Reverse CFIUS: the Beginning Not the End

Removing the overhang could boost China market sentiment

“In terms of the investment war, the U.S. and China may want the same thing: the U.S. doesn’t want certain Chinese companies listed in the U.S., and China doesn’t want some Chinese companies listed in the U.S.” Qi Wang, Daily Reflection on China

This is a sequel to my earlier post on the U.S.-China Investment War. The potential scope of this can be quite broad, covering both inbound and outbound investments, private and public securities, corporate M&As and tech sanctions etc.

Currently, the market is concerned with something called “Reverse CIFUS”, i.e. potential restrictions on outbound investments from the U.S. to China.

New Bing: Reverse CFIUS refers to a mechanism that is being considered by the US lawmakers to review outbound investments with an eye on China. It is called a reverse version of the Committee on Foreign Investment in the United States (CFIUS), which reviews inbound investments and can recommend that the president block transactions seen as potential security threats¹. The Biden administration is purportedly close to releasing an executive order (EO) establishing an outbound investment screening mechanism². The mechanism would establish a new interagency panel to review and potentially prohibit outbound transactions on national security grounds³.

Sources:

(1) U.S. lawmakers weigh outbound investment reviews with eye on China

(2) The United States Prepares to Screen Outbound Investment

(3) Overview of the Proposed “Reverse CFIUS” Process via the National

(4) “Reverse CFIUS” On The Way: U.S. Government Developing Outbound

It is widely speculated that the Biden administration will unveil reverse CIFUS on China around the G7 meeting (May 21, 2023). This has been a major overhang on Chinese stocks, especially those listed in Hong Kong and the U.S. (H-shares and ADRs).

The Beginning Not the End

What do we know so far?