HomePoliticsCould U.S. Toughness on Chinese Business Have Unintended Consequences?

Could U.S. Toughness on Chinese Business Have Unintended Consequences?

At a time when Washington is attempting to improve its strained relationship with China, states across the U.S. are embracing anti-Chinese sentiment by implementing or proposing broad regulations aimed at severing economic ties with Beijing. These measures, seen in places like Florida, Utah, and South Carolina, reflect a growing political drive to reduce economic dependence on China and limit Chinese investment due to concerns about national security risks. These worries are shared by the Biden administration, which is working to decrease reliance on China by promoting domestic manufacturing and strengthening trade relationships with allies.

However, these state-level efforts have the potential to be more far-reaching than what the administration is currently orchestrating. Business groups have expressed concerns about these state initiatives, fearing that they veer towards protectionism and deviate from the longstanding tradition of welcoming foreign investments into the U.S. Nearly two dozen mostly right-leaning states, including Florida, Texas, Utah, and South Dakota, have introduced or implemented legislation to restrict Chinese acquisitions of land, buildings, and houses. Some of these laws may be more stringent than federal regulations, which allow the Treasury secretary-led committee to review and block transactions that could grant foreigners control over American businesses or real estate near military installations.

The state-level laws being proposed or enacted go beyond federal regulations, preventing China, and in some cases, other “countries of concern,” from buying farmland or property near broadly defined “critical infrastructure.” These restrictions align with a resurgence of anti-China sentiment fueled in part by a Chinese spy balloon’s journey across the U.S. and intensified political rhetoric leading up to the 2024 election. These measures pose an additional challenge for the Biden administration, which has recently sent senior officials to China in an attempt to stabilize economic ties. While Washington may view the relationship with China as a necessary evil, officials at the state and local levels seem determined to sever their economic ties with the U.S.’s third-largest trading partner.

Mario Mancuso, an attorney specializing in international trade and national security issues, stated that the federal government has been forceful in sharpening its China strategy, and the shift to state-level regulations is gaining strength. One of the main targets of these regulations has been Chinese land ownership, despite the fact that China owns less than 400,000 acres in the U.S., which is less than 1% of all foreign-owned land, according to the Agriculture Department. These restrictions gained momentum in 2021 after Fufeng USA, an American subsidiary of a Chinese company, faced backlash over plans to build a corn mill in North Dakota. Although the Committee on Foreign Investment in the U.S. (CFIUS), a powerful interagency group, reviewed the proposal and deemed it not under its jurisdiction, the Air Force, for national security reasons, stated that China’s involvement posed a risk, leading local officials to scrap the project.

Since then, states have been ramping up their restrictions on foreign investments, blocking land acquisitions from various countries, including Iran and North Korea, in some cases. China has been specifically targeted in other instances. These state-level moves, which also encompass investments from Russia, Iran, and North Korea, have faced backlash from business groups concerned about the strict regulations and opponents who view them as discriminatory. Some proposals have been diluted due to the backlash.

For example, Texas lawmakers initially proposed expanding a ban on infrastructure projects funded by investors linked to China, but the proposal was scaled back to only prohibit purchases of agricultural land, quarries, and mines by individuals or companies tied to China, Iran, North Korea, and Russia. The bill expired in May. In South Dakota, Governor Kristi Noem pushed for legislation to create a state version of CFIUS to review and investigate foreign investments in agricultural land, leases, and transfers. The legislation failed due to opposition from farming groups and lawmakers concerned about restrictions and the concentration of power in the governor’s hands.

Florida Governor Ron DeSantis, a Republican presidential candidate, endorsed one of the most controversial restrictions. In May, he signed a law prohibiting Chinese companies or citizens from purchasing or investing in properties within a 10-mile radius of military bases and critical infrastructure. However, the legislation is so broadly written that any investment fund or company with even a small ownership stake from a Chinese company or investor would be in violation. Business groups and the Biden administration have criticized the law as overreaching, while Republican attorneys general have sided with DeSantis. Challenges to the Florida legislation are underway in federal court, with a group of Chinese citizens and a real estate brokerage firm arguing that the law codifies and expands housing discrimination. The Justice Department has also expressed concerns about the policy’s legality.

These restrictions are causing uncertainty among investors and fund managers interested in investing in Florida, who must decide whether to proceed with their plans or exclude Chinese investors. The state-level laws present a gamble and could have unintended consequences for state revenues and the property market, while also failing to address actual national security risks.

These state-level investment restrictions coincide with congressional efforts to block Chinese businesses from purchasing U.S. farmland and place new mandates on Americans investing in national security industries in China. The Senate has already passed measures in July, but they still need approval from the House to become law. This combination of measures is likely to complicate diplomatic relations with China and may provoke retaliation. Chinese officials are concerned about the growing hostility towards Chinese investments at both the national and state levels, interpreting these actions as a sign of rising antipathy towards China. These measures, when added to existing federal limitations on Chinese investments, raise concerns in Beijing.