Recently, Desmond Shum, author of “Red Roulette” and former member of the Beijing Political Consultative Conference of the Chinese Communist Party, revealed that businessmen holding Hong Kong passports are under close scrutiny by American foreign investment review agencies when acquiring foreign companies.
According to Shum, in a post on social media platform X on Wednesday (April 24), he said that during a recent meeting with friends, one of whom was a senior headhunter, they shared insights on the challenges faced by businessmen with ties to China or Hong Kong.
“He told me that American/European companies do not want individuals holding mainland China or Hong Kong passports to join their boards. This is because if the company needs approval from the US Committee on Foreign Investment (CFIUS), things can get complicated,” Shum wrote.
The Committee on Foreign Investment in the United States (CFIUS) is responsible for reviewing all foreign transactions that involve US investments, particularly those related to national security.
Shum mentioned another friend who was in the process of acquiring a European technology company. “He encountered difficulties because he holds a Hong Kong passport and his holding company is registered in Singapore. Both these factors are seen as risk elements, leading to the acquisition needing approval from CFIUS. The entire deal had to be renegotiated,” Shum explained.
Shum highlighted that it is not just in the technology sector but across various industries that holders of Hong Kong passports are now being treated similarly to individuals with Chinese passports.
The Chinese Communist Party often uses companies from regions like Hong Kong and Macau for overseas acquisitions, coupled with direct harm to Hong Kong’s political, cultural, and economic environment, severely damaging the international image of Hong Kong.
He further stated that due to the close ties between the Singapore government and the Chinese authorities, as well as the significant increase in Chinese immigrants in recent years, registering a company in Singapore is now also considered a risk factor.
Shum believes that in the coming months or years, the adversarial relationship between Beijing and the West will become increasingly open and clear.
In another development, the US Treasury Department issued a proposed rule on April 11, preparing to revise the regulations for CFIUS’ review of foreign investments.
The Treasury Department stated that the proposed rule aims to enhance CFIUS’ ability to identify and address national security risks by expanding the scope of information requests to parties and authorizing the compulsory collection of information.
Specific changes include strengthening CFIUS’ monitoring and investigation of unnotified transactions and potential violations of mitigation obligations, such as increasing the economic penalties on parties and streamlining the subpoena issuance process by CFIUS.
For example, if significant misreporting or omissions are found in documents submitted to CFIUS, the maximum civil penalty increases from $250,000 to $5 million.
At the same time, the White House is seeking to implement a new set of foreign investment restrictions on US companies investing in Chinese businesses, primarily to prevent the leakage of American proprietary technology to Chinese companies, especially those aiding the technological development of the Chinese military.
Biden has also imposed new restrictions on the types of semiconductor technology and equipment exported to China.
Although the revision of CFIUS rules targets all countries and not specifically directed at the Chinese Communist Party, it illustrates the broader efforts by the US government to safeguard critical industries from foreign interference.