National Security Review in Foreign Investments: A Comparative and Critical Assessment on China and U.S. Laws and Practices

Abstract

This Article takes a comparative approach to critically assess the laws and practices of national security review in connection with inbound foreign investment in China and the United States—the two biggest host countries for foreign direct investments. While the two regulatory apparatuses bear a degree of formalistic resemblance as China transplanted some of the mechanisms from the United States, they have contrasting effects in implementation. It explains certain nuanced differences in the two regulatory frameworks as well as the distinctive political economies behind institutional designs that contribute to the deviations observed in the two apparatuses. The assessment focuses on three vital aspects: (i) the criticism on the secrecy, unpredictability and politicization in the decision-making process in national security review, (ii) relatedly, the scope and the standards of review that lead to underinclusiveness and over-inclusiveness in enforcement, which add to the uncertainty and blur the line between national security and economic interests, and (iii) a few structural layouts that cause unreasonable delay, present undesirable deterrence effects, dampen efficiency, undermine comparative expertise of regulators, and create misplaced incentives for foreign investors. Regarding the United States, the blurred contour of national security review calls into question whether the review is solely about national security, or if it also concerns economic interests. Against the backdrops of (a) no definition of national security being available, (b) no monetary threshold of reviewable transactions being available, (c) a broad definition of “control,” and (d) the Committee on Foreign Investment (CFIUS) process being immune from judicial review, the case-by-case adjudication approach currently taken by CFIUS is particularly inapt to shed light on a highly secretive CFIUS