“Utter amazement” about the Tiktok deal – Harry Broadman

 

Harry Broadman

Harry Broadman might have earned his stripes in working in the US administration, the handling of the Tiktok deal filled him with “utter amazement”, he tells at Marketwatch. “Why issue the executive order if you are going to negotiate that way?” Broadman asks.

Marketwatch:

Harry Broadman, a managing director at global consulting firm Berkeley Research Group and a senior fellow of the School of Advanced International Studies at Johns Hopkins University, has a long history in Washington that includes serving as a member of the government board tasked with figuring out these issues, the Committee on Foreign Investment in the U.S., or CFIUS, in the 1990s. He told MarketWatch he was in “utter amazement” as to how the TikTok deal was being handled.

“I follow this minute-by-minute, literally, [and] speak to clients and reporters call all the time,” he said. “This is the challenge of assessing things — we really don’t know anything with certainty, other than the principals involved. I don’t know anyone on CFIUS who knows the full contours of what has been discussed.”

He added that CFIUS and the White House lawyers must be “beside themselves” because of the way events have transpired since Trump called vaguely for a ban on dealings with the Chinese owner of TikTok in an executive order that also targeted Tencent Holdings’ TCEHY, -1.32% WeChat.

“Why issue the executive order if you are going to negotiate that way?” Broadman asked.

 More at Marketwatch.

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US politicians find common ground: restrict foreign investments - Harry Broadman

Harry Broadman

The American political landscape might be more divided than ever before, political analyst Harry Broadman sees one field where Republicans and Democrats find common ground: restricting foreign investments, especially but not only those from China through the Committee on Foreign Investment in the US (CFIUS), he writes in Gulf News.

Harry Broadman:

Historically, the US has had one of the most open policies toward foreign direct investment (FDI) — the ownership or control by a foreign entity of 10 per cent or more of a domestic enterprise. Indeed, FDI has played an increasingly important role in propelling US economic growth.

In absolute terms, the US is the world’s largest recipient of flows of FDI, and it has been so ever since 2006 (except for the brief 2010-14 period, when comparable inflows to China were slightly larger). 

The shared concern of both the Trump White House and the Democratic House, however, is that an increasing number of these foreign investors are from nations where there is significant involvement in business decisions by governments whose agendas are perceived — indeed known — to go way beyond commercial objectives. 

China, while hardly alone in not having effective separation between government and business, including in its FDI pursuits in the US, epitomises the case.

The understandable response by the US — as well as by other advanced countries, for example, Germany — is to intensify its scrutiny of the national security risks such inbound transactions might pose domestically, particularly in sectors considered sensitive. The US inter-agency body with the authority to make these national security assessments, The Committee on Foreign Investment in the US (CFIUS) — pronounced “syfius” — was established in 1975 by Executive Order by President Gerald Ford.

More in Gulf News.

Harry Broadman is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

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The political dimensions of foreign investments – Harry Broadman

Harry Broadman

Chinese investments into the US have increasingly gotten into the crosshairs of the CFIUS, the organization checking foreign investments into the US for security risks. Private equity investor and former CFIUS employee Harry Broadman tried to shed some light on this often murky process, and its political dimensions for Forbes.

Harry Broadman:

Notwithstanding my own experience, it should be abundantly clear from CFIUS’ public track record over all these years, that like other countries’ inbound investment decision-making calculus, the organization hardly operates in a domestic political vacuum. It may—though not always—be subject to various pressures both within the Executive Branch as well as from Capitol Hill. 

While one might wish that not to be the case, that is the universal reality. This make all the more surprising the sometimes-sheer naiveté of potential foreign investors pursuing deals in the U.S.—not to mention that of the advisors inside the U.S. from which they seek counsel—about how to structure a strategy to deal with the CFIUS process. 

The truth is that every economy in the world has a policy regime specifying in varying degrees the regulation of inflows of FDI. In statutory terms, the restrictiveness of U.S. regulation of FDI is about average for the 62 countries routinely assessed by the Organization of Economic Cooperation and Development (OECD)—the group of the world’s wealthiest countries. (The OECD’s assessment includes all of its 35-member countries, all the G20 countries, and a number of other countries that are less wealthy.) Moreover, as a matter of practice, there are exemptions granted by the U.S. from these formal regulations, particularly at the state level. 

That CFIUS decisions blocking or demanding the restructuring of inbound transactions—which are actually few in number—may be subject to political pressures, sometimes based on quite spurious reasons, as politicians the world over are wont to do, overall, U.S. regulatory constraints on inbound FDI are effectively benign. 

The most compelling proof of this are official data that the U.S. is the world’s largest recipient of FDI flows in absolute terms, and it has been so ever since 2006 (except for the brief 2010-2014 period, when comparable inflows to China were slightly larger). Some professional services firms like to cite their surveys of foreign business executives’ perceptions of the U.S. investment climate and aspirations for prospective transactions here—for which the U.S. is often ranked highest in the world—as evidence of the country’s hospitable environment. While such findings may be heart-warming, these measures are not data-driven. Their economic meaningfulness is not robust nor can they be used to make systematic cross-country comparisons. Perception indices are ‘old-school’. In a nutshell, they do not reflect investment decisions actually undertaken, which really is the only meaningful basis on which a country’s policy stance can be assessed and on which policy reforms should be formulated. 

Some readers will be surprised to learn that today U.S. inflows of FDI are the highest in the world, believing that China surely would have been a larger recipient. In 2016, China’s inflows of FDI were US$171 billion, while those of the U.S. were US$468 billion, about 2¾ times greater. It is true that China does take in a huge amount of foreign direct investment; it’s of course the largest nation in the world. Taking into account the relative sizes of countries would thus make sense in making such judgments. On this basis, FDI inflows in 2016 for China were US$97 per capita; for the U.S. they were US$1193 per capita. It is also the case that annual flows of FDI for any country can fluctuate greatly, especially for a year when one-time, large foreign acquisitions of domestic firms take place. For these reasons, cross-country comparisons are best made on the basis of cumulative inflows—or the ‘stock’—of FDI. In this context, as of year-end 2016, the stock of FDI per capita in the U.S. was US$19,491; in China it was $980.

The full story in Forbes, here republished with the kind permission of the author.

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