A version of this post appeared on LinkedIn
As the Washington-Beijing relationship continues to dim, so too do the prospects for Chinese foreign investment in the United States. Against the backdrop of the Trump administration’s “America First” mantra, U.S. lawmakers are implementing the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), groundbreaking legislation that will subject foreign investors to new restrictions on deals providing foreign access to sensitive data or weakening U.S. technological superiority.
Terra FIRRMA
U.S. scrutiny of foreign direct investment isn’t new. Since 1975, the Committee on Foreign Investment in the U.S. (CFIUS), a little-known inter-agency committee chaired by the U.S. Treasury Department, has evaluated transactions involving industries, assets, or infrastructure deemed critical to U.S. national security. The committee reviews these deals to determine whether foreign ownership could adversely impact U.S. interests.
But CFIUS’ powers expanded last year when, in a rare bipartisan effort, Republicans and Democrats partnered on the development of FIRRMA to stem a growing threat to U.S. national security. High among CFIUS’ regulatory priorities are protecting emerging technologies deemed critical to U.S. leadership and security, including wireless telecommunication, artificial intelligence, cybersecurity and others essential to American industry, innovation and ingenuity.
Key provisions in FIRRMA include expanding scrutiny of real estate acquisitions in sensitive areas, and investments enabling foreign access to sensitive personal data, critical infrastructure or critical technology. CFIUS’ newly expanded authority will also permit a review of deals that previously fell outside its jurisdiction, such as foreign minority stakes in U.S. startups – an increasingly popular target among investment funds backed by China, Saudi Arabia and others.
China looms large among FIRRMA’s consideration. Last year, CFIUS mandated the Chinese conglomerate HNA Group to sell its stake in a New York City building due to its proximity to Trump Tower. This heightened scrutiny of Chinese investment activities in the U.S. comes at a time of diminishing bilateral relations. It also comes on the heels of 2016, the year Chinese foreign direct investment in the U.S. surged to $46 billion as Dalian Wanda, HNA Group, and other Chinese conglomerates snapped up U.S. trophy assets like Lexmark, Legendary Entertainment, General Electric’s home appliance division, Hilton Hotels, Strategic Hotels & Resorts, and Ingram Micro United States.
Open for Business?
While FIRRMA and an expanded CFIUS erect new barriers to ownership of U.S. assets, they by no means close off the U.S. to foreign investors who carefully navigate the prevailing regulatory and sociopolitical atmospheres in the U.S. As foreign investors move forward with U.S. transactions, they should consider adopting communications and public affairs strategies to strengthen their positions and inoculate their deals from potential reputational issues:
- Mitigate country or company overhang.
Before contemplating a transaction in the U.S., foreign companies must take time building a positive reputation and establishing trust among decision makers and influencers, especially within Washington, D.C. It is essential for stakeholders to become familiar with a foreign company, understand its mission and corporate culture, and learn about the potential benefits of foreign ownership. This is particularly relevant for investors from China and Russia, which often carry negative reputational baggage and can prompt suspicion among U.S. audiences.
- Clearly articulate and amplify the benefits of the transaction.
Foreign companies should highlight how their investment will benefit the U.S. economy, whether by creating jobs, expanding the local tax base or driving innovation. Acquirers that narrowly focus on finalizing and announcing a transaction will quickly hit roadblocks as they promote their transaction among local constituencies. It is essential to identify opportunities and obstacles in advance, and to develop public affairs strategies accordingly.
- Cultivate third-party support.
Credible third parties can lend their support by advocating for a foreign company and the positive contributions of its investment. Enabling this assistance starts with developing a list of potential external allies who support the deal and understand its benefits. Employees are an important group who can also help inform public opinion, so internal communications strategies are equally essential when announcing a deal.
- Engage with media proactively.
Media will likely highlight national security concerns and feature commentary from critics or detractors. An acquiring company must be able to disseminate its message and engage with media to contextualize and convey its narrative. Proactive public affairs efforts can help shape press coverage and equip company spokespeople to communicate clearly and persuasively the benefits of their investment. It is also essential to engage with commentators and opinion writers who maintain strong followings.
- Consider all scenarios and contingencies.
Regulatory concerns and national security challenges can reshape or derail a deal. Companies should plan for a multitude of scenarios and determine how best to navigate each situation. Communications and public affairs can often play critical roles in protecting the narrative as media, policymakers and other influencers begin to influence public perceptions.
Is FIRRMA just the beginning of a major crackdown on foreign M&A and investment in the U.S.? Perhaps, but it’s too soon to tell as CFIUS’ provisions won’t be implemented fully until 2020. The government shutdown has also produced a backlog of deals pending review. But one thing is certain: Foreign companies contemplating investments or acquisitions in the U.S. must consider the political and social consequences of their plans and develop the commensurate communications and public affairs strategies. Forewarned is forearmed.
Chad Tendler is network director, Financial Communications and Capital Markets, New York.
Lina Francis former senior account supervisor, Washington, D.C.
