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Chinese Companies Investing in The U.S. Tech Sector, CFIUS Remarks Threat To National Security

The U.S. is not the only country toughening screening measures for foreign investment. In December, the European Union proposed a new regulation for members to adopt “CFIUS-like” foreign investment review processes.

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This from March 27, 2019, shows the Grindr icon on a phone. This week, the Committee for Investment in the United States reportedly directed Beijing Kunlun Tech to divest itself of Grindr, a gay dating app, because of concern the data it collects could be used for blackmail. Pixabay

For decades, it was virtually unknown outside a small circle of investors, corporate lawyers and government officials.

But in recent years, the small interagency body known as the Committee for Investment in the United States has grown in prominence, propelled by a U.S. desire to use it as an instrument of national security and foreign policy.

This week, the panel made headlines after it reportedly directed Chinese gaming company Beijing Kunlun Tech to divest itself of Grindr, a popular gay dating app, because of concern the user data it collects could be used to blackmail military and intelligence personnel.

Operating out of the Treasury Department, the nine-member CFIUS (pronounced Cy-fius) reviews foreign investments in U.S. businesses to determine whether they pose a national security threat.

Notification was voluntary

Until last year, notifying the panel about such investments was voluntary, something Kunlun and California-based Grindr took advantage of when they closed a deal in 2016.

But given growing U.S. concern about Chinese companies with ties to Beijing buying businesses in sensitive U.S. industries, the committee’s rare intervention to undo the deal was hardly a surprise, said Harry Broadman, a former CFIUS member.

“I think anyone who was surprised by the decision really didn’t understand the legislative history, legislative landscape and the politics” of CFIUS, said Broadman, who is now a partner and chair of the emerging markets practice at consulting firm Berkley Research Group.

The action by CFIUS is the latest in a series aimed at Chinese companies investing in the U.S. tech sector and comes as the Trump administration wages a global campaign against telecom giant Huawei Technologies and remains locked in a trade dispute with Beijing. The U.S. says the state-linked company could gain access to critical telecom infrastructure and is urging allies to bar it from participating in their new 5G networks.

Technologies now subject to CFIUS review
Technologies now subject to CFIUS review. VOA

While the administration has yet to formulate a policy on Huawei, the world’s largest supplier of telecom equipment, the latest CFIUS action underscores how the U.S. is increasingly turning to the body to restrict Chinese investments across a broad swath of U.S. technology companies.

“CFIUS is one of the few tools that the government has that can be used on a case-by-case basis to try to untangle [a] web of dependencies and solve potential national security issues, and the government has become increasingly willing to use that tool more aggressively,” said Joshua Gruenspecht, an attorney at Wilson Sonsini Goodrich & Rosati in Washington, who represents companies before the committee.

CFIUS’s history has long been intertwined with politics and periodic public backlash against foreign investment in the U.S.

OPEC investments

In 1975 it was congressional concern over the Organization of the Petroleum Exporting Countries (OPEC) investments in U.S. stocks and bonds that led President Gerald Ford to set up the committee through an executive order. It was tasked with monitoring the impact of foreign investment in the United States but had little other authority.

In the years that followed, backlash against foreign acquisitions of certain U.S. firms led Congress to beef up the agency.

In 1988, spurred in part by a Japanese attempt to buy a U.S. semiconductor firm, Congress enshrined CFIUS in law, granting the president the authority to block mergers and acquisitions that threatened national security.

In 2007, outrage over CFIUS’s decision to approve the sale of management operations of six key U.S. ports to a Dubai port operator led Congress to pass new legislation, broadening the definition of national security and requiring greater scrutiny by CFIUS of certain types of foreign direct investment, according to the Congressional Research Service.

But by far the biggest change to how CFIUS reviews and approves foreign transactions came last summer when Congress passed the Foreign Investment Risk Review Modernization Act of 2018.

Slated to be fully implemented in 2020, the new law vastly expanded CFIUS’s jurisdiction and authority, requiring foreign companies that take even a non-controlling stake in a sensitive U.S. business to get the committee’s clearance.

While the new law did not mention China by name, concern about Chinese investments and national security dominated the debate that led to its enactment.

“There is no mistake that both the congressional intent and the executive intent has a clear eye on the role of China in the transactions,” Broadman said.

Threats to ‘technological superiority’

Under interim rules issued by the Treasury Department last fall, investments in U.S. businesses that develop and manufacture “critical technologies” in one or more of 27 designated industries are now subject to review by CFIUS. Most of the covered technologies are already subject to U.S. export controls. The designated industries are sectors where foreign investment “threatens to undermine U.S. technological superiority that is critical to U.S. national security,” according to the Treasury Department. They range from semiconductor machinery to aircraft manufacturing.

The new regulations mean that foreign companies seeking to invest in any of these technologies and industries must notify CFIUS at least 45 days prior to closing a deal. CFIUS will then have 30 days to clear the deal, propose a conditional approval or reject it outright. If parties to a transaction do not withdraw in response to CFIUS’s concerns, the president will be given 15 days to block it.

Transactions blocked by presidents
Transactions blocked by presidents. VOA

To date, U.S. presidents have blocked five deals — four of them involving Chinese companies. One was blocked by the late President George H.W. Bush in 1990, two by former President Barack Obama in 2012 and 2016, and two by President Donald Trump.

The number is deceptively small. A far greater number of deals are simply withdrawn by parties after they don’t get timely clearance or CFIUS opens a formal investigation. According to the Treasury Department, of the 942 notices of transactions filed with CFIUS between 2009 and 2016, 107 were withdrawn during the review or after an investigation.

In recent years, CFIUS has reviewed between 200 and 250 cases per year, according to Gruenspecht. But the number is likely to exceed 2,000 a year under the new CFIUS regime, he added.

The tighter scrutiny has raised questions about whether the new law strikes the right balance between encouraging foreign investment and protecting national security.

“I think the short answer is it’s too early to tell,” Gruenspecht said. However, he added, if the new law “becomes a recipe for taking foreign investment off the table for whole realms of new emerging technology, that crosses a lot of boundaries.”

Also Read: Tourism Benefits Tribes, Boosts Economies, Creates Jobs for Native Americans

Concern in Europe

The U.S. is not the only country toughening screening measures for foreign investment. In December, the European Union proposed a new regulation for members to adopt “CFIUS-like” foreign investment review processes.

Gruenspecht said that while foreign investors are not “thrilled” about the additional CFIUS scrutiny, “a lot of Western nations are also saying, actually, ‘We totally understand the rational behind CFIUS and we’re looking to implement our own internal versions of CFIUS ourselves.’ ” (VOA)

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Top Investment Options for Beginners in India

The most important thing that guarantees high returns on your assiduous earnings is safety

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Time and Money
"Money can't buy happiness". A group of researchers believes the opposite with scientific backing. Pixabay

Investing your savings is a good idea. You just cannot keep saving money because of two main reasons.

Firstly, the savings will not grow. Most of the times they stay the same unless you count the nominal savings account your bank keeps adding half-yearly or yearly. Secondly, some need or the other arises, and you will be inclined to spend the money out of your savings than going for a loan.

We cannot stop some need. Now and then, some appliance in your house needs a repair or replacement, same goes good with your vehicles, kids, spouse and so on.

So locking away your savings so that you will not use them at convenience and letting them grow in the meanwhile is a good strategy.

Only if you knew how, when and where?

Most of us are good at working hard, slogging it out and earning the few extra bucks, but when it comes to investing and make money grow, we have neither the expertise nor the time for it.

As the famous billionaire and investor, Warren Buffet put it – “Unless you are making money while you are sleeping, you will keep working till you die”.

Safety First

Let us explore some of the investment options for people who are planning to invest.

  1. Public Provident Fund (PPF)

For a change, the Public provident fund or PPF as it is more popularly known as needs no introduction. Every employee working in a limited company or a governmental organization knows of this.

PPF is also one of the main reasons behind most of the Indians growing lazy and not trying to look for other investment options unless your wall in the above average or the top bracket. At an interest rate of 7.9% and dual contribution from the employee and the employer, PPF is the lifeline for all employees, especially if they keep contributing until retirement without withdrawing.

There is a facility to withdraw the money if you are jobless for a particular time or you can even avail three-year loans. However, mostly PPF is looked at as a post-retirement benefit than an investment option during your working years.

But an investment nonetheless.

You can save anywhere between ₹ 500 to ₹ 1.5 lakhs a year, and we all know why it is the favorite – These savings exempt from tax, However, if you choose to invest more than ₹ 1.5 lakhs a year in your PPF, the excess amount will neither earn interest or tax benefits. Minimum lock-in period is 15 years.

Fixed Deposit Scheme, India
Fixed Deposits are one of the more common and preferable investment schemes in India. Pixabay
  1. National Savings Certificate (NSC)

At an interest rate of 8% per annum, backed by the Government of India and the convenience of obtaining one (your nearby post office), a National savings certificate or an NSC can be not ignored.

Though it has a minimum lock-in period of 5 years, (the other option is 10-year lock-in period), the guaranteed good yields make it a preferred investment option by quite a few. But this is also the most ignored option by many for some reason.

Investment up to ₹ 1.5 lakhs is exempted from tax. The interest rate is revised quarterly, and the amount is compounded annually.

Another advantage is that the investments in NSC are accepted as collaterals by many banks and NBFCs (non-banking finance corporations). However, you cannot touch your amount for a minimum period of 5 years.

  1. Equity Linked Saving Scheme (ELSS)

Shorter lock-in periods and high-interest rates are the USP of the equity-linked saving schemes (ELSS).

In the ELSS, the minimum lock-in period is three years, and you can choose to make your earnings as regular dividends through the three years or receive a lump sum at once after your lock-in period ends. Therefore, this is a plan that lets you draw the amount within your investment period and gives you a chance to earn more than the rest – 15-18% returns. A near 11% interest offered by NPS (the national pension scheme) is a distant second. In addition, you do not need to invest the entire amount at once. You have an option called SIPs (systematic investment plans) by way of which you can invest as low as ₹ 500 a month.

Investments up to ₹ 1.5 lakhs are exempt from taxation, but returns are taxable. The LTCG or long-term capital gains from ELSS are taxable if they are above ₹ 1 lakh.

There is a fair amount of risk involved, and your investment may not end profitable every time. However, you can take the help of fund managers (or mutual funds) and play it safe.

  1. Recurring and Fixed deposits

Most of the nationalized and private banks offer you this facility at different interest rates and deposit lock-in periods.

In a fixed deposit (FD) scheme, you make a deposit lump sum, which will mature at the end of the pre-determined period, and if you do not have the capital to start with, you can choose a recurring deposit (RD), where you can add a fixed amount every month, which can be withdrawn at the end of the maturity period.

The interest earned with a recurring deposit may be less than that of a fixed deposit, but in case of an RD, you are creating an investment with your savings. Not all of us may have the luxury of investing a lakh or five lakh rupees to start with.

Again, investments up until ₹ 1.5 lakhs in 5 years fixed deposits are exempt from taxation, but returns are taxable. Recurring deposits and fixed deposits for a period of less than five years are not exempt from income tax.

  1. National Pension Scheme (NPS)

Many, after the introduction of 2-tier system, look upon another government-backed scheme, NPS, as a useful option.

Under the Tier I NPS, one has to contribute a minimum of ₹ 6,000 per year to keep the account active. The money cannot be withdrawn till you reach 60 years of age (partial withdrawal allowed in exceptional cases) and if you choose to exit the scheme mid-way, 80% of your savings have to be invested in an annuity plan (which will be returned to you as monthly pension payments after retirement).

The Tier II NPS is a non-retirement scheme, which is more like a savings account and allows you to withdraw money when you want. There is no lock-in period, but government employees can avail tax exemption if they lock-in their savings for a minimum period of 3 years. You need to have an active Tier I account to open a Tier II account. However, this scheme is not looked at as a long-term investment due to certain limits on investments, as you cannot invest more than 50% of your savings in stock markets, etc.

Interest rates are high at 12-14% and investments up to ₹ 1.5 lakhs a year and an additional ₹ 50,000 per year can be exempted under subsection 80 CCD.

Also Read: Online Games: What Risks Do They Pose To Children?

Though there are many more private and non-governmental schemes whit flexible options which offer you a lot of conveniences and promise higher returns, it is always wise to think about safety first when it comes to investments.

It is hard-earned money, and we cannot earn it again. So, it is always safer and wiser to go with a trustworthy scheme which may offer fewer returns than a fancy scheme which gives you a lot more.

The most important thing that guarantees high returns on your assiduous earnings is safety.