The Committee on Foreign Investment in the United States (CFIUS) reportedly observed limits on its authority in a recent case to examine and potentially disturb foreign investment transactions for national security reasons.
What Happened?
CFIUS reportedly declined to disturb an acquisition of land in Mecosta County, Michigan, by Gotion, Inc., a Chinese-owned company that produces electrical vehicle batteries. Gotion plans to build a $2.4 billion plant on the land. CFIUS has not addressed reports regarding its disposition of the transaction, but Gotion representatives have said CFIUS found that the acquisition was not a “covered transaction” or a “covered real estate transaction” – and therefore not within CFIUS’s jurisdiction.
Why Did it Happen?
CFIUS’s jurisdiction over real estate transactions is limited to acquisitions or leases of sites near certain military installations and other sensitive government locations. CFIUS also has the authority to scrutinize foreign investment transactions where a foreign person will gain or potentially gain control over, or make certain other types of investment in, a U.S. business. CFIUS apparently found that the Gotion land acquisition satisfied neither requirement. In particular, CFIUS seems to have found that the plant would be a startup, or “greenfield,” investment that does not involve an acquisition of or investment in an existing U.S. business.
CFIUS’s decision in the Gotion real estate proceeding resembles its recent disposition of a real estate acquisition by Fufeng, a Chinese company, in Grand Forks, North Dakota. In that case too, CFIUS reportedly found that it had no jurisdiction over the transaction, prompting criticism from local politicians who had urged CFIUS to force a divestment. After CFIUS declined to act, the Grand Forks City Council effectively strangled the development of a wet corn mill on the acquired real estate by denying building permits and refusing access to industrial infrastructure.
What Does it Mean?
In one sense, CFIUS’s treatment of the Gotion and Fufeng transactions is unremarkable and the findings seem compatible with limitations on CFIUS’s and the President’s authority. The transactions are, however, notable instances of CFIUS declining to overreach despite elected officials’ apparent pleas for it to do so in connection with Chinese parties’ investment activity.
Beyond CFIUS, politically sensitive real estate acquisitions, particularly ones involving Chinese entities, still carry risk for the investor. State and local governments have the power to stop projects, as the Fufeng case makes clear.
Moreover, decisions such as Fufeng and Gotion have spurred action on Capitol Hill. Congress is considering several proposals to expand CFIUS’s jurisdiction to cover more types of real estate transactions. In addition, several states – including North Dakota, Wyoming and Florida – have restricted real estate transactions involving non-U.S. persons from certain countries, including China.
