U.S. Treasury Plans to Restrict Chinese Investment Into Domestic Tech

The United States government seems to be not quite happy with China these days, even though President Trump and President Xi Jinping look like they’re on really friendly terms.

In particular, Computing has recently reported that the U.S. government and the country’s tech companies have been meeting to discuss “security risks” in using Huawei and ZTE equipment. Those briefings are said to be classified, however, Huawei and ZTE have been in the crosshairs of spying criticism for a while. Now, the U.S. Treasury plans to limit investment by Chinese-owned firms into U.S.-based tech companies.

Spies Like the U.S.

Back in February, several U.S. senators stated that China was trying to access sensitive technologies through companies Huawei and ZTE, which, according to Senator Marco Rubio, are “an extension of its own foreign policy.” Both companies obviously denied such accusations. The spying in question mostly concerns technologies and intellectual property.

That is not the first time China or its tech giants are accused of spying. Thus, last year it was reported that China has built the African Union building for free but bugged it to spy on African countries. The China-developed network in the building had a backdoor that allowed it to transfer data. The leakage remained unnoticed until last January when technicians noticed a pattern of data usage peaking every night, even though there was no one in the building. The investigation that followed unveiled that the data was being copied to servers based in Shanghai. China’s ambassadors claimed that those statements were “absurd” and “preposterous.”

Adding to that is a more recent scandal involving the trouble-ridden Facebook, which, according to another Senator Mark Warner, might share data with ZTE and Huawei alongside with over 60 other device manufacturers, which includes Amazon and Samsung.

“I think it’s important for us to do what we can to warn people about the threat. I think some of those companies are aware of [the intelligence concerns], but they make the decision that they’ll worry about that later. They want access to 1.3 billion people,” Senator Rubio told Cyberscoop.

Echoing those concerns is the recent decision of the U.S. Treasury to prevent companies with 25 or more percent Chinese ownership from buying U.S.-based companies that have “industrially significant technology.”

According to Reuters, the Treasury will particularly focus on sectors that China is trying to develop for its “Made in China 2025” program, including advanced IT and energy solutions, aerial and marine engineering, robotics and other hi-tech solutions, and pharmaceuticals.

Emergency Economic Power

A government official told Reuters that the planned restrictions would be devised and imposed under the International Emergency Economic Powers Act of 1977 (IEEPA) introduced in 1977 as H.R. 7738 legislation and mentioned in the United States Code as Title 50, §§1701–1707.

Simply put, the Act allows the President to bring up restrictions and sanctions in response to foreign threats to the U.S. national security.

The IEEPA was enacted to clarify the presidential power in said emergencies, previously regulated by the Trading with the Enemy Act of 1917 (TWEA), and make it overseeable. Under the IEEPA the president is entitled to declare emergencies only in case of “unusual and extraordinary threat to the national security, foreign policy, or economy of the United States” that originates “in whole or substantial part outside the United States.” Historically, the IEEPA was first invoked by Jimmy Carter during the Iran hostage crisis in 1979 and the respective sanctions were aimed at the “property of the government of Iran and its instrumentalities.”

Notably, on September 23rd, in response to the 9/11 crisis, George W. Bush issued Executive Order 13224 under the IEEPA to block the assets allegedly owned by terrorist organizations. In October 2001, the Congress enhanced the IEEPA with the USA PATRIOT Act, allowing the government to block assets during “pendency of an investigation” without the need to prove the subject’s wrongdoing.

More to Be Announced

However, no particular measures in regard of China and its companies have been announced so far. Still, both the Trump administration and the Congress have been vocal for months accusing Chinese telecom giants of foul play. The details are expected to be announced on June 3oth.

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