In New Letter To President Trump, Schumer Urges CFIUS To Block All Deals Involving Chinese Buyers Until China Gets Tougher With North Korea

Washington, D.C. – U.S. Senate Democratic Leader Charles E. Schumer today wrote to President Trump and urged him to use his authority over the Committee on Foreign Investment in the United States (CFIUS) to put economic pressure on China in order to help rein in North Korea’s threatening and destabilizing behavior. Even after North Korea’s recent missile tests, China has maintained economic relations with the country and continues to be its largest trading partner. If North Korea’s aggression is met with zero repercussions from its most important economically, it will have no incentive to reverse course on this dangerous activity. In fact, China has even sought to weaken and water down the international sanctions regime to counter the threat posed by North Korea through the U.N. Security Council. As a result, Schumer urged President Trump to exercise his authority over CFIUS to block mergers and acquisitions in the U.S. by Chinese companies until China works to bridle its neighbor’s aggression. Schumer said this economic pressure on China would make it clear that China is expected it to step up and deter the North Korean threat.

A copy of Schumer’s letter appears below:

Dear President Trump:

I write with great concern over the increasing threat posed by North Korea. As your administration considers appropriate responses to this growing danger, I urge you to apply additional pressure on China to play a constructive role in reining in North Korea. Given recent developments, it is my assessment that China will not deter North Korea unless the United States exacts greater economic pressure on China. The U.S. must send a clear message to China’s government.  To that end, if China continues to passively address North Korea, I urge you to use your authority over the Committee on Foreign Investment in the United States (CFIUS) to suspend the approval of all mergers and acquisitions in the U.S. by Chinese entities.

While China has taken a few small steps in response to North Korea’s nuclear missile tests, it has largely maintained normal economic relations with North Korea, despite the sanctions put in place by numerous United Nations Security Council (UNSC) Resolutions. The regime in North Korea is increasingly dependent on China’s goods and investments, especially its energy and manufacturing imports. Reports indicate that over 90 percent of North Korea’s foreign trade is with China and 95 percent of its foreign direct investment comes from China. Even with North Korea’s continued provocative actions, China’s trade with North Korea rose 34 percent over this past year, including a marked increase in iron ore trade. Additionally, numerous reports indicate that China has unevenly enforced U.N. sanctions on North Korea and actively watered down sanctions in the most recent UNSC Resolutions. Despite North Korea’s recent missile tests – clear UNSC violations – it remains unclear whether China will support additional sanctions against North Korea or intends to veto efforts led by the United States, the Republic of Korea and Japan. The robust China-North Korea economic and trade relationship makes it clear that China could exercise considerable leverage over the North Korean regime to alter course, but that far from trying to do so China’s leaders would prefer to contain the problem – not solve it.

If China does not change its posture, the U.S. should take clear and firm action to seek to ensure China’s cooperation. Suspending Chinese firms’ ability to acquire companies in the U.S. would be one such action. The reported recent tightening of China’s outbound foreign direct investment (OFDI) controls in tandem with state funding for OFDI in many sectors indicate that major foreign investments in the U.S. from China are increasingly tied to state interests. It is my understanding that as many as 30 of the 80 transactions being reviewed by CFIUS are transactions with a Chinese nexus. Under the CFIUS statute, the President has the authority to thoroughly review covered transactions that threaten to impair the national security of the United States. One of the considerations that the President must make in any CFIUS recommendation is whether the acquirer’s subject foreign country is adhering to nonproliferation control regimes, including treaties and multilateral supply guidelines, and to international sanctions regimes.

While the U.S. should remain open to foreign investment, the security threat posed by China’s continued trade arrangements with North Korea justifies suspending approval of all CFIUS covered transactions where Chinese entities could gain a controlling interest.  Again, if China continues to insufficiently address North Korea, I would urge you to consider this option as you and your national security team weigh potential actions to secure China’s cooperation in deterring North Korea’s nuclear weapons development. 

Thank you for your consideration of this request.

Sincerely,

Charles E. Schumer

Senate Democratic Leader

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