The Issues And Solutions For Chinese Companies Encountering U.S. National Security Review On Investment

Chinese companies launched massive M&A transactions towards American companiesrecently, but it turns out that most of the transactions failed during national security review. Itdoes has relation with the nature of the investors, the investing area and the way of investment,but the transparency of Chinese companies attracts more attention, which means CFIUS is notaware of all the information about Chinese companies and causes information asymmetryduring the decision making process. Providing credible, continual and sufficient informationabout Chinese companies is necessary for CFIUS to make informed decision and for investorsto avoid failing on transaction caused by information asymmetry.Based on the analysis of national security review, this article would focus on theintroduction of national security review, the experience of Huawei’s investment in UnitedStates, and then the suggestions for Chinese companies which intend to invest in UnitedStates on the basis of various researches.Except for the introduction, this article includes four parts, about29,000words.Part one discusses history of national security review, and its process and features.Certain transactions, such as Fuji merged Fairchild Semiconductor and Dubai Ports World’scase, have substantial impacts on the development of national security review, which tends toconcern more on the nature of investors and the nature of U.S. business. Furthermore, afterthe change in2007, national security review becomes flexible on the starting point andmassive on coverage of transactions.Part two discusses its practical operation in Huawei’s stories. Huawei has launchedseveral M&A transactions in United States since1997, but failed on most of them due tonational security concerns raised by CFIUS.Part three would focuses on the reasons that caused Huawei and other Chinesecompanies to be subject to national security review in United States, and the reasons thesecompanies were advised to withdraw the transaction. Based on the analysis, the experience ofHuaiwei’s management team, close contact with Chinese government and indefiniteshareholder structure becomes the main source of the concerns raised by CFIUS. And theinformation asymmetry furthers the concerns.Part four discusses the indications from Huawei’s stories and analyzes the solution forChinese companies to enhance their transparency and to improve the communication withU.S. officials during national security process. There are several options for Chinese investorsto enter U.S. market. However, under current regulations, except for Greenfield Investment,none of them could avoid national security review successfully. Actually, on the basis ofChinese and foreign scholars’ study, Chinese companies could provide credible, continuousand sufficient information about information of companies and transactions, which couldovercome information asymmetry, by filling application in advance, hiring more lobbyists andbeing listed at securities market in United States, which requires Chinese companies to followthe disclosure requirement of securities regulation.