Japanese companies’ ambitions to pursue more deals in the United States may run counter to increased scrutiny of their business activities in China, trade lawyers warn.
Lawyers say the concerns are being discussed at the top of Japan’s biggest companies, with the Committee on Foreign Investment in the United States (Cfius) at the center of the discussion. I will upload a review about the connection between buyers and China.
The warning comes as Japanese companies seek to make more acquisitions in the US. That’s because Chinese buyers face even bigger hurdles to secure U.S. deals after the end of Covid-19 restrictions that made overseas transactions difficult.
While Cfius’ scrutiny affects potential buyers from anywhere outside the United States, lawyers say Japanese companies have decades of investments, supply chains, joint ventures, and other business responsibilities in China. said to be particularly vulnerable because of their ties to
Aimen Mir, former chairman of the Cfius review board and now a competitive partner at Freshfields Bruckhaus Deringer, said companies need to prepare for greater scrutiny “as the geopolitical situation evolves.”
“Companies will find it increasingly difficult to move between the US and China, and neither government seems likely to make this conundrum easier for investors in the near future,” Mir said.
Cfius isn’t trying to discourage companies from doing business in China generally, but the group’s deep ties to China could complicate scrutiny, he added.
Cfius may cross-examine Japanese companies as to how they would react if faced with commercial decisions in which the US and Chinese governments are in direct conflict, he suggested.
“Companies will have to think about what will happen in the future,” Mir added.
Ken LeBlanc, a Tokyo-based merger and acquisition attorney at Davis Polk, said: . . we need to think very carefully about our interconnectivity with China. They must be able to answer Cfius’ questions, such as whether Chinese employees and business his partners have access to their technology and his IT, and whether cyber his security is a weakness. yeah. ”
U.S. President Joe Biden signed an executive order last September, emphasizing the need for Cfius reviews to remain responsive to the evolving national security landscape. While the order may not have resulted in a radical change in its position, legal experts said it sent a message that Cfius’ review process would become more invasive.
Ivan Schlager, a partner at Kirkland & Ellis whose practice focuses on the Cfius case, said the chances of a Japanese deal being blocked in the United States were not high, but that “the scrutiny would be more rigorous and focused. And it will be thorough,” he said.
He said one of Cfius’ potential concerns concerns companies that rely heavily on China as a customer.
“Do the Chinese have influence over you? Can they use that leverage for nefarious purposes?” Schlager said.
George Grammas, a partner at Squire Patton Boggs who advises clients on export controls and Cfius customs clearance, said Cfius has broadly considered its relationship with China through “subsidiaries, joint ventures and cooperative arrangements” to protect its technology. He said he was focusing on potential weaknesses in doing so.
This raises concerns for many Japanese companies that have joint ventures in China that partner with local groups and share some level of technology.
Cfius declined to comment.
