Study Of The Legal Issues Of U.s. Foreign Investment Review System

The financial crisis that hit the world in 2008 has brought to China both challenges and opportunities. The opportunity is prominently represented by the remarkable role that China's large foreign exchange reserves have played. Stock devaluation of other countries'industries and financial agencies resulted from the recession since 2008 has provided a great opportunity for China's enterprises in achieving large benefits while paying less. More notably, in the second half of the year 2009, the amount of investments, transactions and mergers has increased 50 percent on a month-on-month basis. According to Thomson Reuters data, China's overseas mergers and acquisitions reached a high of 43,390,000,000 US dollars, following the United States and France. Nonetheless, China's path towards mergers and acquisitions has not gone smoothly. In the case of China National Offshore Oil Corporation (CNOOC)'s bid for Unocal in 2005, though CNOOC made adequate preparation, it ended in failure. The same happened in the case of Chinalco's acquiring Rio Tinto in 2009. In the first case, CNOOC announced its bid for Unocal with a total of 18,500,000,000 US dollars at 67 US dollars each stock. For mitigating political barrier from the United States, it promised that petroleum and natural gas produced by Unocal would only be consumed within U.S. domestic market and no downsizing of Unocal's employees. CNOOC also promised that after successful merger and acquisition, CNOOC would strip non-north American assets from Unocal , provided that it would not course material injury to Unocal. These promises however, did not eliminate fears of U.S. law makers. Other factors also led to the failure of CNOOC and Chinalco, such as laws, policies, economy and also public opinions in the host countries. In this paper, I will demonstrate problems that China state-owned enterprises would meet in overseas mergers and acquisitions mainly from the following two aspects.First, this paper will introduce U.S. Foreign Investment National Security Review System and its development. In 1975, U.S. established the Committee on Foreign Investment in the United States (CFIUS) in CFIUS is an inter-agency committee authorized to review mergers and acquisitions that could result in control of a U.S. business by a foreign enterprise, in order to determine the effect of such transactions on the national security of U.S. In this part, the author will analyze several important definitions of the material contents within the system, and demonstrate the rationality and adaptability and their effects on actual mergers and acquisitions. This paper also introduces the procedure rules in investigations, focusing on FINSA's amendments to procedures rules.Second, this paper will present legal and political risks in Chinese enterprises'mergers and acquisition of U.S. enterprises and give some legal countermeasures. The legal risk will be discussed from the prospect of rules of foreign investment investigation and the prospect of U.S. Law of Corporations.