Do you want to make a venture capital or private equity investment in China? The US government may soon have a problem with this, and a mechanism to stop it.
Driving the news: Congress is working out the final details of a bill that some are calling “reverse CFIUS.” It would be included in a massive national semiconductor production bill, known as the CHIPS Act, which could pass before the August recess.
- It’s a bipartisan effort, with the Senate side led by Bob Casey (D-Pa.) and John Cornyn (R-Texas).
The overall objective is to put safeguards on the supply chain of U.S. chipmakers like Intel, so they don’t take advantage of federal largesse to build new factories in China. But it would go much further.
- The most recent draft, dated June 13, would apply to industries including artificial intelligence, high-capacity batteries, critical minerals, pharmaceuticals, pharmaceutical ingredients and quantum technologies.
- As with CFIUS, this is to protect national security. But it would focus on outflows of capital, rather than inflows, through a new interagency group called the National Critical Capacities Committee (NCCC).
- The wording of the bill is not exclusive to China. Instead, he refers to a group of “countries of concern”, which also includes Russia, Iran, North Korea, Cuba and Venezuela. But, in practice, it is China.
- Casey and others started this effort a few years ago, in a much larger way that was considered a kind of fringe effort. But now the language is narrower and closer to codification.
Details: This is not a general investment ban. Senate aides and a top chip industry executive point out that the bill emphasizes notification, so the federal government has fewer blind spots in the supply chain.
- The next step would be mitigation, which is not overemphasized in the CFIUS statute.
- But, make no mistake, the CNCC would be empowered to block transactions it deems problematic. And that may be a risk that US investment firms are unwilling to take – thereby reducing US investment in Chinese AI or pharma startups.
The bottom line: You’d go broke betting on Congress to pass bills, even those with bipartisan support, but this one seems more likely than not.