Want to make a venture capital or private equity investment in China? The U.S. government might soon have a problem with that, and a mechanism to stop it.
Driving the news: Congress is hammering out final details of a bill that some refer to as "reverse CFIUS." It would be included in a massive domestic semiconductor production bill, known as the CHIPS Act, that may be passed before the August recess.
- This is a bipartisan effort, with the Senate side being led by Bob Casey (D-Pa.) and John Cornyn (R-Texas).
The big picture goal is to put supply chain guardrails on U.S. chipmakers like Intel, so they don't leverage federal largesse to build new factories in China. But it would go much further.
- The most recent draft, dated June 13, would apply to such industries as artificial intelligence, large-capacity batteries, critical minerals, pharmaceuticals, pharma ingredients and quantum technologies.
- Like with CFIUS, this is about protecting national security. But it would focus on outbound capital flows, rather than inbound, via a new interagency group called the Committee on National Critical Capabilities (CNCC).
- The bill language isn't exclusively about China. Instead, it refers to a group of "countries of concern," that also includes Russia, Iran, North Korea, Cuba and Venezuela. But, in practice, it's about China.
- Casey and others kicked off this effort a few years back, in a much broader manner that was viewed as something of a fringe effort. But now the language is narrower and nearing codification.
Details: This isn't a blanket ban on investments. Senate aides and a top chip industry executive stress that the bill emphasizes notification, so that the federal government has fewer supply chain blind spots.
- The next step would be mitigation, which isn't emphasized too much in CFIUS statute.
- But, make no mistake, CNCC would be empowered to block deals it deems problematic. And that may be a risk that U.S. investment firms are unwilling to take — thus reducing U.S. venture investment in Chinese AI or pharma startups.
The bottom line: You'd go broke betting on Congress to pass bills, even those with bipartisan support, but this one does seem likelier than not.
