Credit: Shutterstock.com

The Committee on Foreign Investment in the United States recently gave the go-ahead to a Chinese acquisition in the U.S.: Citiking International, a Chinese-controlled investment fund, has been approved to acquire Albuquerque, New Mexico-based private jet-maker ONE Aviation. While Citiking's clearance, handled by Wilson Sonsini Goodrich & Rosati, is certainly good news in the M&A space, it's becoming increasingly rare.

In fact, the committee's hostility, despite its repeated denial that it targets Chinese deals, has all but killed off Chinese investment, at least when it comes to large deals. Statistics vary from organization to organization, but the shared overall message is that Chinese direct investment into the United States, once a key driver of global M&A activity, has dropped to its lowest point since the 2008-09 global financial crisis.

Research by Baker McKenzie and research firm Rhodium Group counted $4.5 billion worth of deals completed by Chinese investors in 2019. The largest of those transactions was a $2 billion deal that saw Chinese textile company Shandong Ruyi Group acquire Wichita, Kansas-based Koch Industries subsidiary Invista's textile unit. That deal was signed in 2017. Koch Industries sought the advice of Covington & Burling partner Mark Plotkin and got CFIUS to clear the deal in 2018. Another one of the larger deals, Chinese wind farm company Envision's $800 million acquisition of Nissan Motor's lithium-ion battery unit, Automotive Energy Supply, which has a plant in Smyrna, Tennessee, was announced in 2018. The sale was previously approved by CFIUS during Nissan's first attempt to sell it to a different Chinese investor. Transactions data compiled by Mergermarket and Refinitiv also showed that all the top China deals in 2019 were domestic deals, instead of outbound.

That is not good news for U.S. firms whose advantages and expertise lie in outbound work. Inbound and domestic work usually require Chinese law advice; most U.S. firms are still reluctant to take advantage of available policies, such as the Shanghai Free-Trade Zone Joint Operations program and are faced with direct competition from growing Chinese firms. Most participants in the FTZ program, which enables foreign firms to offer Chinese and foreign law advice under a joint brand, are British or have a strong British heritage. U.K. firms tend to be more spread out globally and locally involved. The other side of the equation is, of course, the rise of Chinese firms that are increasingly capable of handling inbound deals.

The result shouldn't be a surprise. According to Mergermarket's data, out of the top 10 legal advisers for M&A deals in greater China in 2019, only two—White & Case and Sullivan & Cromwell—are U.S. firms. Magic Circle firms Linklaters and Clifford Chance were ranked fourth and sixth, respectively, based on deal value. The rest of the top 10 were Chinese firms. No U.S. firm was in the top 10 ranked by deal count.

At least two other CFIUS approvals of Chinese deals were made public last year. Shanghai's Will Semiconductor and Beijing's Ingenic Semiconductor completed acquisitions of California-based OmniVision Technologies and Integrated Silicon Solution, respectively. The deals were very similar—both were domestic transactions between two Chinese companies involving U.S. assets, both were in the semiconductor sector and both had already been cleared by CFIUS in 2015, when more semiconductor deals were going through.

Having been approved once doesn't guarantee anything. CFIUS' power has since been significantly expanded, and it's now going after deals retrospectively. Since November, the committee has been reviewing the Chinese ownership of social media app TikTok, which was sold to Beijing-based startup ByteDance in 2017 without CFIUS reviewing the deal. Even if ByteDance doesn't end up having to sell TikTok—CFIUS forced out two Chinese investors from deals last year—the message is certainly not an encouraging one. It will be a while before we see another wave of Chinese investment in the United States.

Email: [email protected]