U.S. Officials Fear Chinese Predatory Acquisitions During Pandemic.

Author:Lee, Connie

The COVID-19 pandemic may open the door for China to acquire U.S. companies struggling during the economic downturn that has been wrought by the virus, lawmakers and officials are warning.

Rep. Jim Banks, R-Ind., recently introduced a bill intended to mitigate the threat. "We fully expect these types of tactics and strategies to continue on the part of the Chinese," Banks told National Defense. "This is a preventative measure to block these types of predatory acquisitions while America's economy is on its knees due to the coronavirus."

The bill--known as the Restricting Predatory Acquisition During COVID-19 Act--would expand the number of potential acquisitions that are reviewed by the Committee on Foreign Investment in the United States and approved by the president. CFIUS is responsible for reviewing potential national security considerations of foreign investments in U.S. companies.

Additionally, the legislation would prevent companies with ties to the Chinese government from owning more than 51 percent of shares in certain firms.

These U.S. firms include critical infrastructure under the Defense Production Act of 1950; organizations engaged in production and dissemination of news media; or entities otherwise determined to be critical to national security, critical infrastructure, or culturally significant by the president, the legislation stated.

Foreign acquisitions are national security concerns because they can lead to intellectual property theft, Banks said.

In recent years, Pentagon officials have worked to bolster the cybersecurity of its suppliers to prevent Chinese organizations from stealing important program information. The U.S. government has made other moves such as restricting equipment from Chinese telecommunications company Huawei.

Banks said critical infrastructure companies within the national security realm will continue to be likely targets.

"Often those acquisitions will occur --or get some ways down the process of the acquisition [before] becoming final--and then they rip off the IP, take it back to China and let those companies sort of dry up on the vine," he said. "We fully anticipate that their tactics will continue."

Undersecretary of Defense Ellen Lord, the Pentagon's top acquisition official, has also expressed concern over adversarial foreign investments during the pandemic.

"It presents a greater attack surface, if you will, as there is uncertainty especially with small businesses as to whether their...

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