Beyond CFIUS: The Executive Order on Investment Policy and China
The White House is moving swiftly to strengthen U.S. economic security controls by taking a decisive approach to regulating bi-directional capital flows between the U.S. and China. The America First Investment Policy will require more advanced data tools for both enforcers and affected entities to determine what qualifies as “PRC-affiliated.”
n February 21, 2025, President Trump issued the America First Investment Policy, complementing his America First Trade Policy of January 20, 2025. As their names suggest, the earlier executive order concerns trade of goods and services between the US and China while the latest order addresses the flow of capital or investment flows between them.
Some prominent themes in the current order include:
Combatting Concealed Chinese Investment Structures
At the outset, the order calls out China’s strategy of obtaining U.S. technology, intellectual property, and its leveraging of strategic industries that is implemented:
This issue of concealment is raised throughout the order in the context of policing investment flows between the two countries. Investors and investees are not discussed in isolation. Instead, there is an emphasis on whether such actors are “PRC-affiliated” in the sense that they directly support or are compelled to support China’s Military-Civil fusion strategy. See WireScreen’s blog regarding China’s Military-Civil fusion strategy.
The concept of “PRC-affiliation” is notably contrasted with allied or non-suspect investors who enjoy open access to the U.S. market:
Further, favored investors in the U.S. qualifying for “fast-track” investment treatment will need to be vetted to make sure they do not “partner” with China.
Given this emphasis, it can be expected that the new rules and regulations directed by the present order will require analysis and verification of complex ownership structures for a variety of the objectives contemplated. Evaluating concealed ownership can be done rapidly using the WireScreen platform, as shown below, which highlights one of China’s sovereign wealth funds.
Reciprocal Private and Public Capital Flows
Inbound
The present order moves from concealment to emphasize the following:
Under this policy principle, the order calls on “all necessary legal instruments, including CFIUS” to restrict “PRC-affiliated” persons from investing in U.S. technology, critical infrastructure, healthcare, agriculture, energy, raw materials, farmland, real estate near sensitive facilities, and other strategic sectors. Food supplies, minerals, natural resources, ports, and shipping terminals are also noted among sensitive sectors.
CFIUS authority is to be expanded to police “greenfield” investments, access to talent and operations in sensitive technologies, such as artificial intelligence and “emerging and foundational” technologies. With the emphasis on greenfield investments and these other areas one can expect heightened scrutiny at the early stage of Chinese investment into the U.S., or investments made before a technology has even crystallized.
Outbound
In pursuit of its Military-Civil fusion strategy, the order explains that Chinese companies raise capital from American investors and do so in part by:
In this regard, the order refers to the use of “all necessary legal instruments” (including the blocking of property under the International Emergency Economic Powers Act (IEEPA), 50 U.S. Code § 1702(a)(1)) to deter such investments and cites all prior executive orders regarding prohibitions on securities investments into Communist Chinese Military Companies and Chinese Military Industrial Complex Companies. For a review of these classifications, see WireScreen’s prior blog. In addition, the order states that a full review is underway for the so-called “Reverse CFIUS” regulations. See WireScreen’s blog on Reverse CFIUS. It appears the Office of Science and Technology Policy will be charged with updating sensitive industry sectors subject to Reverse CFIUS.
A WireScreen analysis of a publicly traded index fund (in the form of an ETF) reveals direct and indirect investments into Chinese Military-Civil fusion related companies.
Special Situations
The order also pays special attention to a number of specialized investment types and introduces some novel approaches to policing US/China investment flows.
Passive investors, pension funds, and endowments
While the order encourages passive investment into the United States from all foreign person, it limits that posture to those involving:
The order further states that the Administration is considering restrictions on alternative investment types including private equity, venture capital, greenfield investments, corporate expansions, and investments in publicly traded securities, from sources including pension funds, university endowments, and other limited-partner investors.
Pension funds are singled out for special attention. The order indicates that the Employee Retirement Security Act of 1974 should be restored by way of directing the Labor Department to publish new fiduciary standards to ensure that pension plan contributions cannot be directed towards foreign adversary companies including China. American university endowment funds investing into China are also given special attention, as are investments into Chinese research institutes.
U.S. capital markets, VIEs, and the FBI
The order directs the Treasury Department, the Securities and Exchange Commission (SEC), and the Public Company Accounting Oversight Board (PCAOB) to determine whether adequate financial auditing standards are being upheld for companies covered by the Holding Foreign Companies Accountable Act.
WireScreen profile of Chinese company held in violation of the Holding Foreign Companies Accountable Act.
Further, the Department of Justice and the Federal Bureau of Investigation are directed to provide written recommendations on potential criminal or civil fraudulent behavior for all foreign adversary companies currently listed on U.S. domestic stock exchanges. This includes reference to review the variable interest entities (“VIEs”) and subsidiary structures used by Chinese companies trading on those exchanges.
WireScreen collection of Variable Interest Entity company structures.
Termination of the US/China Tax Treaty?
The most novel initiative in the order is an indication by the Administration to conduct a review of either suspending or terminating the US/China Income Tax Treaty. This is explained in the context of reducing incentives for U.S. persons to invest into China. In that context, the elimination of that treaty would raise Chinese taxes on various investment flows from China to the U.S. Interestingly, the order does not mention that this would result in a 30 percent U.S. withholding tax rates (as well as the possibility of other U.S. taxes) on a wide array of Chinese income flowing from the U.S. to China (such as dividends, interest, rents, royalties, and other income). It is unclear whether this policy initiative will be further developed (the same section also makes reference to MFN trade status the U.S. granted to China). Such a move would have enormous knock-on consequences as to how taxes are allocated between the countries and the interplay of foreign tax credits in both countries.
As to scope, nearly all of the order is targeted at China but a definition for the term “foreign adversaries” (used in certain sections) is included to cover Russia, North Korea, Iran, Cuba, and “the regime of Venezuelan politician Nicolás Maduro” in addition to China (including the Hong Kong Special Administrative Region and the Macau Special Administrative Region).
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