The United States Rejects Chinese Investment on National Security Grounds

Originally published December 22, 2009

Keywords: Chinese investment, national security, foreign investment, CFIUS,

The United States government has effectively rejected a foreign acquisition in the United States on the grounds that it would threaten to impair the national security. Recent public announcements indicate that the Committee on Foreign Investment in the United States (CFIUS) was preparing to recommend that President Obama disapprove a Chinese company's attempt to invest in a US mining company, because the mining facilities are located near certain US military installations. The Chinese company apparently withdrew its application to CFIUS on December 21, 2009, thus forestalling a referral to the president.

If the president had ultimately rejected the transaction, it would have marked only the second time since the creation of the CFIUS review process more than 20 years ago that a president had taken such action. (The first presidential rejection occurred in 1990 by President George H.W. Bush and also involved a Chinese investment.) While the substance of the CFIUS decision probably does not mark any dramatic change of US policy toward foreign investment, the US rejection at a time of tension in the US–China economic relationship could have considerable impact.

On December 17, 2009, Firstgold Corp. (Firstgold), a Nevada mining company, announced that CFIUS had advised Firstgold that on December 21 CFIUS would recommend to President Obama that he reject the proposed investment in Firstgold by a China-based company, Northwest Non Ferrous International Investment Company (Northwest). Firstgold stated that US officials had specifically noted the proximity of Firstgold's properties to a Naval Air Station and related facilities. Firstgold also stated that CFIUS had advised that it had considered several mitigation possibilities and concluded that none would resolve the national security concerns. Remarkably, a memorandum detailing the communications between Treasury staff and counsel to the parties was leaked to the New York Times.

CFIUS's counterpart in Australia, the Foreign Investment Review Board, has also in the past year objected to a number of Chinese investments based on proximity to defense installations. Thus, these Australian, and now American, rejections could reflect a new trend in the national security assessment of Chinese investments abroad.

Although, as noted, the formal rejection of a foreign investment by the...