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China hits back at US investment rules China eases some foreign investment rules
(about 9 hours later)
The Chinese government has criticised a US move to expand the powers of its foreign investment watchdog. The Chinese government has eased rules that limit foreign investment in the country's banks, car industry and agriculture.
The government is worried that the move means the US will use national security concerns unfairly in order to restrict Chinese investments. The barriers have drawn criticism from trading partners, including the US.
The new investment rules will target Chinese companies investing in technology industries in the US. The Trump administration cited the rules as an example of unfair practices when it announced plans for tariffs on Chinese goods earlier this year.
It comes as the US and China both prepare to slap tariffs on $34bn worth of each others' goods. However, this week officials appeared to be trying to defuse the tensions between the two countries.
What is the US government proposing? On Wednesday, President Donald Trump announced that his administration did not plan to develop new tools to curb Chinese investment, as he had threatened when the tariffs were announced.
US President Donald Trump has said he supports legislation that would expand the powers of the Committee on Foreign Investment in the United States (CFIUS). Instead, Mr Trump said he would support a congressional effort to expand the power of the Committee on Foreign Investment in the US (CFIUS), which vets foreign deals for national security risks.
CFIUS is an inter-agency body which scrutinizes the national security implications of business deals that would result in foreign ownership of US companies. What is the US planning for investment?
It can make recommendations to the president, who can stop a deal from going though, although in practice a negative CFIUS finding alone is sometimes enough to kill off a deal. The legislation, which has support from both US parties and is expected to pass, would expand the kind of deals the committee is instructed to review.
"I have concluded that such legislation will provide additional tools to combat the predatory investment practices that threaten our critical technology leadership, national security, and future economic prosperity," Mr Trump said in a statement. It is a response to concerns in the US that China is stealing its intellectual property, at times through acquisitions of US companies.
The legislation would expand the role of CFIUS, allowing it to stop a deal if it would pose a threat to America's technological edge. However, it does not necessarily target China and is considered a less draconian measure than the president's earlier threat.
Intellectual property is a key sticking point in the trade tensions between US and China, with the US accusing China of stealing its technology. "I have concluded that such legislation will provide additional tools to combat the predatory investment practices that threaten our critical technology leadership, national security and future economic prosperity," Mr Trump said in a statement.
Why does China object? What has China done?
China's commerce ministry says it objects to the US using national security as an excuse to tighten the rules for Chinese companies in the US. A day after Mr Trump's announcement, China's National Development and Reform Commission (NDRC) released a new version of a list outlining industries in which foreign investment is limited or prohibited.
"China will closely monitor the legislation process and evaluate its potential impact on Chinese companies," said Chinese commerce ministry spokesman Gao Feng. The new list contains 48 industries, compared with 63 on last year's list.
China is a major investor in the US, and it stands to lose from tighter foreign investment rules. Some of the changes, such as those loosening rules for carmakers, were announced previously.
The Chinese government's economic plans have a strong focus on technological advancement. China's commerce ministry also said it would "closely monitor" the US legislation. It also said it objects to the US using national security as an excuse to tighten the rules for Chinese companies in the US.
One way to acquire better technology is to invest in foreign companies that already have it.
CFIUS has knocked back a string of proposed Chinese acquisitions of US companies over the past year.
The new legislation is likely to be an additional hurdle.
Declining investmentDeclining investment
Chinese investment in the US has taken a big hit since Donald Trump became president. Chinese investment in the US has already taken a big hit.
Figures from the Rhodium Group found that the value of deals fell by more than 90% in 2017. The value of deals by Chinese investors fell by more than 90% in 2017, according to the Rhodium Group.
The American Enterprise Institute (AEI), a conservative US think-tank, found that China invested $24.2bn across all sectors in the US last year - a huge drop from 2016, but still the second highest on record. The American Enterprise Institute (AEI), a conservative US think tank, found that China invested $24.2bn across all sectors in the US last year - a huge drop from 2016, but still the second highest on record.
Chinese companies have invested about $21.6bn in US technology businesses since 2007, according to the AEI.Chinese companies have invested about $21.6bn in US technology businesses since 2007, according to the AEI.
Analysts attribute some of the decline to controls that China has placed on outbound investment. CFIUS also stymied a number of acquisitions.
Looming tariffsLooming tariffs
The latest move comes amid continued trade tensions between the world's two largest economies. The US still plans to impose tariffs of 25% on $34bn worth of Chinese goods starting from 6 July, with an additional $16bn potentially to follow.
Earlier in the week, reports suggested that the US might target investments in the America by any company with more than 25% Chinese ownership.
It appears that this plan has been abandoned in favour of an expanded role for CFIUS.
But even if the US has backed off on investment rules, it looks set to move ahead with tariffs.
The US will impose tariffs of 25% on $34bn worth of Chinese goods starting from 6 July, with an additional $16bn potentially to follow.
China has promised matching tariffs in retaliation.China has promised matching tariffs in retaliation.
The measures are controversial among businesses, while economists say they pose a risk to economic growth.