A new report issued by a U.S.-China Economic and Security review panel recommending against state-owned business purchases of U.S. companies raises political risk for cross-border China-U.S. megamergers in light of the incoming Trump Administration's negative view of globalization.
Specifically, the U.S.-China Economic Review Commission, a congressionally chartered panel, issued its annual report Wednesday, including a recommendation urging lawmakers to approve legislation to authorize the Committee on Foreign Investment in the U.S., or Cfius, to bar Chinese state-owned companies from acquiring U.S. businesses. Cfius is an interagency panel of regulators that reviews foreign acquisitions of U.S. assets for national security purposes.
The report raised concerns about the wisdom of permitting unrestrained investment by economic, and possibly military, opponents and said there was "inherently high risk ... whenever [a state-owned enterprise] acquires or gains effective control of a U.S. company."
The report said that a state-owned company will "use the technology, intelligence and market power it gains in the service of the Chinese state to the detriment of U.S. national security."
And analysts contend that the report raises concerns that at the very least China Oceanwide Holdings' $2.7 billion acquisition of Richmond, Va.-based Genworth Financial (GNW) , a life and mortgage insurer, will face a lengthier national security review. Genworth CEO Thomas McInerney told analysts on Nov. 7 that the two companies will begin their review process with Cfius in the "coming weeks."
The U.S.-China panel's reports in years past haven't been very influential, particularly with the Obama Administration. The report isn't legally binding. However, Isaac Boltansky, analyst at Compass Point Research & Trading in Washington, said his sense is it "will fortify the incoming Trump Administration's inherently suspicious view of globalization."