In March, the Committee on Foreign Investment in the United States (CFIUS) told Chinese video game company Beijing Kunlun Tech that its ownership of popular LGBT social networking app Grindr poses national security risks.

How owning a dating app relates to national security is anybody's guess. But such is the state of Chinese investment in the U.S., as tension between the countries remains unabated, with global law firms caught in the crossfire.

Growing regulatory uncertainty is turning deals away from the U.S. Last year, total Chinese investment in the U.S. fell to $5 billion; it was $45.6 billion in 2016, according to data compiled by Baker McKenzie and Rhodium Group.

Kunlun, which is now under pressure to sell Grindr, first bought into the California-based company in 2016, during a record year for China's outbound investment. Until then, for more than a decade, overseas mergers and acquisitions by Chinese companies, state-owned or otherwise, were rising. And Big Law benefited. Global law firms were behind almost all the high-profile Chinese outbound deals during that time.

Global firms also needed the outbound wave for their China practices. In the early 1990s, when foreign firms followed their multinational clients to China, the country didn't have much of a commercial legal system. But during the next two decades, China's regulatory system became more sophisticated and domestic law firms grew exponentially. Meanwhile, foreign law firms were still barred from practising Chinese law. So as Chinese companies looked overseas for more growth opportunities, global firms were pivoting their China practices toward outbound work.

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Things shifted in 2017 when the Trump administration intensified regulatory scrutiny of Chinese investments and expanded CFIUS's role in screening foreign deals. CFIUS rejection used to be rare. The Obama administration made more frequent interventions than previous administrations, but the Trump administration took it to a new level. As research by Pillsbury Winthrop Shaw Pittman showed, CFIUS's approval rate for Chinese deals fell below 60 percent last year; it was more than 90 percent under Obama.

It didn't help that the 2016 outbound wave alerted Beijing, which went ahead with stricter foreign-exchange control methods, preventing money from leaving China. In 2017, Chinese outbound investment dropped for the first time in a decade, and it slid further last year.

U.S. firms tend to argue that more CFIUS investigations will bring in more work. But for whom? Unlike deals on which firms' Chinese offices play instrumental roles, CFIUS and other government regulatory work doesn't require much cross-border involvement. Meanwhile, firms' Asian offices, especially Chinese offices, continue to be under intense fee pressure as the profitability gap widens between Asian and U.S. markets. Since 2017, two Am Law 100 firms – Troutman Sanders and Davis Wright Tremaine – have closed their China offices. The firms said they will continue to work for Chinese clients, just not from China.

Others are anticipating a pickup in inbound work in China. Foreign direct investment into China reached an all-time high in 2017, according to a United Nations report. To address concerns raised during trade negotiations with the U.S., China recently passed a new law that promises to treat foreign and domestic companies equally.

The hope is that the new law will encourage more investment in China and ease political tension. But to make a difference for global firms, more detailed rules are needed. Until then, Big Law's struggles in China will continue.