude to the Chair for holding this second hearing on a very important topic. 

Chairman BARR. I thank the gentleman. 

And for the final word today I will return to the gentleman from 

North Carolina, Mr. Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Again, thanks to each of you all sincerely. 

I would like to clarify for those who may be watching this hearing that this is a bill, H.R. 4311, that is directly laser focused on 

national security application. And it is not by design or intent or 

purpose to have a broader construct than that. As well as this effort will be led by Treasury, with some 16 agencies having involvement. 

So I think the purview of Treasury, in the total engagement by 

the broad spectrum of our government, is very critical going forward as we consider the direct interest by our adversaries in acquiring our technology companies, we have the right people who 

are positioned to review future interest. 

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36 

So, again, thank you so much for being with us. I know that we 

have much more to discuss. I think as we all look ahead, we know 

that this is a critical area of concern for our national security. 

Thank you very much. I yield back. 

Chairman BARR. The gentleman yields back. Thank you. 

And I would like to thank our witnesses for their testimony 

today. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

This hearing is now adjourned. 

[Whereupon, at 12:05 p.m., the subcommittee was adjourned.] 

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(37) 

A P P E N D I X 

January 9, 2018 

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THE 

~~ ~Q.Miil~:IEISSIQN 

flU: DOMMJ):Sftlti: ON 1HE ltU:H lH 

:H.\HttAtt l!iHUHTt!h ?fHJJHF(l'Y 

Testimony before the House Committee on 

Financial Services 

Subcommittee on Monetary Policy and Trade 

United States House of Representatives 

Hearing: 

"Evaluating CFIUS: Challenges Posed by a Changing Global Economy" 

Testimony by: 

Dennis C. Blair 

Co-chair 

The Commission on the Theft of American Intellectual Property 

January 9, 2018 

2128 Rayburn House Office Building 
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CONGRESSIONAL TESTIMONY BLAIR- JANUARY 2018 

L Introduction 

Chairman Barr, Ranking Member Moore, and members of the Committee, thank you for the 

opportunity to testify on this important matter, 

My recommendations in the testimony are based on my work as co-chair of the Commission on 

the Theft of American Intellectual Property (IP Commission), and on my observations of the 

behavior of this country's economic and security competitors since the end of the Cold War. 

While this hearing is primarily concerned with how the Committee on Foreign Investment in the 

United States (CFIUS) process might usefully be reformed, I encourage members and committee 

staff to review the findings of both the original IP Commission report and the 20 I 7 update for 

additional details on the scale and scope of the IP theft problem. We have brought copies of 

those reports today. 

II. CFIUS Reform 

The bill to reform CFIUS currently under consideration by this committee is welcome. In the ten 

years since CFIUS was last updated, there have been many developments. We have learned a 

great deal about how other countries and their companies are able to take advantage of the 

American economy while working actively against American interests in other areas. 

The Foreign Investment Risk Review Modernization Act (FIRRMA) is a welcome and necessary 

update to the current CFIUS statute. It recognizes that majority ownership of a U.S. company is 

not the only way that foreign countries g<Jin access to cutting edge U.S. technology with potential 

military applications. It widens the categories of "covered transactions" to include deals short of 

full ownership that would enable the loss of militarily relevant technology of a U.S. company. 

One of its most important features is the updating and expanding of the specific factors that 

CFIUS may consider when analyzing a transaction's national security implications. For example, 

it adds the following as a specific factor: "Whether the transaction involves a country of special 

concern that has a demonstrated or declared the strategic goal of acquiring a type of critical 

technology that a U.S. business that is a party to the transaction possesses." 

Chinese investors are now involved in up to I 0% of all American venture deals, and especially in 

startups in areas such as AI, autonomous vehicles, augmented/virtual reality, robotics, and 

blockchain technology, all important to American military effectiveness in the future. The 

CFIUS process needs to cover these transactions and these areas to ensure that we preserve the 

American edge. 

Beyond the important considerations of preserving our advantage in military technology, I 

recommend that the CFIUS process be expanded to punish foreign companies for actions that 

have already damaged our economic and national security. By punishing past damaging 

behavior, we can prevent future harm by those companies and deter damaging behavior by other 

companies. I would add to the CFIUS process the following principle: If a foreign company has 

stolen American intellectual property, or has taken actions against American security policies or 

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CONGRESSIONAL TESTIMONY BLAIR-JANUARY 2018 

interests, it should not be allowed to invest in this country- it should not be allowed to purchase 

ownership of American companies. 

This principle would widen the current military security focus of the CFIUS process. Over the 

decades CFIUS has addressed many different risks of foreign investment in this country, from 

petrodollar investment from countries in the Middle East to Japanese investment in American 

companies and real estate in the 1980s. These investments did not pose immediate military risks 

to the United States, but they had the potential to pose economic risks. In the long term, our 

national security depends on our economic vibrancy and growth. CFIUS should be the means by 

which the United States controls foreign investment that causes risks to the country, whether 

they are financial, commercial or military. 

III. Foreign Investment Risks 

Foreign companies, predominately Chinese companies, with the encouragement of official 

Chinese policy and often the active participation of government personnel, have been pillaging 

the intellectual property of American companies. This is a significantly new environment from 

the one that existed when CFIUS was last reformed ten years ago. In an updated report last year 

by the IP Commission, which Ambassador Jon Huntsman and l originally co-chaired, and which 

I now co-chair with Craig Barrett, we found that all together, IP theft costs the United States up 

to $600 billion a year, which is more than the total U.S. trade deficit with Asia. China accounts 

for most of that loss. 

Deficiencies in China's IP rights regime have gone uncorrected, with cyber theft and forced data 

transfers being particularly harmful. China singles out high-tech sectors in its five-year plans, 

increasing pressure on Chinese firms to procure the technologies necessary to reach or surpass 

global competitors, in some cases using Chinese government-controlled entities to illegally 

acquire the intellectual property. Affected sectors include electronics, telecommunications, 

robotics, data services, pharmaceuticals, mobile phone services, satellite communications and 

imagery, and business application software. 

The United States urgently needs a comprehensive program to deal with this hemorrhage of its 

competitive advantage, and our Commission report lists the many elements of such a program. 

However, at a minimum, Chinese and other foreign companies that have stolen American 

intellectual property should not be allowed to invest in this country. We need to face these 

companies with a choice- either follow American intellectual property rights law or do no 

business in the United States. The CFIUS process should be a part of imposing this choice. 

Chinese companies like Sinovel, one of the world's largest producers of wind turbines, should be 

stopped from investing in U.S. companies, based on Sionovel's theft of intellectual property 

from American Superconductor (AMSC). Chinese companies that manufacture solar panels like 

Trina Solar and JA Solar, two of the top builders and installers of solar panels in the world, with 

subsidiaries in the United States, and both of which have used IP stolen from the American 

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CONGRESSIONAL TESTIMONY BLAJR-JANUARY 2018 

company SolarWorld, should not be allowed to invest in this country. Companies like the huge 

Jiangsu Shinri Machinery Company, which stole intellectual property from its joint venture 

partner Fellowes, should not be allowed to invest in the United States. 

There are many ways beyond IP theft that foreign companies, sometimes acting on their own, 

sometimes compelled or induced by their own governments, have harmed American security 

interests. They have undercut American sanctions against authoritarian regimes that oppress their 

own people, supported terrorist groups or contributed to the development of nuclear weapons. 

Most of these foreign companies do not invest in the United States where they would be subject 

to CFIUS review, and there are other ways under American law of dealing with them, especially 

denial of their access to the American banking system. However, it is not clear to me, for 

example, whether we have kept a list of the Dutch, German and French companies that supplied 

the AQ Kahn-led Pakistani nuclear development program, and whether we use that information 

in the CFIUS process. I would guess not. We should develop a list of companies like this, their 

current structures, related parent and partner companies, and ensure they are not able to invest 

here. 

Major international companies that have harmed American security interests have been able to 

purchase American companies. For example, the primary Chinese company that built up seven 

features in the South China Sea into potential military bases is a subsidiary of the China 

Communications Construction Company, known by its initials CCCC. In August 20 I 0, another 

subsidiary ofCCCC purchased an American company that is the world's leading designer of 

offshore drilling rigs, the Houston-based company Friede Goldman United, or F&G. We should 

face ecce, one of the top international construction companies in the world, with a choice: 

either cooperate with the Chinese government against American interests or invest in the United 

States. You can't have it both ways. 

To give another Chinese example. It was China Oilfield Services Limited (COSL), a subsidiary 

of the Chinese energy giant China National Offshore Oil Corporation, or CNOOC, that deployed 

drilling rig HD 981 into disputed waters in the South China Sea in May 2014 and provoked a 

confrontation with Vietnam. CNOOC is no stranger to the CFIUS process, having been denied 

permission to purchase UNOCAL in 2005. CNOOC should not be allowed to purchase American 

companies or raise funds in the United States so long as it serves as a partner with the Chinese 

government in aggressive actions against American interests. 

N. CFIUS Capacity 

Those in the U.S. government who work every day on CFIUS reviews in my observation are 

knowledgeable, dedicated, and effective. However even under the current statute, they are 

straining to meet the tight deadlines of a CFIUS application review with in-depth research. If the 

Congress expands the CFIUS standard in the direction I recommend, it will take more 

government officials to do the work. It will take additional staff with different skills. Lawyers 

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CONGRESSIONAL TESTIMONY BLAIR-JANUARY 2018 

and part-time military analysts currently do most of the work within the government to staff 

CFIUS decisions. We need to add officials with business backgrounds, especially in finance and 

M&A. We need to take advantage of private, independent business analysts who follow specific 

industries in microscopic details. We need to exchange information with organizations in Europe 

and Japan that have unique insights into their foreign competitors. We need to build up fresh 

databases tracking the activities of foreign companies so that we can quickly identify those that 

have engaged in harmful activity in the past. Those databases need to include the very 

complicated ownership structures of foreign companies, in many cases specifically designed to 

hide subsidiaries that are harming American interests. If we are serious about this national 

security threat, we would establish an organization like the National Counterterrorism Center, or 

NCTC, with a combination of full-time staff and personnel detailed from other government 

departments and agencies a true center of expertise on the activities and structure of foreign 

companies taking actions and posing risks hostile to American interests. 

V. Summary of Recommendations 

Let me summarize the three major areas in which I believe the CFIUS legislation can be 

strengthened: 

!. Approve the provisions of FIRRMA to update the CFJUS statute to deal with the new 

threats to our military technology from foreign investments. 

2. Broaden the criteria for review to include whether acquiring companies have damaged or 

threatened U.S. national security or the national security of U.S. treaty allies through the 

illegal acquisition of American intellectual property, or other activities against American 

security polices and interests. 

3. Review acquisitions that have been previously approved when new evidence comes to 

light of damaging actions by the foreign companies. 

4. Increase staffing to support CFJUS decisions, and expand the exchange of information 

with the private sector and with our allies. 

VI. Conclusion 

The scale and scope of the theft of American intellectual property and of other actions by foreign 

companies against our interests demand robust policy responses that fundamentally change the 

cost-benefit calculus of foreign companies. Reforming the CFIUS process to include an IP 

protections evaluation-both before and after acquisition of American firms-and then staffing 

the CFIUS interagency team with sufficient resources to conduct this more thorough review are 

important next steps. I look forward to your questions. 

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Written Testimony of 

Rod Hunter 

Former Special Assistant to the President and 

Senior Director, National Security Council 

Before the Subcommittee on Monetary Policy and Trade 

of the 

Committee on Financial Services 

United States House of Representatives 

Evaluating CFIUS: Challenges Posed by a Changing Global Economy 

January9, 2018 

Mr. Chairman, Ranking Member Moore, members of the Subcommittee, 

Thank you for the invitation to discuss this topic. It is a pleasure to appear with my distinguished 

fellow panel members. 

Based on my experience in a prior administration and as a practicing attorney, I would like to 

offer some observations on the Committee on Foreign Investment in the United States (CFIUS), 

the President's authority, and the evolving context. 

My government experience with CFIUS derives from my time on the staff of the National 

Security Council (NSC). While the Treasury Secretary chairs the interagency CFIUS, the 

ultimate authority under the legislation is the President's power to block or unwind a transaction. 

Accordingly, sensitive or difficult CFIUS reviews, at least in the administration of President 

George W. Bush, were managed through the NSC, especially when there was a diversity of 

views within the committee. 

Foreign investment 

An open investment regime is an important source of strength for the U.S. economy. Our stock 

of inbound foreign direct investment (FDI) is 35% of nominal GDP, or $6.56 trillion, and 

economic analysis has shown that FDI benefits the economy by contributing to output, jobs, 

exports, and research and development in the United States. According to a 2013 report on FDI 

prepared by the Council of Economic Advisers and the Commerce Department, majority-owned 

U.S. affiliates of foreign companies contributed 4. 7 percent of total private output, 4.1 percent of 

private-sector employment, 20.5 percent of goods exports, 9.6 percent of private investment, and 

15.9 percent of private research and development spending in the United States. The report also 

found that U.S. affiliate firms tend to hire highly skilled workers and to compensate them at 

levels significantly higher than the U.S. average over time. In 2011, compensation at such firms 

averaged more than $77,000 per U.S. employee as compared to average earnings of$58,000 per 

worker in the economy as a whole. 
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Chinese investment has raised concerns in the United States and across advanced markets as 

investors from China have sought to buy assets in sensitive and politically salient sectors ranging 

from semiconductors, to robotics, to food and agriculture. In many respects these investment 

flows reflect a normal balancing given the size of that country's economy. In 2016, some $94 

billion in Chinese outbound investment went to the advanced markets ofNorth America and 

Europe. 

While the numbers are impressive, the Chinese outbound investment flows as a share of China's 

Gross Domestic Product (GDP) are in conventional ranges. Looking at 2015 OECD data, 

Chinese outbound investment flows represented 1.6 percent of Chinese GDP, while the United 

States' outbound investment represented 1.6 percent. The European Union (3.6 percent ofGDP) 

and Japan (2.9 percent) had higher outbound investment flow percentages. Moreover, China's 

outbound FDI stock is relatively low at 12 percent. The US outbound stock is 34 percent of 

GDP, a figure more consistent with international averages. 

There are many legitimate motivations for Chinese outbound investment, including 

diversification of assets and markets, proximity to consumers, the creation of production 

platforms behind tariff and other trade barriers, and the acquisition of the talent and technology 

necessary for enterprises to move up the value chain. Still, the role of the Chinese Communist 

Party and state in the Chinese economy invites concerns about the implications of Chinese 

investments, particularly in a time of growing strategic competition. 

Chinese investment flows have prompted legislators and regulators across advanced markets to 

evaluate their arrangements. Germany recently expanded its investment screening regime. The 

U.K. is conducting a consultation process on creating its own CFIUS. The European 

Commission (even though it lacks a security competence) has proposed its own process. Given 

the significance of investment from China and other markets with strong state intervention, it is 

appropriate to assess the functioning of the U.S. foreign investment screening system, which is 

typically referred to by the acronym of the inter-agency committee assisting the President, 

CFIUS. 

U.S. legal framework 

The Exon-Florio Amendment of 1988 to the Defense Production Act of 1950 and the Foreign 

Investment and National Security Act of 2007 (FINS A) were designed to manage national 

security risks arising from foreign control ofU.S. businesses. The legislation created a targeted 

instrument that works in tandem with other tools, such as our export controls regime that was 

designed to manage risks associated with the transfer of sensitive technologies. 

The investment regime managed by CFIUS was designed to be minimally disruptive of the 

economy, while providing the President broad authority to address national security threats. This 

combination of policy goals was achieved through three features: 

2 

National security focus- CFIUS's mandate is limited to "national security," but the 

President and derivatively CFIUS were granted broad discretion in determining what 

constitutes a threat to national security. 
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Voluntary filings- Filings with CFIUS are normally voluntary, but private parties are 

motivated to file in order to secure legal certainty as the President may unwind any 

transaction that has not been previously approved by CFIUS. 

Tight timelines - The legislation sets tight timelines (30 days for "reviews," and an 

additional45 days where "investigations" are necessary), but CFIUS always has the ability to 

recommend that the President block a transaction if the Committee believes there are 

"unresolved" national security concerns. 

In my experience, CFIUS staff are thorough and highly professionaL When conducting their 

analyses, CFIUS members normally examine (I) whether the U.S. business receiving the 

investment presents a national security vulnerability, and (2) whether the foreign person making 

the investment represents a potential threat. The intelligence community plays a crucial role in 

framing the analysis for the CFIUS policy agencies. 

National security concerns are never given short shrift or traded off against other equities. True, 

there are sometimes disagreements or diverging assessments. However, CFIUS operates by 

consensus, with any agency able to force an escalation ultimately up to the President. 

Deliberation on individual cases can be extensive and time-consuming, and sensitive cases can 

reach the President's desk for guidance. 

Key questions 

As the Subcommittee considers the changing investment context and the operation of CFIUS, 

there are several key questions that the Subcommittee may want to consider. 

Jurisdiction: Does CFIUS have the authority to reach all relevant foreign investments? 

CFTUS has jurisdiction over any foreign investment that could result in a foreign person's 

"control" of a "U.S. business." CFIUS looks through corporate structures to ultimate ownership 

and control relationships. Moreover, "control" is a low bar: the mere potential to influence 

business, management or personnel matters is enough "control" for CFIUS to assert jurisdiction. 

Thus, any transaction that could result in foreign "control" of a U.S. business- a joint venture, 

bankruptcy, etc. - is subject to CFIUS jurisdiction. 

A gap exists where a foreign investor seeks to acquire a sensitive asset that is not a "U.S. 

business" for example, fallow land next to a military base. It may make sense to revise the 

scope to clarifY CFIUS' s jurisdiction over investments in U.S. real assets even if there is no 

current associated commercial activity. 

Knowledge: Does CFIUS have the ability to identify all relevant foreign investments? 

While CFIUS's reviews are normally voluntary, the Committee can require a filing on its own 

initiative. CFIUS monitors the business press and other sources, and is aware of publicly 

announced transactions. Government procurement rules typically require contractors to inform 

contracting officers of changes in control, so CFIUS agencies should be aware of relevant 

foreign investments in government contractors. 

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There are other transactions, often involving smaller enterprises and start-ups, that may go 

unobserved. Some have suggested "light notifications" or "declarations" for transactions 

involving certain technologies. In principle, that could make sense. The risk would be, given the 

risk aversion of government committees, that the declaration process would become in time an 

increasingly burdensome prior approval process. One would want to design any such information 

mechanism to make it as non-burdensome as possible, while providing CFIUS the ability to 

identity investments of interest. 

Timelines and resources: Is CFIUS following its statutory timelines? Is CFIUS 

adequately resourced? 

The volume of cases is up from 138 in 2007 when FINSA was passed to nearly 250 in 2017. 

CFIUS's analysis has grown more searching. CFIUS officials say that cases have become more 

complex, in part because of an increasing focus on emerging technologies. 

A visible consequence has been an impact on timelines. First, an increasing number of cases go 

into the second (investigation) phase four percent of cases went to investigation in 2007, 

while 46 percent of cases went to investigation in 2016. Second, a series of current cases have 

been withdrawn and refiled multiple times, a process that affords CFIUS more time to deliberate. 

Third, we have witnessed an extension of the pre-filing phase for notices. Previously, it took a 

couple of days for CFIUS to assess whether filings were adequate to commence reviews. Now, 

the pre-vetting typically takes a couple of weeks, and we have seen one simple case take several 

months. The statutory schedule has become more of a guideline than an obligation, creating 

uncertainty for private parties of all nationalities. Based on professional experience in 

transactions, the delays and uncertainty are beginning to impact decisions of investors, with the 

risk of the United States being viewed as an unpredictable place to seek to invest. 

From legislative and appropriations perspectives, it may be opportune to enquire into the causes 

for protracted review processes. While the transition may have had a transient impact, it seems 

clear that a lack of resources is a significant component of the protraction. It is my understanding 

that resources have been largely constant during a period in which the case load has doubled. As 

able and energetic as the case handlers are, it should not be surprising to see an impact on 

performance. So, even if it is appropriate to review the statutory timelines, CFIUS has an acute 

need for additional resources. 

Mitigation agreements: Does CFIUS systematically and effectively monitor and enforce 

mitigation agreements? 

CFIUS uses mitigation agreements negotiated with the parties as a condition of approval as a 

tool for resolving national security concerns. While some agreements are simple, others are 

complex instruments requiring significant management resources for the parties and the 

government. As the years pass, monitoring obligations for the government cumulate. From the 

legislative and appropriations perspectives, one may want to assess systemically the performance 

of mitigation agreements over time. What has been the compliance record? What have been the 

costs for the government and the private sector? Should some mitigation agreements be revised, 

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tightened, or phased out? Is the administration organized and resourced appropriately to fulfill 

the ongoing obligations entailed in mitigation agreements? 

Technology control: Should CFIUS's mandate be expanded to reach technology 

transfers, even those abroad? 

The control of emerging technologies has rightly been identified as an urgent policy issue. Some 

have suggested that CFIUS 's jurisdiction should be expanded to encompass teclmology control, 

and should include reviewing transfers by U.S. firms of intellectual property to foreign persons. 

This could mean CFIUS reviews for multitudinous licensing, joint development, hiring, and even 

sales transactions with foreigners. The suggestion is that U.S. export controls do not adequately 

regulate transfers of emerging teclmologies. While export controls merit review, CFIUS is the 

wrong vehicle for a new technology control regime. 

The United States has maintained for decades export controls designed specifically for regulating 

the transfer of technology. That regime is capable of regulating any transfer of designated 

teclmology, even if a transfer occurs abroad. The U.S. government has imposed targeted controls 

addressing specific national security threats. An example is the "China catch-all" rule that 

imposed licensing requirements on exports of specified items not normally requiring licenses for 

China when such items are destined for military end-use in China. 

As flexible and well-conceived as the export control regime is, there is a need for Congressional 

attention. First, the export control regulations are presently grounded on the International 

Emergency Economic Powers Act, the export control legislation having expired. Second, there is 

a legitimate question of whether the Administration runs an effective policy process for 

identifying emerging teclmologies meriting control under export control laws. 

In any event, CFIUS would be an ineffective substitute teclmology control vehicle. CFIUS, being 

a committee, has limited bandwidth- it has difficulty managing its 250 or so cases per year, 

and expansion of its jurisdiction to teclmology transfer control could balloon its docket to 

thousands. Imposing such a regime on U.S. teclmology businesses would be burdensome and 

could undermine U.S. innovation. Uncertainty around CFIUS determinations could encourage 

investment in research and development to move offshore, beyond the scope of the bureaucratic 

review process. This in turn could undermine the U.S. innovation and technological development 

so essential for our defense industrial base and economy more broadly. 

Cooperation with other countries 

The recent flow of Chinese investment -$46 billion into Europe and $48 billion into North 

America in 2016 has spurred concerns across advanced markets. The United States is not the 

only advanced market generating cutting edge teclmologies. While the United States need not 

wait for others to reform its own regulatory regime, unilateral U.S. action is less likely to be 

effective over time. From a policy perspective, the United States should seek to coordinate with 

other countries in the design of their regulatory frameworks, working bilaterally with individual 

countries and collectively through, say, the G7 and/or the OECD. With respect to individual 

cases, the Administration should be able to share information and coordinate with other 

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governments, much as it already does in antitrust cases. Congress may want to assess whether 

the confidentially rules need to be modified to facilitate that case-specific coordination, while 

otherwise preserving the commercial confidentiality. 

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Written Testimony of 

Theodore W. Kassinger 

Before the Subcommittee on Monetary Policy and Trade of the 

Committee on Financial Services 

United States House of Representatives 

Evaluating CF/US: Challenges Posed by a Changing Global Economy 

January 9, 2018 

Mr. Chairman, Ranking Member Moore, Members of the Subcommittee: 

Thank you for your invitation to appear before you today. It is an honor to join my fellow 

panel members in contributing to your work assessing the operations and activities of 

the Committee on Foreign Investment in the United States ("CFIUS"). 

The perspectives I offer on this subject stem from my nearly 40 years of law practice in 

the field of international investment and trade, including extensive experience with 

CFIUS matters. Although I have spent much of my career in private practice, I have 

been fortunate also to work in both the executive and legislative branches of 

government. Most recently, I served as General Counsel and Deputy Secretary of the 

U.S. Department of Commerce from 2001 - 2005. I wish to emphasize that I appear 

today solely in my personal capacity, and the views I express are my own. 

Thirty years after Congress enacted Section 721 of the Defense Production Act- and a 

decade since Congress substantially amended Section 721 to provide the current 

statutory underpinnings of CFIUS- it is indeed timely for this Subcommittee to take 

stock of how the purposes and process that Congress envisioned are withstanding the 

tests brought by dramatically changing economic and geopolitical circumstances. 

Section 721 established the legal foundation for what is a critically important, but nonlegal task of the government: To determine, on a case-by-case basis, whether specific 

foreign direct investment transactions present a threat to U.S. national security; and if 

so, what are the appropriate means, if any, to resolve the issues giving rise to the 

threat. 

In my view, Section 721 has and continues to provide the fundamentally correct 

approach to balancing national security and economic interests of the United States, 

and the process administered by CFIUS works reasonably well. There are clear signs 

of stress in that process, however, and serious questions to examine regarding whether 

CFIUS is optimally empowered and resourced to address current challenges. 
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Adherence to Basic Principles 

When assessing the current effectiveness of CFIUS and any proposed changes to 

Section 721, it is essential to maintain as guideposts certain basic principles that 

shaped the law and current CFIUS regulations. 

First, foreign investments should be welcomed and subject to regulation only to protect 

vital national interests. Since the founding of our nation, foreign investment has been 

an important source of capital that supports U.S. innovation, economic growth, 

employment, and global competitiveness.1 The early adoption of a policy of welcoming 

foreign investment contributed substantially to the country's economic development 

Federal regulatory controls on in-bound investment have been remarkably limited. For 

200 years, until the enactment of Section 721, there was no general authority for the 

federal government to block inbound investment transactions. Section 721 appropriately 

addresses a paramount national interest. That authority should adapt to the times, but 

with the same cautious consideration that this Subcommittee and others gave to the 

subject previously. 

Second, in the competition for global capital, the United States is well served by 

regulatory processes that are transparent, predictable, and efficient. Foreign investors 

and U.S. business partners understand that the United States must be able to step in 

where a business transaction presents a threat to national security. Nevertheless, 

before committing to transactions involving perhaps billions of dollars, they want to 

manage the business risks appropriately, including by structuring transactions to 

address potential national security issues ahead of time if possible. 

In the CFIUS context, by "transparency" and "predictable" I do not mean either full 

disclosures of the Committee's bases for national security determinations or an 

analytical approach that is anything other than fact-specific. Rather, I believe it is 

important that the decision-making process itself be rules-based and that experiences 

drawn from national security assessments be more freely and specifically identified. 

These two fundamental guideposts lead to a third over-arching proposition: Any 

statutory or regulatory amendments to Section 721 should replicate the rigorous path 

set by the legislative and rule-making processes followed in 2007 and 2008. Those 

were models of deliberative consideration and produced an unusually well-crafted set of 

1 In his 1791 Report on the Subject of Manufactures, Alexander Hamilton made the point that the United 

States competed with other countries for investment capital, and that the young nation already was 

positioned to succeed ("'Tis certain, that various objects in this country hold out advantages, which are 

with difficulty to be equalled elsewhere .... ") Secretary Hamilton further noted that foreign capital-

"ought to be Considered as a most valuable auxiliary; conducing to put in Motion a greater 

Quantity of productive labour, and a greater portion of useful enterprise than could exist without it. 

It is at ieast evident, that in a Country situated like the United States, with an infinite fund of 

resources yet to be unfolded, every farthing of foreign capital, which is laid out in internal 

ameliorations, and in industrious establishments of a permanent nature, is a precious acquisition.· 

2 
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regulations. The rules (published at 31 CFR Part 800) carefully define concepts and 

terms, and provide numerous examples to indicate how the rules might apply to specific 

factual circumstances. The rule-making process took about one year following the 2007 

law. It was well worth it - not because the rules answer every question that arises, but 

because as a whole, they faithfully implemented the balance struck by Section 721 

while providing useful guidance to private enterprises and entrepreneurs who are the 

primary sources of investment capital. 

Current CFIUS Challenges 

The rise of China both as an increasingly assertive strategic adversary and global 

economic power lie at the heart of most discussion about CFIUS reform, and rightfully 

so. 

Our panel fortunately includes experts who will provide you with further insight into 

those concerns, which I share fully. I wish only to observe that the complexity of the 

U.S.-China economic relationship provides reason not to lose sight of the guidepost 

principles noted above when assessing the role of CFIUS. 

That relationship is broad, deep, increasingly fractious- and of bedrock importance to 

global, as well as bilateral, security and stability. According to U.S. Census Bureau 

data, U.S.-China trade in goods and services exceeded $648 billion in 2016, with China 

the third largest destination for U.S. exports of goods ($116 billion) and the largest 

source of goods imported into the United States ($463 billion- resulting in a U.S. goods 

trade deficit of $347 billion). U.S. exports of services to China reached about $54 billion 

in 2016, with sales of services in China by majority-owned affiliates of U.S. companies 

of roughly the same magnitude ($55 billion in 2014). The U.S. direct investment 

position in China reached $92.5 billion in 2016, while Chinese direct investment in the 

United States measured about $27.5 billion. 

Over the past 20 years, commerce among the two countries has become ever more 

interdependent, manifested in multi-faceted, cross-border design/manufacturing, supply 

chain, R&D, and a multitude of other relationships. 

China unfortunately has taken a sharp turn toward reframing the terms of its global 

economic engagement. "Made in China 2025" and numerous other industrial policies 

aim to recast China's economy both as self-sufficient and globally dominant across a 

broad spectrum of advanced technologies. The Chinese government backs these goals 

with massive funding, tight control over in-bound investments, demands for disclosures 

of intellectual property, barriers to entry into social media businesses, and strategic 

direction of state-owned enterprises. 

China's !echo-nationalism presents profound economic and national security 

challenges. It would be incorrect, however, to view every Chinese investment in the 

United States, and every U.S. company investment in China, as another advance of 

misguided Chinese policy. Investors and investments from China are widely varied; 

many Chinese investments have contributed to the U.S. economy and positive U.S.-

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China ties. It would likewise provide false comfort to cast CFIUS as a central player in 

the U.S. policy response. And, it is important to keep in mind that investment-related 

national security threats do not only arise from China. 

In their important report in January 2017 on the state of the U.S. semiconductor 

industry, the President's Council of Advisors on Science and Technology noted the role 

of export control and investment regulation as tools to address aspects of Chinese 

policy, while making the broader point that such tools are inherently limited and short 

term. Rather, 

"Our core finding is this: the United States will only succeed in mitigating the 

dangers posed by Chinese industrial policy if it innovates faster. Policy can, in 

principle, slow the diffusion of technology, but it cannot stop the spread. And, as 

U.S. innovators face technological headwinds, other countries' quest to catch up 

will only become easier. The only way to retain leadership is to outpace the 

com petition. "

2 

CFIUS Operational Issues 

Against this background- and especially the aspiration to achieve transparency, 

predictability, and efficiency I offer the following observations about certain aspects of 

current CFIUS operations and possible ways to improve the Committee's effectiveness. 

1. Scope of Jurisdiction - Questions have arisen whether CFIUS lacks needed 

jurisdiction to cover important forms of commercial activity beyond direct 

investments. 

There is no question that CFIUS possesses- and exercises- jurisdiction over 

acquisitions of control of U.S. businesses in the context of joint ventures, 

bankruptcy proceedings, real estate, and other forms of transactions, including 

asset transactions. The form of transaction is not relevant: What matters is the 

substance. In practice, CFIUS has increasingly lowered the bar to finding that a 

"U.S. business" exists for its jurisdictional purposes, to the point where there is 

no material limitation on its jurisdiction on this ground. 

Of more consequence is the question whether Congress should authorize CF!US 

to assert jurisdiction over transactions involving licenses of technology by U.S. 

companies to foreign joint ventures to which they are a party, or otherwise to 

foreign entities. Such transactions, of course, do not involve foreign investments 

in the United States. Empowering CFIUS to review outbound licensing 

transactions would thrust CFIUS, which by design is not an agile regulatory 

authority, into vast and cumbersome oversight of commercial activity that is 

critical to U.S. innovation and market success. An expansion of CFIUS 

2 Ensuring Long-Term U.S. Leadership in Semiconductors, Report to the President by the President's 

Council of Advisors on Science and Technology (PCAST), January 2017, p. 2. 

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jurisdiction in this way could incentivize U.S. companies to hold intellectual 

property offshore, a reaction exactly contrary to U.S. interests. 

Fortunately, U.S. export control regulations provide a sound existing framework 

for regulating transfers of technology. If additional oversight is warranted, then I 

recommend focusing on possible enhancements to those regulations. 

2. Resources- The CFIUS docket has increased substantially over the past two 

years. It is fair to say that substantively, the complexity of cases also has 

mushroomed, with the rapid increase of investment notifications involving 

advanced technology companies, investors from China, and new areas of 

potential security vulnerabilities to consider. In addition, the number of mitigation 

agreements grows every year. 

Real consequences of these developments include prolonged delays in initiating 

cases, a steady rise in the number of investigations, and frequent withdrawal and 

refilings of notices because CFIUS cannot complete the work within the statutory 

time frames. Indefatigable work by CFIUS staff has·succeeded in making delays 

shorter than they might otherwise be, but at great wear and tear that is not 

sustainable. 

Several actions could help. Congress could consider: 

a. Increasing the current 30-day initial review period to 45 days. 

b. Authorizing senior officials below the Deputy Secretary level to approve 

decisions in circumstances where the statute currently requires at least 

that level of approval. 

c. Authorizing and funding more resources. One possible source of 

additional funds would be filing fees. I note, however, that only four years 

ago, the CFIUS new case tally was less than 100. There is every reason 

to expect the case load to vary widely in coming years. It may be risky to 

base resource decisions on expected levels of fee support. 

d. Creating a short-form notice process for a defined set of transactions that 

are not likely to present serious national security concerns. 

Administratively, CFIUS could consider: 

a. Confining information requests to what is reasonably necessary to assess 

the national security risks of a transaction. CFIUS should not be used as 

a discovery tool to satisfy other government interests in information that 

the parties may possess. 

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b. Reestablishing meaningful standards for what constitutes "control" in small 

minority and limited partner investment transactions, and for a passive 

investment safe harbor. CFIUS practice has effectively nullified the 

carefully crafted 2008 rules addressing these subjects. 

c. Incorporating a "reasonableness" standard into risk assessments, 

consistent with industry risk management practices. In addition, CFIUS 

should seriously incorporate into its risk assessments the potential 

benefits to U.S. national security that could result from a mitigation 

agreement. 

d. Sunsetting mitigation agreements more systematically. 

Conclusion 

Thank you again for inviting me to appear today. I will be pleased to respond to any 

questions that you may have. 

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CSIS I CENTER FOR STRATEGIC & 

INTERNATIONAl STUDIES 

Statement Before the 

House Committee on Financial Services, 

Subcommittee on Monetary Policy and Trade 

A Testimony by: 

Scott Kennedy 

Deputy Director, Freeman Chair in China Studies 

Director, Project on Chinese Business and Political Economy 

Center for Strategic and International Studies (CSIS) 

January 9, 2018 

2128 Rayburn House Office Building 

WW\V.CS!S.ORG !616 RHODE ISLAND NW TEL. {:?02) U0-7.0200 

WASHlN010N, D<. }0016 FAX (2:0/) "17').31')') 
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Kennedy: Written Testimony, House Committee on Financial Services l/9/2018 

Introduction and Main Points 

Thank you for the invitation to appear before the committee. I have been asked to share my 

views about Chinese industrial policy, trends in technology flows, and the implications for 

American policy to limit diffusion of advanced technologies to China that could harm U.S. 

national security, including the role ofCFIUS. 

I. Summary 

I want to make four points today. 

2 

First, although highly wasteful and inefficient, Chinese industrial policy has been relatively 

effective at facilitating both the domestic development of technology in China as well as the 

acquisition of foreign technology from the United States and elsewhere. All signs point to China 

further strengthening its industrial policy apparatus and not engaging in substantial marketization 

and liberalization in the coming years. 

Second, although the US-China relationship has many problematic elements, economic ties on 

balance have and continue to benefit the American economy, including companies, workers, and 

consumers. At the same time, the US and China have conflicting security interests in the AsiaPacific, creating the difficult situation in which the economic and security components of the 

relationship are to some extent contradictory. I expect this tension will also persist well in to the 

future. 

Third, American technology reaches China through a wide variety of channels, including 

investment, trade, employment, and education. Constraining technology diffusion in one area 

does not stop its diffusion via other means. 

And fourth, American policies taking these three factors into account would require the US to: 1) 

Focus on technology that could harm American national security that China does not already 

have and would have difficulty developing domestically; 2) Take into account that technology 

diffusion occurs via multiple routes, and that some routes are easier to regulate than others; 3) To 

be successful, the United States needs to expand coordination of its technology control policies 

with those of its allies; and 4) Adopt policies that are highly targeted so that they do not hurt the 

vibrancy of the American economy. 

My written and oral testimony seek to elaborate on these four points. 

I. The State of Chinese Industrial Policy 

2018 marks the 40th anniversary of China's launching of the Era of Reform and Opening Up. 

Compared to the autarkic state socialist system in which the country found itself at the end of the 

Cultural Revolution, four decades later China's economy is far more marketized and open. 

Private firms account for the large majority of the country's employment, profitability, and 

economic growth. The vast majority of prices for final goods and services are set by the market, 

and the financial system is large and diverse. China's average tariffs have fallen from 14.1% in 
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Kennedy: Written Testimony, House Committee on Financial Services 119/2018 

2001 to 4.2% in 2016, the country is the largest recipient offoreign direct investment (with over 

520,000 foreign-invested firms in China), and China is the fastest growing source of outward 

direct and portfolio investment. 

3 

That said, the Chinese state is far from a neutral referee of a competitive marketplace. Rather, its 

consistent goal has been to nsc state authority to not only further the overall growth of the 

economy but to promote specific companies, sectors, and regions. Although China's leadership 

in the late 1990s and early 2000s made a genuine effort to markctize the economy and sought 

WTO entry to pursue that goal, their successors have not maintained the same commitment. 

Under the leadership of Hu Jintao and Wen Jiabao (2002-20 12), China reinvigorated the 

industrial policy apparatus and ramped up state-directed investment in priority sectors and 

projects. Under their watch China set forth the goal of "indigenous innovation," which still holds 

today, of making industrial policy's chief aim the development and acquisition of more advanced 

technology by domestic actors in order to raise productivity and make China more competitive 

internationally. 

Figure 1: Selected Domestic Market Share Targets of Made in China 2025 

Agricultural Machinery 

Basic-Material Products 

High-Tech Maritime Vessels 

Electric Vehicles 

Electric-Vehic1e Batteries and Engines 

Core Components of Medical Devices 

Mobile Devices 

High-Performance Computers 

Industrial Robotics 

Advanced Medical Devices 

Mobile Tenninal Chips 

•2020 1!12025 

Wide-Body Aircraft ~ 

0%! 10% 20% 30% 40% 50% 60%) 70 ~ .. ;) 80% 90%1 l 00% 

Source: China Ministry of Industry and Information Technology. 

Note: The government set targets for 2020 and 2025 for most technologies, but not all. Hence, some denote 

only a single target. 

Since Xi Jinping assumed power in late 2012, several trends have emerged. First, China has only 

intensified its industrial policy efforts. China's goals arc far more ambitious than in the past, as it 

aims to have Chinese firn1s become dominant in just about every area of advanced technology 

imaginable. The 13th Five-Y car Plan calls for a rapid growth in R&D spending, the number of 

patents, and the contribution of science & technology to the economy, and identifies over 200 

technologies deserving support. Made in China 2025, a strategy document issued in 2015 and a 

high-priority component of the 13th Five-Year Plan, sets forth high targets for the local firms' 
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Kennedy: Written Testimony, House Committee on Financial Services 1/9/2018 

market share in China of technologies and supply chains by 2025, such as 80% for electric 

vehicles, 70% for industrial robotics, and 70% for advanced medical devices (see Figure 1).1 

4 

Second, the scale of Chinese initiatives and investment has grown enormously, with spending on 

research and development (R&D) in 2016 reaching over $232 billion. Direct government 

funding is growing, but more important is how the state increasingly utilizes policy levers to 

induce banks, other financial institutions, companies and research institutes to target their own 

spending in priority sectors established by policymakers.2 

Third, industrial policy is far more strategically coordinated than ever before. Local 

experimentation has declined in favor of centralization. The top leadership is more than ever 

utilizing "leading small groups" overseen by the Party and State Council (China's cabinet) 

leadership to reduce inter-bureaucratic conflicts and raise the likelihood that investments address 

the country's technology gaps. Relatedly, under Xi there is greater emphasis on coordinating the 

development of dual-use technologies, so that products and services created in a commercial 

environment are available for adoption by China's military, domestic security, and intelligence 

organizations.3 During the implementation process, the various tools of industrial policy are 

increasingly coordinated with each other. Priority sectors and companies are supported through 

fiscal stimulus, tax reductions and holidays, access to low-cost or free land, low-interest credit, 

easier access to securities markets, patent approvals, discriminatory technical standards, antitrust 

policy directed against disfavored competitors, privileged government procurement, limits on 

market access, and other preferential policies. 

And fourth, China has expanded efforts to have globalization serve the country's industrial 

policy goals. In addition to sending millions of students abroad over the last few decades to 

obtain advanced degrees in engineering and science, Chinese financial institutions and 

companies have ramped up outward investment and acquisition of overseas companies. 

According to the Rhodium Group, Chinese investment in the United States was at least $46 

billion in 2016 and $26.4 billion in the first three quarters of 2017. The leading sectors of 

Chinese US investment in Q3 were in health and biotech, financial and business services, basic 

materials, and other high-tech. Looking globally in 2017, the overall level of outward investment 

declined somewhat as a result of China's fears about capital flight and corruption, but among 

deals being made recently, a higher proportion involve Chinese state-owned companies and 

1 Jost Wubbeke et al., Made in China 2025: The Making of a High-Tech Superpower and 

Consequences for Industrial Countries (Berlin: Mercator Institute for China Studies, December 

2016); China Manufacturing 2025.' Putting Industrial Policy Ahead of Market Forces (Beijing: 

European Union Chamber of Commerce in China, March 20 17); and Made in China 2025: 

Global Ambitions Built on Local Protections (Washington, DC: U.S. Chamber of Commerce, 

September 2016). 2 Scott Kennedy, The Fat Tech Dragon: Benchmarking China's Innovation Drive (Washington, 

DC: Center for Strategic and International Studies, August 2017): 19. 3 Xi Jinping personally heads the Central Commission on Civilian-Military Integration 

Development. Christopher K. Johnson, Scott Kennedy and Mingda Qiu, "Xi's Signature 

Governance Innovation: The Rise of Leading Small Groups," CSIS Commentary, October 17, 

2017, https://www.csis.org/analysis/xis-signature-govemance-inuovation-rise-leading-smallgroups. 
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Kennedy: Written Testimony, House Committee on Financial Services 1/9/2018 

financial institutions and are in materials and high-tech sectors (telecom, media, computing).4 

Finally, as part of this effort, Chinese companies have opened up R&D centers in Silicon Valley 

and other high-tech hubs, and are hiring talent from other companies and straight out of 

universities to help them strengthen their own innovation capacity. 

5 

Looking ahead, there is every indication that China plans to continue along the current path in 

which industrial policy is intensively used to serve economic and strategic goals. And that is 

because despite all the waste that is created through extensive government intervention, the 

broader record, at least from the leadership's point of view, is "good-enough" success. The 

economy has grown faster longer than any other economy in history, and Chinese companies are 

gradually moving up the value-added chain and claiming more market share in China and 

abroad. And although there is concern about protectionism by the United States, Europe and their 

advanced industrialized neighbors, China believes it can continue to use its large market as 

leverage to obtain technology and knowhow from others for the foreseeable future. 

II. The Benefits and Challenges in the US-China Economic Relationship 

The economic relationship with China has created both benefits and problems for the American 

economy. Industrial policy certainly puts American companies at a disadvantage in China and in 

third markets. And given China's size, to the extent that Chinese successes are the product of 

subsidies and other distortions, this could challenge the health of not only individual competitors, 

but supply chains and business models that operate in a competitive environment where the 

participants face hard budget constraints. That said, to date, the American economy has on 

balance benefited from our relationship with China. Trade in goods and services is over $600 

billion per year and two-way investment has risen substantially, all of which not only creates 

profits for companies, but employment for millions of workers, and less expensive goods for 

consumers. The relationship would be more beneficial if China would reduce its discriminatory 

policies, but the best way to deal with this problem is to find ways to constrain Chinese industrial 

policy, not shutdown the economic relationship. 

The operating logic of American security policy is different, which is to safeguard the United 

States as much as possible. Fairness and balance are not typical principles of this effort. Whereas 

there may be technology transfers that are entirely reasonable when seen through a commercial 

lens, they may be entirely unreasonable when viewed in the context of national security. The 

United States faees a conundrum because the US-China economic relationship is so large and 

China is moving up the value-added chain so quickly in ways that may be reasonable, even if not 

welcome from a market competition perspective, but far more worrisome from a national 

security perspective. Chinese efforts in semiconductors, quantum computing, artificial 

4 See the Rhodium Group's "China Investment Monitor," http://rhg.com/interactive/chinainvestment-monitor; Daniel H. Rosen and Thilo Hanemann, "Trump Heads to China Is 

Chinese Investment Still Headed Here?" Rhodium Group, November 3, 2017, 

http://rhg.com/notcs/trump-heads-to-china-is-chinese-investment-still-headed-here; and Thilo 

Hanemann, Adam Lysenko and Cassie Gao, "Tectonic Shifts: Chinese Outbound M&A in IH 

2017," Rhodium Group, June 27, 2017, http://rhg.com/notes/tectonic-shifts-chincse-outboundma-in-lh-2017. 
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Kennedy: Written Testimony, House Committee on Financial Services 1/9/2018 

intelligence, advanced materials, biologics, energy storage, aeronautics and space, and other 

areas may be headaches for American companies, but they are much greater concern for those 

responsible for ensuring America's national security. 

III. Technology Diffusion to China 

6 

Another important element of China's technology engagement with the world is that it occurs via 

many different avenues. The various pathways include: 

l. Attracting foreign investment in China. 

2. Chinese investment abroad, both greenfield and M&As, including minority stakes. 

3. Imports. 

4. Hiring foreigners to work in Chinese companies and research institutes. 

5. Sending Chinese students abroad to study (which totaled 4.6 million between 1978 and 

2016).5 

6. Theft of foreign technology through cyber and other means. 

Two consequences emerge from this fact. First, Chinese companies that desire acquiring 

technology have many routes to success. If the investment route is blocked, they can look to 

imports, poaching employees, hiring students, or other means. Similarly, if a technology exists in 

multiple countries but not in China, they can also benefit from differences in regulatory 

environments and levels of vigilance between jurisdictions. 

And second, governmental authorities may benefit from deals and interactions that are entirely 

eornrnercial or private. Not all of the elements of international technology acquisition are all part 

of a single, unified industrial policy. Much trade and investment is entirely private and does not 

involve approval by China's industrial policy apparatus or national security bureaucracy. This is 

particularly true for R&D centers - in both directions - as well as overseas students. That said, it 

is certainly possible that originally entirely private activity could be identified and utilized by 

China's authorities to serve China's domestic and national security goals. 

5 This data is from China's Ministry of Education, 

https://mp.weixin.qg.com/s/5764saZiSyFlnH6um46Jtg. According to the US-based Institute of 

International Education, in 2016, there were 328,500 Chinese students studying in the United 

States, of which 140,300 were in science and engineering programs: 

https://www.iie.org/Rescarch-and-Insights/Open-Doors/Data/Intemational-Students/Places-ofOrigin, and 

https://www.iie.org/Research-and-Insights/Open-Doors/Data/International-Students/Fields-ofStudv!Fields-of-Study-by-Piace-of~Originl20 15-16. 
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Kennedy: Written Testimony, House Committee on Financial Services 1/9/2018 7 

IV. Implications for American Policy 

The above discussion about trends in Chinese industrial policy, the contradictions between 

promoting the US-China economic relationship and American national security, and the multiple 

paths by which China acquires technology are directly relevant to the current discussion in the 

United States about whether to reform its system to ensure that foreign investment does not harm 

American national security. It certainly makes sense for the U.S. Congress to consider reforming 

the operations of the Committee on Foreign Investment in the United States (CFIUS), but given 

the above discussion, I suggest that policymakers keep several points in mind that emerge from 

this analysis. 

First, the United States should focus on limiting transfer of technologies that could harm 

American national security that China does not already possess and is not likely to develop 

internally. CFIUS's current focus on military-related technologies and critical infrastructure 

seems to be working relatively well. It may make sense to expand the scope of CFIUS to include 

certain kinds of data, but this determination should be made based on guidance from American 

national security professionals. 

Second, to the extent CFIUS's mandate is expanded to other forms of investment, it may be most 

appropriate to consider having CFIUS review even investments where foreign parties obtain only 

a minority stake, particularly in cases of high-priority technologies. Obtaining majority stakes 

may not be necessary for Chinese and other foreign parties to obtain access to technologies 

which affect American national security. Some have suggested that this change would lead to a 

"slippery slope" that would induce misuse or retaliation by other countries against American 

investment and weaken the global economy. I am less concerned about this outcome as long the 

United States is careful and transparent about the need for this shift. On the other hand, I would 

not support expanding CFIUS's ambit to include outward American investment. Although 

certainly an avenue for important technology transfer, one that may increase in the years ahead, 

taking this step would likely be impractical. CFIUS currently reviews l 00-150 cases per year; 

moreover, these cases all occur within a common jurisdiction well known to American regulators 

(their own). Expanding its coverage to outward US investment could raise that number to several 

thousand per year, certainly far more than could be effectively managed by the committee even if 

its resources were significantly expanded. And trying to gain understanding about each deal 

across many different regulatory environments would be beyond daunting. 

Third, given that CFIUS needs should be reformed and not revolutionized, the United States 

should consider other policy and legislative options to address other potential weaknesses in 

oversight of American technology transfer to China and elsewhere. Particular focus should be 

placed on updating American export control rules, not only for physical technologies and 

intellectual property but for American employees who are then recruited by foreign industry. 

Fourth, American efforts to constrain inappropriate technology diffusion to strategic rivals 

requires it to expand coordination with its allies in Europe and Asia. Differences in American 

policy and re!,>ulation differs from its allies can and have been exploited by jurisdictions subject 
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Kennedy: Written Testimony, House Committee on Financial Services 1/9/2018 8 

to technology controls. Globalization of manufacturing and innovation is likely only to expand in 

the future, and so policy coordination must increase simultaneously. 

And fifth, although it is important to protect the United States from the unwise transfer of 

technologies to countries that pose a security challenge to America, the United States also gains 

tremendous strength from having an economy open to flows of goods, services, people, and 

ideas. This is not just a nice-sound goal, but central to maintaining America's hard and soft 

power. Hence, policymakers should be careful that any steps taken to adjust technology 

investment have a net positive effect on the American economy and its potential future for highproductivity growth. 
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Statement before the House Committee on Financial Services 

Subcommittee on Monetary Policy and Trade 

Hearing on "Evaluating CFIUS: Challenges Posed by a Global Economy" 

Chinese Investment Still Rising Globally; Tough Choices for the US 

Derek Scissors 

Resident Scholar, AEI 

January 9, 2018 

Translation: don't listen to my colleagues on this topic. Only me. 

The .:\rn-.:ncan I:nt~rprJs~ 1nstituk (:\[!) i" a 11onpartisan, nonprofit 501(c)(1) educational organiJ:ation and docs 

not 1akc ins1itutiPnal pt:lsitlon~ >)11 any The views cxprc'>sed in this testimony are those of the author. 
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China's investment around the world in 2017 was dominated by talk of restrictions applied by 

the central government and host governments such as the United States. The obvious 

implication, supported by misleading official statistics, was that China's global spending had 

plunged. This is wrong. On the best available evidence, Chinese investment overseas climbed 

modestly in 2017, after a path-breaking 2016. 

The China Global Investment Tracker (CGIT) from the American Enterprise Institute is the only 

fully public record of China's outbound investment and construction. i Rather than merely 

asserted totals, all 2700 transaction are listed. The CGIT shows investment rising almost 9 

percent in 2017. This was heavily dependent on the $43-billion acquisition of Swiss agro-tech 

giant Syngenta, without which investment would have dropped more than 16 percent. For 

perspective, the 2017 total without Syngenta would still be the second-highest on record. 

It's true that the top line is more bullish than what's below it. The number of transactions fell, as 

did investment volume in many countries and sectors. But the numbers make clear that the 

overarching story is not decline but change, to very large transactions by state-owned enterprises 

and new sectors of emphasis, such as logistics. Such purchases lead to a banner 2017 for Britain 

and Singapore, as examples. 

The People's Republic of China's (PRC) investment is often conflated with its overseas 

construction of rail lines, ports, and so forth. While construction activity is valuable, it does not 

bring ownership as investment does. Construction contracts are smaller on average, but there are 

more $100 million construction contracts since 2005 than $100 million investments. Last year 

alone, China signed construction deals worth $100 million or more with almost 60 countries. 

This is the core of the much-discussed Belt and Road Initiative (BRI). ii By sector, most the most 

activity occurred in transportation. 

Construction under the BRI should be similar in 2018. The main questions for this year are 

whether Beijing will allow private firms to invest more aggressively and how far Washington 

will go in blocking Chinese acquisitions. By the end of2017, private Chinese investment began 

to pick up again. It will not be allowed to return to the 2016 frenzy but will probably grow this 

year, helping offset any decline in state spending. 

Downside risk for Chinese spending is found in the Committee on Foreign Investment in the 

United States (CFIUS). CFIUS has refused to approve a number of Chinese transactions in a 

timely manner. Along with PRC restrictions, this undermined 2017 Chinese spending in the US, 

which fell by half to below $25 billion. A bipartisan bill to extend CFIUS' authority is being 

watched globally. Just as important, CFIUS has stalled Chinese acquisitions involving customer 

data. This embodies a difficult trade-off: the evident benefits of foreign investment versus lack of 

rule of law in the PRC. Chinese spending here is positive for our economy. But Chinese firms 

cannot be trusted to obey American laws. 

CGIT v. MOFCOM 

The CGIT includes all verified investment and construction transactions worth $100 million or 

more from 2005 through 2017. This features more than 1300 investments worth more than $1 
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trillion in total. Although the construction data set is incomplete, it includes almost 1400 projects 

totaling over $700 billion. The CGIT also lists well over 200 troubled transactions worth a 

combined $350 billion in which investment or construction was impaired after commercial 

agreements were struck. Not tracked are loans, bonds, and other uses of foreign exchange that do 

not involve ownership or services in the host country. (The CGIT is reviewed and updated every 

six months.) 

Through 2015, CGIT figures were a good match for those published by the Chinese Ministry of 

Commerce (MOFCOM), with the annual gap capped at 10 percent for more than a decade (see 

table 1). For 2016, MOFCOM initially announced a figure of$170.1 billion. It then made an 

unannounced revision up to 181.2 billion. in This revision was on top of the standard appearance 

of "financial investment" in annual totals many months after year's end and the inclusion of a 

fixed, monthly figure for reinvestment which has no apparent basis. 

Table 1: Two Views of Chinese Outward Investment($ Billion) 

.··'';: '·' CGIT . s< ·. .. ~··•: . Ministrv Of Commerce •" • c 

2005 10.2 12.3 

2006 19.8 21.2 

2007 29.9 26.5 

2008 54.7 55.9 

2009 57.6 56.5 

2010 65.5 68.8 

2011 68.8 74.7 

2012 80.3 87.8 

2013 83.8 92.7 

2014 104.3 107.2 

2015 113.2 121.4 

2016 170.4 181.2 

2017* 185.4 130.5 

Total 1044 1037 

*The CGlf IS subject to revision each update. The 2017 MOFCOM figure 1s extrapolated from the first 11 

months and includes only a minor amount for Syngenta. Numbers may not add due to rounding. 

Sources: American Enterprise Institute, China Global Investment Tracker, January 2018 update, 

http://www.aei.org/china-global-investment-tracker; National Bureau of Statistics of the People's Republic 

of China, State Administration of Foreign Exchange, 2016 Statistical Bulletin of China's Outward Foreign 

Direct Investment, China Statistics Press, September 2017; and Xinhua, "China Jan.-Nov. outbound 

investment falls 33.5 pet to 107.55 bln USD," December 14, 2017, 

http://www.xinhuanet.com/english/2017-l2/l4/c 136825421.htm 

For 2017, MOFCOM is advertising a steep investment drop, fitting its incessant claims that 

"irrational" spending has been controlled. iv The ministry does not disclose individual 

transactions as CGIT docs. But monthly figures and direct communication indicate the bulk of 

the value of the Syngenta deal was never counted, on grounds it was financed outside the PRC. 
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This is unlikely and, in any case, leaves Chinese statistics in the dubious position of excluding 

the country's biggest (by far) foreign acquisition. It's always possible to argue for some deals to 

be placed a year earlier or later but MOFCOM's 2017 total is unreasonably small. If true Chinese 

investment fell this year, it was not a steep decline. 

There are also problems beyond MOFCOM's control. It is national policy, not chosen by the 

ministry, to treat Hong Kong as an external customs port. Hong Kong is then assigned more than 

half of Chinese outward investment. Funds flow through on their way to their final destination 

but the ministry is required to stop following them in Hong Kong. Its bilateral figures, e.g. 

China-Germany, are often much too low. The CGIT follows money to the true recipient, 

generating correct bilateral numbers. 

Also affecting country totals is intense pressure to show the BRI is a success. PRC construction 

activity in BRI countries is heavy but finding high investment interest requires imagination. 

Using a government list of70 BRI partners, the combined investment they received from China 

2014-2017 was only slightly ahead of what the US received and trails the US plus Australia by a 

good margin. v Finally, MOFCOM has always used odd sectors. "Leasing and business services" 

is the top in drawing funds, which appears to be a way to deny the importance of energy 

investment. CGIT sector labels evolve with patterns of spending and building. 

China's Global Footprint 

The CGIT's far more accurate bilateral figures make clear that neither the BRI nor Hong Kong 

draws the bulk of Chinese money. The top I 0 recipients feature wealthy economies, plus Brazil 

and Russia, which are middle-income but rich in resources (see table 2). While the US easily 

leads in terms of total investment attracted, the American figure is not impressive as compared 

to, say, Australia after adjusting for population or economic size. Once a darling for PRC 

companies, Canada has been largely ignored since 2013 and has been pushed down the Jist. 

Table 2: Top Recipients of Chinese Investment 2005-17 ($Billion) 

Colintrv • ;,,:;, ,, •. c • : .. Inve~ent Volume ~ . United States 170.4 

Australia 91.0 

Britain 72.4 

Switzerland 60.0 

Brazil 54.6 

Canada 49.4 

Russian Federation 38.2 

Singapore 30.8 

Germany 25.5 

Italy 21.5 

Subtotal for top I 0 613.8 

Total for all countries 1044 
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Source: American Enterprise Institute and Heritage Foundation, China Global Investment Tracker, 

https://www.aei.org/china-global-investment-tracker. 

In 2017 alone, Switzerland was the top recipient of Chinese funds and now appears in the top 

five overall. This is misleading because it is an exaggeration to locate the entire value of the 

Syngenta acquisition there. Unfortunately, it is not feasible to assign discrete values to assets in 

each country where large multinationals operate. Another example is the $14-billion acquisition 

of London-based Logicor by one of the PRC's sovereign funds, which helped Britain see the 

second-most Chinese investment last year though some Logicor assets are in continental Europe. 

The US was third in 2017 at over $24 billion, a 54% drop. Given its tiny population, Singapore 

had an exceptional year, at $13 billion. 

Investment involves ownership, partial or full. Yet China may own little in the way of local 

assets while signing contracts worth billions. These are construction projects, for coal plants, 

schools, and more. While investment is more valuable dollar for dollar, construction can provide 

substantial benefits and is a vital part of the PRC's economic relations with many nations. Even 

closing on $750 billion, the value of construction contracts captured by the CGIT is too low. 

Early years were underreported and new projects trickle in slowly, leaving the 20171ist as yet 

incomplete. The number of $1 +billion projects does fit over time with official Chinese reports. 

The PRC's construction activity looks nothing like its investment. There are no rich countries in 

the top I 0 construction list (see table 3) while seven are BRI members (vs. 2 in the investment 

top 10). Casual observers talk ofBRI investment, for example the ever-rising figure boasted for 

the China-Pakistan economic corridor. vi They should say construction and engineering. The PRC 

is not looking to own $60 billion worth of Pakistan, it is building there. In 2017 alone, Argentina 

saw the most Chinese construction activity, followed by a bunched pack that included Australia 

due to Chinese acquisition oflocal mainstay John Holland. 

Table 3: Top Areas of Chinese Construction Activity 2005-17 ($Billion) 

:conJ1trY i:zc : ''· \:,i;y-,~'*~'S.Q~:r ·Inv~stn,.~ilt\Volume '"' - · i• 

Pakistan 39.8 

~igeria 37.1 

Indonesia 26.0 

Saudi Arabia 25.3 

Malaysia 24.9 

Algeria 22.9 

Ethiopia 22.7 

Bangladesh 22.4 

Angola 20.1 

Iran 18.8 

Subtotal for top 10 260.0 

Total for all countries 736.5 

Source. Amencan Enterpnse Instrtute and Rentage Foundatron, China Global Investment Tracker, 

https://www.aei.org/china-global-investment-tracker. 
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There is another important difference between investment and construction: the role of private 

Chinese companies in investment has become considerable over time while construction remains 

utterly dominated by state-owned enterprises (SOEs) such as Power Construction Corp. These 

have a proven engineering record in difficult settings and they are massively aided by 

concessionary financing from state-controlled banks. It should not be any surprise if many 

Chinese projects are money-losers; if they are perceived to support the PRC's foreign policy 

goals, they are initiated on that basis. 

That energy is the most popular sector for PRC investment and construction over the past 13 

years will surprise no one. Among energy subsectors, oil draws the most investment, by itself on 

par with metals investment, which has been languid for years. In construction, coal and hydro 

plants lead energy but here transportation is a fast-moving second. In 2017 alone, transport and 

energy accounted for four-fifths of construction value. Technology receives a great deal of 

attention but accounted for only five percent of completed investment since 2005 and only two 

percent last year. Two large 2017logistics acquisitions elevated the status of that sector. 

Table 4: Sector Patterns 2005-17 ($Billion) 

Sector ~' • ·.. I~vestn'i~nt .. : : c.'• Construction ~ .• TJ:9llbled " ... )\' :~sc . "':;\,~':,' • ·~·~{· A ... ;• . ·:•.: .·· :< ·. \ 

Energy and power 354.8 310.6 117.6 

Transport 95.1 230.1 44.4 .. 

Metals 123.9 32.4 74.9 

Real estate 97.7 70.0 19.1 

Agriculture 79.5 16.7 10.9 

Finance 75.2 - 36.5 

Technology 51.1 15.6 27.7 

Tourism 36.3 6.6 7.4 

,_§_ntertaimnent 38.8 2.0 1.6 

Logistics 33.0 4.5 l.O 

Chemicals 11.7 14.3 1.9 

Other* 47.8 33.7 5.0 

~ 1044 736.5 347.9 ... *In other mvestment the leadmg sector ts health care; mother constructiOn It IS utdttJes. Numbers may not 

add due to rounding. 

Source: American Enterprise Institute and Heritage Foundation, China Global Investment Tracker, 

https://www.aei.org/china-global-investment-trackcr. 

Beijing May Green-light More Spending 

The January 2017 CGIT update incorrectly forecasted retrenchment last year, and many 

observers still cite official statistics to say it happened. There were important areas of 

retrenchment but total investment was bolstered by multiple large SOE acquisitions such as Ping 

An's stake in HSBC. This enabled China to maintain its global visibility while rolling back 

spending by private companies in sectors like entertaimnent. vn For 2018, Beijing probably 

: 
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believes it has made its point and now-chastened private investors will feel less pressure. This 

should support investment in the 2016-7 range, to be reported by Beijing as an increase. It's hard 

to see annual volumes rising further but $1 trillion over the next six years is feasible. 

The main reason Beijing will be more relaxed lies in the same indicator that caused it to 

belatedly crack down: foreign exchange reserves. The quasi-crisis of early 2016 has been 

stabilized by formal capital controls and informal but unsubtle events like the disappearance of 

globally visible CEO's. viii Net foreign exchange outflows all but vanished over the course oflast 

year. ix The threat is certainly still present, but has been blunted for now. 

This does not mean a return to the 2016 free-for-fall. Chinese authorities have become reluctant 

to allow capital outflow in the form of large-scale property purchases, particularly hotels. This 

and other sector-based curbs will be retained. The central government's emphasis on BRI will 

serve to effectively limit Chinese investment, as BRI country markets are not as appealing and 

incentives to push investment there will bear little fruit. 

A key variable is the spending signal to private Chinese firms. The demise of private investment 

last year was exaggerated but its 2016 trajectory was sharply altered, from a rising share of a 

rising total to an enforced pullback. This year, a moderate pick-up is most likely. Given the 

hostility of some foreign partners to SOB's, private companies can be better able to acquire 

desirable foreign assets and it would therefore harm the PRC's economic progress to sideline 

them for long. The $80 billion in private investment in 2016 remains a bit excessive but $70 

billion is achievable. 

Table 5: The Private Share oflnvestrnent Since 2010 (Percent) 

I ,l::ear',<~:;;'i''"", ,,,,, .,·. '·' . ·•.:i!);;;, .•.. . ::; ; •'· "";d-~,;~c,>-, ·•<: 

2010 9.4 

2011 ll.8 

2012 14.1 

2013 29.9 

2014 27.7 

2015 31.6 

2016 46.4 

2017 36.2 

Note: fhe pnvate share was tmy before 2010. Numbers may not add up due to roundmg. 

Source: American Enterprise Institute and Heritage Foundation, China Global Investment Tracker, 

https://www.aei.org/china-global-investment-tracker. 

For construction, another $100-$110 billion in PRC projects is likely in 2018. This remains 

notable but a major upswing did not appear to occur last year, despite BRI, and there's little 

economic reason for one this year. A shrinking labor force means China no longer needs to send 

workers overseas. Foreign exchange may no longer be tightly constrained but Beijing still cannot 

afford to be profligate, especially since large construction projects in developing economies (e.g. 

hydroelectric plants) generally do not offer good prospects for profit. It will still be possible to 

talk up large figures for BRI simply by expanding the number of participant countries. 
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There is a new data problem on the construction side~ SOE engineering majors have become 

more opaque recently after years of improvement. Reporting failure in a BRI partner may no 

longer be politically acceptable even while setbacks are inevitable in building new infrastructure 

in difficult envirorunents. Of course long rail lines risk extended delays and grand urban plans 

can fall short of sales pitches. When non-commercial factors impair a commercial agreement, 

this qualifies as a "troubled" transaction. PRC construction companies typically face $6-7 billion 

worth in impairment annually, for example a long-delayed elevated expressway in Bangladesh. 

Because it involves ownership, investment gets into a lot more trouble than construction, to the 

tune of $20 billion in lost opportunities annually despite the commercial partners wanting to 

proceed. Beijing has belatedly unraveled deals it does not like and local or international security 

confrontations have undermined transactions. Multi-year operating losses also qualify. 

The main source of trouble, though, is host governments either inhibiting or outright blocking 

transactions. A basic issue affecting many PRC partners is reciprocity, or rather its lack. At the 

most dramatic level, Beijing would never allow a Chinese company of Syngenta's size to be 

bought, much less one in a field like agro-tech. Dozens of small Chinese acquisitions can have 

the same effect as one huge bid, occurring as they do while multinationals increasingly complain 

the PRC is not open to foreign competition. x 

The long-standing perception that China likes competition only in other markets is reinforced by 

the ebbing of greenfield investment in favor of acquisitions. The PRC averaged $175 billion in 

spending in 2016-7 yet greenfield spending is starkly unimpressive, at barely $20 billion 

annually. xi The tum to large SOE acquisitions also caused the raw number of greenfield 

transactions to fall in 2017. Acquisitions carry fear ofloss of competitiveness and technology 

and possible relocation of jobs back to China. Greenfield investment avoids all these problems, 

but the PRC is engaged in less of it. 

A second concern of host governments was spotlighted in 2017: a Chinese presence, including 

investment or construction spending, bringing undue social and political influence. Developing 

countries have fretted over this for years, even while pining for Chinese funds. The scope of the 

challenge has expanded with accusations of graft in Australia, which has had a large PRC 

presence but also a seemingly strong civil society. xii As with reciprocity, this does not impede 

specific deals, rather it creates an envirorunent of greater suspicion. 

Another objection does focus on specific transactions: loss of advanced technology. A new 

development is European concern (the US is discussed in the next section). The EU does not 

worry about use of dual-use technology in the South China Sea, it worries that the PRC will use 

acquisitions to climb the manufacturing ladder at the expense of European firms and workers. 

This has melded with standing reciprocity complaints and new questions about China's intent in 

courting east Europe. xm Brussels and the member capitals have of course not made any decisions 

but they are now interested in a joint international position on this particular Chinese challenge. 

For the moment, the top two recipients of the PRC's investment by volume remain by far the top 

two in terms of trouble. The US is actively inhibiting Chinese companies while Australia is more 

trying to avoid being drowned by them. Other countries seeing $1 0+ billion in impaired 
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transactions are present due to older events. It can take time for a transaction to sputter, so there 

will eventually be more of them for 2017 and perhaps earlier, adding to the tally. 

Table 6· Most Troublesome Countries 2005-17 ($Billion) 

Country" ·;:;xr .:ret,,,, •. : : Troubled l'riinsactious "'' 

United States 65.4 

Australia 59.1 

Iran 25.2 

Germany 15.4 

Libya 12.7 

Nigeria 11.5 

Subtotal for top 6 189.3 

Total for all countries 347.9 

Source: Amencan Enterpnse lnstttute and Hentage Foundatton, Chma Global Investment Tracker, 

https:llwww.aei.org/china-global-investment-tracker. 

Washington's Stop Sign Is Bright Red 

'· r 

In July, this section was titled "decision time in the US." The decision appears to have been 

made. The plunge in PRC spending in the US in 2017 was due primarily to Beijing's curbing of 

Chinese private firms' mad rush in 2016 (which was replaced by SOE's heading for Europe). But 

what Beijing took away last year, it could conceivably give back this year. It is now Washington 

making clear there will be no new surge, through (in)action by CFIUS and potential reform of 

that body, where both could have wide-ranging effects. 

Deciding how to handle Chinese firms requires identifying them correctly. The biggest PRC 

acquisition in the US last year was routed through Ireland. It's still Chinese. Perhaps the most 

controversial deal saw Lattice Semiconductor briefly try to pretend it was being bought by an US 

company. Also Chinese. x;v The best way for CFIUS and American policy-makers to determine 

control of a firm is to trace the money being used. Layers of subsidiaries and shell companies 

mean any other method of determining control can be gamed. Ultimately Chinese money 

guarantees influence, no matter the company's name or location of its headquarters. 

For 2018, US policy choices must sort old and new risks. An old risk misunderstood by some is 

from SOEs versus private firms. While SOE's account for most of China's global investment, 

their US share is below 40 percent. More important, there is no difference in the control the 

Communist Party can exercise over private firms and SOEs. There is no rule oflaw in the PRC, 

no court or media through which private Chinese firms can resist Party orders to ignore US law 

or steal technology. xv Private Chinese companies receive less in the way of subsidies but are as 

beholden to the Party for their survival as SOEs are. xv; There is no justification to treat them 

differently with regard to national security. 

Another old issue is reciprocity. It has of course long been true that the Chinese market is less 
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open than the American, but calls for applying reciprocity in investment offer little. The US does 

not want to close off the same sectors the PRC does, nor would it have any value for Beijing to 

promise to open already massively overcrowded industries such as steel. Further, if the PRC's 

response to demands for reciprocity was positive, the Trump administration has little interest in 

making it easier for American companies to invest in China. 

New issues pertain more directly to investment review. Legislation was introduce4last year that 

effectively sidesteps CFIUS for the sake of screening for net economic benefits.'"' This would 

be a mistake. Foreign investment, including Chinese, benefits Americans economically through 

job preservation or creation among other positive impacts. Pretending otherwise looks mostly 

like a way to slow and politicize the investment process, in order to reduce competition, 

Legislation of this kind should be rejected. 

Another bill deserves serious consideration. Originally conceived in Senator Comyn' s office, it 

is now bipartisan and bicameral.'viii It expands CFIUS' responsibilities substantially, perhaps 

excessively, but is properly focused on national security. What China does should not be allowed 

to inhibit investment from dozens of good partner countries. Nonetheless, the PRC's singular 

effort to acquire advanced technology is increasingly global, increasingly sophisticated, and 

increasingly intense. America's best response can be extensively debated'"' but a strong response 

is necessary, supported by greater resources. Moreover, action is already overdue, so pledges of 

future improvements are inadequate. 

The challenge of confronting the threat from China without harming the national security review 

process has obscured a separate but pressing matter. It is difficult to find Chinese acquisitions 

that CFIUS should have halted but did not. It is all too easy to find PRC entities simply breaking 

American law with no apparent consequences. The obvious example is theft of intellectual 

property (IP), where loss estimates can run in the hundreds of billions of dollars yet not a single 

Chinese firm has been sanctioned" (this may change in 2018 under Section 301). Chinese 

companies shown to have received stolen IP should not be allowed to invest or trade here. 

Data theft has joined IP theft as a China risk. A number of Chinese companies are now 

legitimately interested in acquiring US counterparts which hold personal data for thousands of 

Americans or more. The danger comes if the Party later wants these data. In that case, it does not 

matter if Chinese firms wish to cooperate with the Party, they have no option. This logic lies 

behind CFIUS' refusal to approve a high-profile bid by an Alibaba unit for MoneyGrarn. xxi 

While the outcome was right, the process was not. The US needs a clear and durable policy 

stance to protect personal data, not stalling by CFIUS until the companies "figure it out." 

Because the rule of law does not apply in China, Chinese firms cannot be trusted with personal 

data. PRC entities should be sanctioned for involvement with IP theft. As before, American dualuse and military technology must be protected, against a sharpening threat. At the same time, a 

large amount of Chinese investment is not itself objectionable and benefits the US economically. 

The last point has been, properly, the core of American policy toward foreign investment. The 

US now must find a way to incorporate China-specific restrictions without harming ourselves or 

long-time investment partners. Because the PRC is a global economic player, global cooperation 

is a logical next step. But first the US has to be wise in our own choices. 
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' American Enterprise Institute and Heritage Foundation, "China Global Investment Tracker," 

https:llwww.aei.org/china-global-investment-trackerl. 

"Jessica Meyers, "China's Belt and Road Forum lays groundwork for a new global order," Los Angeles Times, May 

15, 2017, http:llwww.latimes.com/worldlasialla-fg-china-belt-road-20170515-story.html. 

"'Xinhua, "China's ODI up 44.1% in 2016," January 16,2017, 

http:l/english.gov.cnlarchivelstatistics/2017/01/16/content 281475543375328.htm. The revision is in the outward 

investment yearbook, published eight months later. 

''Xinhua, "Economic Watch: China guards against overseas investment mania", March 31, 2017, http://www.chinaceec.org/englzjzdo l/tl450476.htm. 

v This of course can be addressed by simply adding Australia to the BRI. For now at least a reasonable government 

list can be found at Belt and Road Portal https://eng.yidaiyilu.gov.cnlinfolil.ist.jsp?cat id=l0076. accessed January 

7" 2018. 

~Ben Blanchard, "China, Pakistan to look at including Afghanistan in $57 billion economic corridor," Reuters, 

December 26, 2017, https://www.reuters.com/article/us-china-pakistan-afghanistanlchina-pakistan-to-look-atincluding-afghanistan-in-57-billion-economic-corridor-idUSKBN1EKOES. 

·~ Bloomberg, "China's Outbound Investment Plunges as Irrational Deals Curbed," November 16, 2017, 

https:/ lwww .bloomberg.com/news/articles/20 1 7 -11-16/china-s-outbound-investment -plunges-as-irrational-dealscurbed. 

''lu Lisa Murray, "China's strict capital controls are working," Financial Review, August 8, 2017, 

http:llwww.atr.com/newslworldlchinas-strict-capital-controls-are-working-20170808-gxrtxi, 

and Matthew Miller and Koh Gui Qing, "China's Anbang says chairman steps aside, after report of his arrest," 

Reuters, June 13, 2017, https:/lwww.reuters.com/article/us-anbang-group-chairman-idUSKBN19500D. 

"Xinhua, "China's yuan funds for foreign exchange rises for 3rd straight month in November" December 14, 2017, 

http://news.xinhuanet.com/english/20 17 -12/14/c 136826308.htm. 

'Reuters, "Foreign Firms in China Say They Are Less Welcome Than in the Past," in Fortune, January 18, 2017, 

http:l/fortune.com/2017/01118/china-foreign-businesses-xi-jinping-open-markets-business-optimism-pessimismamerican-chamber-of-commerce-china-poll/. 

''There is a technical problem in classifying many investments in developing countries. The deal will be represented 

as a Chinese participant joining an existing project but the project will turn out to be very little on the ground. Tbe 

CGIT methodology is to be cautious and decline to label these as greenfield. A more liberal approach could change 

the greenfield totals but would not change the trend of sharply declining importance in 2016-7. 

'"African Development Bank, "The Expansion of Chinese Influence in Africa- Opportunities and Risks," August 

14, 2012, https:l/www.afdb.org/enlblogslafdb-championing-inclusive-growth-across-africa/post/the-expansion-ofchinese-influence-in-africa-opportunities-and-risks-96121 and Nick McKenzie and James Massola "Andrew Robb's 

secret China contract: money for nothing," The Sidney Morning Herald, December 6, 2017, 

http:/lwww.smh.corn.au/federal-politics/political-news/andrew-robbs-secret-china-contract-rnoney-for-nothing20171205-gzzag5.html. 

xm Anders Fogh Rasmussen, "China's investment in Europe offers opportunities- and threats'\ Financial Times, 

November 20, 2017, https://www.ft.com/content/9e7428cc-c963-11e7-8536-d321d0d897a3 and Christopher 

Cermak, "Eastern Europe cozies up to China," Handelsblatt Global, November 30, 2017, 

https://global.handelsblatt.com/politics/eastem-europe-cozies-up-to-china-859869. 

'" Avolon, "Avolon Completes US$1 0.38 Billion Acquisition of Cit Aircraft Leasing Business," April 4 2017, 

http://avolon.aerolwp/wp-contentluploads/2017/04/Avolon-Final-Ciosing-4-April-2017.pdf; 

and Business Wire, "Lattice Semiconductor to be Acquired by Canyon Bridge Capital Partners, Inc. for $1.3 

Billion," November 03, 2016, https:/lwww.businesswire.com/news/home/20 1611 03005762/en/LatticeSemiconductor-Acguired-Canyon-Bridge-Capitai-Partners. 

"If Chinese firms can be ordered to violate American anti-trust law, they can certainly be ordered to steal valuable 

technology. See Alison Frankel, "DOJ bucks China, urges SCOTUS to hear case against vitamin cartel," Reuters, 

November 17, 2017, httos://www.reuters.com/article/lega!-us-otc-chinese/doj-bucks-china-urges-scotus-to-hearcase-against-vitamin-cartel-idUSKBN1Dl12HA. 

'~Michael Forsythe, "Fosun Group's Chairman Is Said to Be Missing in China," New York Times, December 10, 

2015, http://www .nvtirnes.com/20 15/12/11 /business/chairman-of-fosun-group-of-china-is-said-to-be-mi ssing.html. 

""Sylvan Lane, "Bipartisan bill would force Commerce Dept. to judge economic risks of foreign investments" The 

Hill, October 18'', 2017, http://thehill.com/policy/finance/3561 07-bipartisan-bill-would-force-commercedepartment-to-judgc-economic-risks-of. 
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'"'"Robert Pittenger Office, "Pittenger: China targeting our tech, we must react," December 18, 2017, 

https://pittenger.house.gov/media-center/press-releases/pittenger-china-targeting-our-tech-we-must-react. 

'" Derek Scissors, "CFIUS, Chinese Investment, and How to Improve Both," AEI, September 18, 2017, 

http://www.aei.org/publication/cfius-chinese-investment-and-how-to-improve-both/. 

u National Bureau of Asian Research, "Update to the IP Commission Report," February 2017, 

http://www.ipcommission.org/report!IP Commission Report Update 2017.pdf. 

"'j PRNewswire, "MoneyGram And Ant Financial Announce Termination Of Amended Merger Agreement," 

January 2, 2018, httos://www.prnewswire.com/news-releases/moneygram-and-ant-financial-announce-terminationof-amended-merger-agreement-300576618.html. 
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Evaluating CFIUS: Challenges Posed by a Changing Global Economy 

Responses to CFIUS OFR- Admiral Dennis Blair 

March 19,2018 

Representative Bill Posey 

Question #1 

Series 1) Many of us are aware of the entry of a Middle-Eastern company as an investor and 

service provider in container operations at one of our Florida ports. Ever since 9/11, the nation 

has been focused on the potential threats posed by containers as a vehicle for delivering terrorist 

activities to our shores. TSA is spending millions of dollars on screening containers. 

• Shouldn't the entry of a firrn based in an unstable region of the world be reviewed by 

CFIUS? 

• Isn't it incumbent upon us to examine inbound foreign investment transactions from 

countries that may have political and business relationships with rogue actors? 

• Are the current statutory authorities adequate to require such a review? 

• What types of mitigation requirements or agreements might be appropriate in a case like 

this one? 

• What is the difference between an acquisition and a long-terrn lease agreement? 

• Why is a CFIUS review not warranted under current law or regulation in regard to a longterm lease agreement between a U.S. entity and a foreign investor? 

Response: 

I do not believe that all investments in the United States by firrns based in unstable regions of the 

world should be reviewed by CFIUS. Beyond the difficulty of defining an "unstable region," I 

believe that CFIUS review should be triggered by the threat posed by the nature of the company 

and the nature of the investment it seeks to make. 

So far, violent extremist Muslim organizations have not demonstrated the capability to take 

control of a large business in the Middle East, hide the fact of their control, then use the company 

to invest in the United States to gain access to American infrastructure to conduct terrorist 

attacks. This threat does not rank high in my priorities for CFIUS. TSA needs to spend 

resources to ensure the safety of container cargoes no matter what company operates American 

and overseas ports. 

CFIUS is the primary statute under which the United States reviews foreign investments to 

ensure they do not threaten national security. As I have testified previously, I believe it should 

have a broad charter. It should have the authority to review investments into American critical 

infrastructure, whether it be telecommunications or container ports. I believe the CFIUS statute 

should be broadened to ensure this broad charter is explicit. 

The CFIUS mitigation process works well, and I believe it could be adapted to investments into 

companies that operate port facilities. Measures would include vetting of employees and 

surprise inspections of operations. 
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If long-term lease agreements provide the same rights to an investor as ownership, then they 

should be covered by CFIUS. 

Question #2 

Series 2) Several panelists express the view that expanding CFIUS review to technology export 

risks incentivizing U.S. companies to hold intellectual property offshore. They argue that instead 

of employing CFIUS to enhance our national security oversight of outbound technology transfer, 

we should focus on enhancing U.S. export control regulations. 

• Could you elaborate on how enhancements of export control regulations might work? 

• Why would there be a difference in the incentives to off-shore intellectual property under 

an enhanced CFIUS review as opposed to enhanced export control regulations; 

• Wouldn't the incentive effects of the two alternatives be similar? 

• Please describe conceptually how an expanded CFIUS process or approach might work 

compared to enhanced export control regulations. 

• Who would make the decisions in each case and what are the pros and cons of the two 

alternatives? 

• Is one method clearly more cost-beneficial than the other? 

Response: 

I believe amending CFIUS to account for risks inherent in foreign investment in the United 

States and reforming our export control laws are both necessary to safeguard our national 

security. Investment reviews under CFIUS and export controls work together to prevent the loss 

of national security technologies to foreign countries. Here are several points that show the 

inter-connectedness of investment control reform and export control reform: 

First, export controls primarily regulate commercial products and product features involving latestage technologies, not early-stage technologies or investment activity. Even if amended to 

better regulate exports of early-stage technologies, export control regulations do not effectively 

differentiate between dual military and commercial uses of technologies. In contrast, CFIUS 

specifically operates with national security interests in mind, having an inherent purpose to 

identify dual civilian and military technological uses in making decisions about problematic 

investments. 

Second, compliance with export control regulations is primarily a company's responsibility, and 

many startup companies have neither the incentives nor the capacity to understand the national 

security implications of foreign investment. The CFIUS process ensures that experienced 

government personnel review both the nature of a foreign company making investments, and the 

dual-use risks of the technologies being developed by a company. 

I do not understand the concern that strengthened CFIUS review will lead to "intellectual 

offshoring." Today, although some of our IP losses have been from China's cooperation with 

our allies, China has benefited most from stealing from American companies building defense 

2 
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equipment in the United States. We must stop the theft already occurring within our borders to 

preserve not only the further erosion of our defense industries, but American national security. If 

American companies react to strengthened CFIUS review by moving their early-stage 

technology development, then we should make further adjustments to the statute. 

Fundamentally, export controls and CFIUS review are designed to be complementary. So as I 

noted in my testimony, to maximize our coordination across relevant agencies and to ensure that 

accurate and timely information is available for both the CFIUS and the export control processes, 

I recommend the establishment of a new National Counter IP Theft Center, based on the model 

of the National Counterterrorism Center in the intelligence community, to collate and publicize 

the corporate structures, funding, and activities of foreign firms that pose the greatest threats to 

American intellectual property. This new Center would serve as an umbrella entity that 

coordinates across relevant agencies, including the Department of Treasury and the Department 

of Commerce. Having this database would inform sensible decisions about the laws and 

regulations appropriate for application. 

Question #3 

Series 3) I assume that with either export controls or with an expanded role for CFIUS in 

outbound technology transfer, U.S. defense technology firms have a strong incentive to acquire 

intellectual property [sic; read: patents] in the United States. 

• Is that true? 

• Does U.S. intellectual property (a patent) have a clear and powerful advantage over a 

foreign patent when it comes to defense technology? 

• Please describe how the patent application process provides or can provide opportunities 

to protect our defense sensitive technologies? 

• Is it part of the screening process to identify the sensitive technologies we need to protect 

in outbound transfers? 

Response: 

U.S. firms, not only defense technology firms, always have a strong incentive to acquire patents 

for hard-earned technological innovation. However, neither U.S. nor foreign patents will protect 

a U.S. firm from foreign theft without cooperation from the acquiring State, which in the case of 

China and national security technologies is unlikely. Additionally, because patents are 

territorial, a U.S. patent will not necessarily have a clear and powerful advantage over a foreign 

patent. While building in additional mechanisms in the patent application process could be an 

option, the Patent and Trademark Office awards patents to incentivize innovation and grant 

temporary monopolies on inventions, not to preserve national security. 

CFIUS was formally established through the Foreign Investment and National Security Act of 

2007 whose purpose was "[t]o ensure national security while promoting foreign investment" and 

"to reform the process by which such investments are examined for any effect they may have on 

3 
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national security." 1 CFIUS has a clear mandate to examine the effects on national security of 

foreign acquisition or investment. An enhanced version of CFIUS is the appropriate vehicle to 

make decisions to block technology transfers if necessary for American national security and 

prevent early-stage intellectual property theft. 

Question #4 

Series 4) Section 721 of the Defense Production Act of 1950, as amended, provides authority for 

the President to unwind or block inbound foreign investment transactions. As a result, the 

principal way that CFIUS operates is by using the threat of presidential action as a means of 

securing agreements from the parties to take steps to mitigate the perceived national security 

threat. 

• Can you please describe the President's role or powers in export controls related to 

national defense and how they may differ from his role under Section 721- in ways other 

than that CFIUS is inbound control rather than outbound control? 

• Are the President's powers roughly the same in terms of his role in blocking or 

unwinding under the two authorities? 

Response: 

The president's powers to manage CFIUS review and export controls differ in purpose and in 

available implementation tools. CFIUS primarily serves to clear foreign investments in U.S. 

businesses; thus the failure of a proposed foreign transaction to pass CFIUS review means that 

the president in consideration of national security concerns may suspend, block, place 

conditions, or unwind the proposed investment into the United States. Generally, if a transaction 

passes CFIUS review with all the proper documentation submitted, the president is unlikely, 

except in extreme circumstances calling for a national security emergency under the International 

Emergency Economic Powers Act (JEEP A), to roll back the transaction. But if false or 

incomplete documents were submitted or the transaction was not previously cleared by the 

CFIUS process, the president may unwind the transaction. 

On the other hand, U.S. export controls primarily serve to restrict actors with a U.S. nexus from 

exporting certain material or technology, or from exporting to a foreign country under economic 

sanctions; thus, noncompliance with export control and related sanctions regulations is a 

violation of U.S. law and may lead to severe civil penalties and criminal prosecution in the 

United States. The president also has authority under IEEPA to block or nullify, among other 

actions, any export that violates the regulations. 

Question #5 

Series 5) Admiral Blair you make a clear recommendation: " ... at a minimum, Chinese and other 

foreign companies that have stolen American intellectual property should not be allowed to 

1 Foreign Investment and National Security Act of2007, PL 110-49, July 26, 2007, 121 Stat. 246. 

4 
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invest in this country. We need to face these companies with a choice either follow American 

intellectual property rights law or do no business in the United States. The CFIUS process 

should be a part of imposing this choice." 

• Don't we need to apply the same principle to investments by U.S. firms making 

technology transfers to such rogue nations? 

• Should we apply sanctions by amending the export control regulations to limit export of 

technology to nations that violate U.S. intellectual property rights or should we consider 

expanding the CFIUS review to ensure we prevent technology export to such nations? 

Response: 

We need to be careful about definitions, but if we define a "rogue nation" as an authoritarian 

country with fundamental national security policies hostile to the United States, then I agree that 

companies from rogue nations should not be permitted to invest in the United States. Right now 

I would include only North Korea and Iran in the category of rogue nations. I do not believe that 

companies from either of these countries currently attempts to invest in the United States, but the 

principle of such legislation would be valid. 

Currently, beyond CFIUS and export controls, the United States uses sanctions to prohibit 

commercial dealings with rogue nations, and I believe this approach is appropriate. 

Representative Gwen Moore 

Question#]: 

Section 3(a)(S)(B) of the proposed legislation would treat as a covered transaction any 

transaction involving the contribution by a US critical technology company of intellectual 

property and associated support. The legislation defines a US critical technology company as 

any company that produces, trades in, designs, tests, manufactures, services or develops critical 

technologies. The definition in the proposed legislation of"critical technologies" is very broad 

and leaves room for further expansion through regulations. 

The proposed legislation covers contributions of IP by critical technology companies, but as 

written, the IP could relate to any kind ofiP that the company possesses. 

• Shouldn't we focus specifically on the contribution ofiP related to critical technologies, 

and not other kinds of technology that a US critical technology company happens to 

possess? 

Response: 

I would be very suspicious of a foreign investment in a critical technology company that claimed 

that it was interested only in its non-defense technology. However if there is an exceptional 

5 
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circumstance, then it could be handled by mitigation agreements. 

Question #2: 

The current CFIUS regulations already define "critical technologies" with specific reference to 

export control regulations. CFIUS has said on page 37 of its most recent annual report that 

export control regulations "were determined to be the most reliable and accurate means of 

identifying critical technologies."2 

• If that's the case, then there is no apparent reason to change that definition, and it would 

seem that the best way to deal with the transfer of critical technologies is through the 

export control regulations, not CFIUS. 

• Don't you agree? 

Response: 

I respectfully disagree. The important question before Congress is not whether CFIUS 

regulations or export control regulations provide more security. They are both necessary and 

both need updating and reform. 

Even my fellow witnesses at the hearing testified that the current export control legislation has 

lapses and needs updating. Right now, the export control regulations "critical technologies" 

definition includes only late-stage technologies--"[ d]efense articles or defense services," "items 

specified on the Commerce Control List," "[s]pecially designed and prepared nuclear materials 

and technology," and "select agents and toxins."3 This list fails to include early stage 

technologies with potential to evolve into a national security threat. 

2 See Committee on Foreign Investment in the United States: Annual Report to Congress, Report Period: CY 2015, 

I, 37, https://www.treasury.gov/resource-center/intemational/foreigninvestmentJDocuments/Unclassified%20CFIUS%20Annual%20Report"/o20-

%20(report%20period%20CY%202015).pdf. ("The Regulations Pertaining to Mergers, Acquisitions, and Takeovers 

by Foreign Persons (the 'CF!US regulations'), published in the Federal Register on November 21, 2008, and 

codified at 31 C.F.R part 800, defines 'critical technologies' with reference to U.S. export control regulations, as 

they were determined to be the most reliable and accurate means of identifYing critical technologies."). 3 31 C.F.R. § 800.209. 

6 
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Responses to 

Questions for the Record of Rep. Gwen Moore 

Subcommittee on Monetary Policy and Trade Hearing 

Evaluating CFIUS:Cha/lenges Posed by a Changing Global Economy 

Responses of 

Rod Hunter 

Partner, Baker McKenzie 

former National Security Council Senior Director and 

former Special Assistant to the President for National Security Affairs 

Question: "Shouldn't the legislation focus specifically on the contribution of IP 

related to critical technologies, and not other kinds of technology that a US critical 

technology company happens to posses?" 

Response: Foreign investment review legislation should focus on risks arising from 

foreign investments in U.S. businesses, including where those investments permit 

transfer of technology with security implications. It is not the transfer of the 

intellectual property, per se, that is the issue, but access the technology itself. 

"[l]t would seem that the best way to deal with the transfer of critical technologies is 

through the export control regulation, not CFIUS. Do you agree?" 

Response: Yes. The proponents of the initial FIRRMA bill have a point that export 

control regulation has not kept pace, but the solution, as Representative Moore 

suggests, is to be found in updating export control regulation, not allocating to CFIUS 

the role of supervising technology transfers. 
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Questions 

Questions for Record 

Of 

Representative Gwen Moore 

Subcommittee on Monetary Policy and Trade 

Hearing 

Evaluating CFIUS: Challenges Posed by a Changing Global Economy 

Responses ofHon. Theodore W. Kassinger 

Section 3(a)(5)(B) of the proposed legislation would treat as a covered transaction any 

transaction involving the contribution by a US critical technology company of intellectual 

property and associated support. The legislation defines a US critical technology company as 

any company that produces, trades in, designs, tests, manufactures, services or develops critical 

technologies. The definition in the proposed legislation of"critical technologies" is very broad 

and leaves room for further expansion through regulations. 

Can each of the witness please answer the following questions: 

The proposed legislation covers contributions of IP by critical technology companies, but 

as written, the IP could relate to any kind ofiP that the company possesses. Shouldn't 

we focus specifically on the contribution of IP related to critical technologies, and not 

other kinds of technology that a US critical technology company happens to possess? 

The current CFIUS regulations already define "critical technologies" with specific 

reference to export controlled regulations. CFIUS has said on page 3 7 of its most recent 

annual report that export control regulations "were determined to be the most reliable and 

accurate means of identifying critical technologies." If that's the case, then there is no 

apparent reason to change that definition, and it would seem that the best way to deal 

with the transfer of critical technologies is through the export control regulations, not 

CFIUS. Don't you agree? 

Responses 

I agree that the legislation should focus on critical technologies, and not whether a company is 

deemed to be a critical technology company. Companies may have some proprietary technology 

that is "critical technology," while predominantly possessing other technologies that are 

proprietary but not sensitive. Such companies should have the flexibility to structure transactions 

with foreign partners in a manner that differentiates critical technologies from technologies that 

do not rise to that level of national security sensitivity. 

I also agree that the export control regulatory scheme is the better path for protection of U.S. 

national security interests while reducing regulatory risk and burdens on the private sector. 

Identifying controlled technologies through an expert process conducted outside of the pressures 

of a CFIUS case would lead to much better informed and defined classifications, and guide 

1 
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businesses toward transactions that will not be scuttled after agreement, through an after-the-fact 

CFIUS review. I am confident that an enhanced process for identifying emerging and critical 

technologies is feasible and will be effective in addressing potential national security risks 

arising from innovation that may outpace appropriate controls on exports of technology. 
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CSIS I CENTER fOR STRATEGIC b 

INTERNATIONAL STUDIES 

September 21, 2018 

Francesco Castella 

Legislative Assistant 

House Committee on Financial Services 

2129 Rayburn House Oflice Building 

Washington, DC 20515 

Dear Mr. Castella: 

FREEMAN CHAIR 

IN CHINA STUDIES 

Thank you for your note of September 18, 2018, seeking my answers to the questions from 

Representative Moore that emerged out of the January 2018 hearing held by your committee. My 

sincere apologies for my late reply, as I was unaware that my providing answers to these questions 

was mandatory and needed for the hearing report to be completed. In any case, my brief answers arc 

below. 

Q# I: The proposed legislation covers contributions of IP by critical technology companies, but as 

written, the !P could relate to any kind of !P that the company possesses. Shouldn't we focus 

specifically on the contribution of IP related to critical technologies, and not other kinds of 

technology that a US critical technology company happens to possess'' 

A# I: The definition of "critical technology" is necessarily general and needs to be open to 

including new kinds of specific technologies over time. I also think it makes sense to have a 

relatively flexible definition for which intellectual property (IP) is covered by this part of the 

legislation. The Executive Branch needs to have flexibility in how they implement CFIUS 

with respect to which technologies and their underlying IP are covered. If interpreted too 

narrowly, the Executive Branch may not be able to fully limit diffusion of technology that 

should be kept out of foreign hands. This does open the possibility that the Executive Branch 

could overreach and place limits on technologies and IP that go beyond "critical 

technologies," but I'd argue in giving the Executive Branch a broader mandate and then work 

closely with American industry to implement the rules in an effective manner that finds the 

right balance between protecting national security and promoting international commerce. 

Congress then should carefully monitor implementation to determine if the rules have been 

properly implemented to meet these goals. 

Q#2: The current CFIUS regulations already define "critical technologies" with specific reference to 

export controlled regulations. CFIUS has said on page 37 of its most recent annual report that export 

control regulations "were determined to be the most reliable and accurate means of identifying 

critical technologies." If that's the case, then there is no apparent reason to change that definition, 

and it would seem that the best way to deal with the transfer of critical technologies is through the 

export control regulations, not CF!US. Don't you agree? 
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A#2: I believe the US needs to both update its rules and regulations regarding foreign 

investment and those related to export controls and that we should actively use both 

mechanisms to protect American national security while also facilitating international 

commerce. Expanding both kinds of regulatory tools could potentially lead to over-regulation 

and inhibit reasonable investment and commerce, but I would advise that we err on the side 

of protecting national security in terms of how the regulations are written. The Executive 

Branch, with Congressional oversight, will then need to take great care in determining which 

specific technologies and underlying IP are covered to ensure balanced implementation of 

both sets of rules. 

If you require anything else, please let me know. 

Best Wishes, 

~~ 

Scott Kennedy 

Deputy Director, Freeman Chair in China Studies 

Director, Project on Chinese Business and Political Economy 

Center for Strategic and International Studies 
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Response to Representative Moore: 

I think the ideal focus is on how critical technologies could be compromised. In other words, it's not necessarily the 

transaction itself but rather whether the transaction would place US control of critical technology at risk. There are three 

categories; 

1) The company doesn't have any critical technology- no need for review. 

2) The company is directly selling critical technology through an acquisition or otherwise -this should be rejected. 

3) There is a transaction involving a company which holds critical technology which is not a sale but which could 

otherWise compromise the technology. Doesn't call for rejection but should be reviewed and, possibly, 

mitigated. 

I agree with the point that critical technology can be defined too broadly and also consider export control regulations a 

good way to make that definition concrete. However, it does not follow that export controls are the best means of 

preventing technology transfer. As a semantic matter, CFIUS reviews investment and export controls pertain to trade. 

Where is the threat coming from? 

More telling, export controls are not doing the job of preventing unwanted technology transfer to China. Perhaps they 

could if they were improved but there is no suggestion on the table for their improvement. FIRMMA is definitely not 

perfect but it is incumbent upon those touting export controls as the superior method to show how export controls will 

be upgraded to prevent Chinese technology acquisition. Until then; they are not offering anything to address a current, 

serious problem. 
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Response to Representative Posey on Series 2. 

I am not a strong advocate of export controls over CFIUS. From my perspective as a China expert, it is clear that our 

system of technology control isn't working properly with respect to the PRC; it is not stopping acquisition and theft of 

technology. 

FIRMMA is certainly not perfect and I would be pleased to see a bill to upgrade our export control regime which could 

be compared to FIRMMA to see how they complement each other or even to pick one as superior. Until such a bill is 

produced, however, I find the export control arguments either demonstrate an incomplete understanding of the extent 

of the problem or, in the case of a few interested parties, are simply disingenuous.