US President Donald Trump has recently signed the America First Investment Policy memorandum, aiming to further tighten scrutiny over US-China investment activities.
Regarding industry restrictions on US investments in China, the memorandum expands upon the Biden administration’s previous limitations on semiconductors, quantum information technology, and artificial intelligence and now include biotechnology, hypersonics, aerospace, advanced manufacturing, and directed energy. The memorandum also mandates regular reviews and updates to the covered industries.
On investment restrictions, previous policies already covered equity investments, debt financing, equity conversions, joint ventures, and investments made as limited partners (LPs). However, US individuals were previously exempted from restrictions when investing in publicly traded securities on Chinese stock exchanges.
The new memorandum states that “as part of this review, the administration will consider imposing restrictions on private equity, venture capital, greenfield investments, corporate expansions, and publicly traded securities investments. Investment sources under review include pension funds, university endowments, and other limited partner investors.”
Regarding US-listed Chinese stocks, it calls for an assessment of whether the audit standards required under the Holding Foreign Companies Accountable Act are being fully enforced and it also calls for a review of whether the Variable Interest Entity (VIE) structures used by foreign competitors in US listings restrict American investors’ ownership rights and protections, as well as scrutiny of fraud allegations against these companies.
“The Secretary of the Treasury should, as appropriate, engage with the U.S. Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB),” the memorandum states.
The memorandum also mandates that the US Attorney General coordinate with the Federal Bureau of Investigation (FBI) to assess risks faced by US investors, including evaluating the auditability, corporate governance, and evidence of criminal or civil fraud among all foreign competitors listed on US exchanges.
For Chinese investments in the US, the memorandum states that the US will use all necessary legal tools, including the Committee on Foreign Investment in the United States (CFIUS), to restrict individuals associated with China from investing in American technology, critical infrastructure, healthcare, agriculture, energy, raw materials, or other strategic sectors.
“The administration will protect U.S. farmland and real estate near sensitive facilities, seek to expand CFIUS’s jurisdiction over greenfield investments (including through congressional consultations), limit foreign adversaries’ access to U.S. talent and businesses in sensitive technologies (especially artificial intelligence), and broaden CFIUS’s authority to oversee ‘emerging and foundational’ technologies.”
However, it’s important to note that presidential memorandums generally do not carry the same legal weight as executive orders and are primarily used to express policy positions and guide government agencies. For legal precedence, the order of authority is as follows: Proclamation, Executive Order, Presidential Memorandum, Presidential Notice, and Presidential Determination.
CITIC Securities said in a note that the memorandum does not indicate an immediate policy implementation and does not represent a fundamental shift in U.S.-China investment policies. It is not expected to impact global investors’ interest in Chinese assets.
A spokesperson for China’s Ministry of Commerce condemned the US move, saying that it broadens the concept of national security arbitrarily and is discriminatory and non-market-oriented. “This severely impacts normal business cooperation between companies in both countries. Tighter US security reviews on Chinese investments will significantly undermine Chinese enterprises’ confidence in investing in the US We urge the US to provide a fair, transparent, stable, and predictable business environment for Chinese companies.”
On US investment in China, the spokesperson said “Further restrictions from the US side are completely unreasonable. If implemented, these measures will distort investment flows between the two countries and will ultimately harm the US itself. Many American business associations and companies have already expressed concerns that US investment restrictions on China will cede the Chinese market to competitors.”
The ministry urged the US to abide by international investment and trade rules, respect market principles, and stop politicizing and weaponizing economic and trade issues. “China will closely monitor US actions and take necessary measures to safeguard its legitimate rights and interests,” the spokesperson stated.
