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Proposed US Act Threatens 43% of Investment in China: Rhodium

A new report by the research firm Rhodium says the National Critical Capabilities Defence Act has major implications for the economic ties between the US and China


US and Chinese flags flying in Washington as China stock delisting stand-off deepens
The "America COMPETES Act aims to increase US competitiveness with China and boost US semiconductor manufacturing. Reuters file photo.

 

As much as 43% of US investment in China may be threatened should it adopt a proposed new bill to review outbound investments in countries considered a potential security threat.

That’s the view of a new report by the research firm Rhodium Group, which says the National Critical Capabilities Defence Act, introduced by senators last year to safeguard national security interests, has major implications for the economic relationship between the US and China.

“If the bill becomes law without major changes, it will almost certainly accelerate a shift in US-China investment ties away from ‘active’ FDI (Foreign Direct Investment) towards more ‘passive’ holdings of equity and bond securities,’’ says the report. “It could also stoke tensions with US allies, who may decide not to follow America’s lead and react unfavorably to new investment restrictions imposed on the US operations of their companies.’’

 

Critical Sectors

Such a new regime may also have negative consequences for the global competitiveness of US companies in several critical sectors and for the attractiveness of the US as a global investment destination, it says.

It remains to be seen whether the proposal becomes law and if enacted it could be watered down, says Rhodium. The ultimate impact on business would depend on the rules governing the law’s implementation, it added.

“However, the risks of a broad and loosely defined screening approach like the one proposed in current versions of the NCCDA are high, both for American companies and the US economy,” it concludes.

 

• Kevin Hamlin

 

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Kevin Hamlin

Kevin Hamlin is a financial journalist with more than 40 years of experience covering Asia. Before joining Asia Financial, Kevin worked for Bloomberg News, spending 12 years as Senior China Economy Reporter in Beijing. Prior to that, he was Asia Bureau Chief of Institutional Investor for ten years.

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