Chinese-owned Ralls Corp. recently reached a favorable settlement with the White House on a secretive national security review case, marking the first successful challenge launched by a foreign company against the U.S. government.
Ralls Corp, controlled by China's top machinery equipment maker Sany Group, has said it was asked to stop working on its wind farms in Oregon by the U.S. government due to national security concerns, but is lately allowed to sell the assets to another buyer chosen by Ralls to whom the Obama administration previously objected.
The Committee on Foreign Investment in the United States (CFIUS) blocked Ralls's deal in 2012 because the wind farms were too close to a military facility. The decision was later endorsed by President Barack Obama.
Ralls sued CFIUS for exceeding constitutional rights and failing to provide detailed evidence. In 2014, an U.S. court ruled that President Obama and the CFIUS failed to give a constitutional due process to Ralls.
James Lewis, a senior researcher with the Washington-based Center for Strategic and International Studies (CSIS) told Xinhua, it is in the interests of both to settle the case. "Ralls could minimize its economic losses after transferring the assets to the third party while the U.S. government would be happy to see the projects continue running by someone he trusts," he said.
Chinese companies have become increasingly active in investing and acquiring assets in the United States as America's abundant natural resources and advanced management expertise are particularly alluring for Chinese investors.
However, the U.S. President and CFIUS have the power to block any deal if they consider national security is threatened. The traditionally opaque review process has become one of the top concerns for Chinese investors.
Foreign companies have been reluctant to legally challenge the U.S. government's decisions because it was believed the government had broad authority in these matters so any lawsuit would largely fail. Xiang Wenbo, a board member of Sany, said Chinese companies have been traditionally tolerant when confronting disputes overseas.
Sany launched the lawsuit not to pursue economic interests, but to prove that law could be harnessed to give Sany a fair say in the United States. Given the the vastly different and complicated legal system in the United States, Ralls hired a group of legal veterans which include the former Vice Minister of Justice to take care of the litigation.
The legal expenses tend to run much bigger than the initial investment that Ralls had paid. Tian Deyou, economic and commercial minister counselor at the Chinese Embassy to the United States, told Xinhua that Ralls's case sets a precedent for Chinese companies to follow suit when facing unfair treatment confronting national security concerns.
A number of eye-catching cases are still lingering. China National Offshore Oil Corporation was kept out of the bidding for Union Oil Company of California due to national security concerns. China's IT heavyweight Huawei is banned from making any investment in the United States, as the country sees telecommunications as one of its most sensitive sectors for foreign investment.
"Those cases had sent the wrong signals to the Chinese companies and made them scared," Lewis said. "In fact, as long as you keep a distance from certain sensitive sectors, the United States is quite open to foreign investment," he added.
"In general, the United States is open to foreign investment, but the national security is their bottom line," Tian Deyou said. When Chinese President Xi Jinping visited the United States this September, the two countries agreed to limit the scope of their respective national security reviews of foreign investments solely to issues that constitute national security concerns, and not to generalize the scope of such reviews to include other broader public interest or economic issues.
"We hope the U.S. government honors its commitments and gives Chinese companies fair treatment," Tian said. "The U.S. government tends to give equal treatment to foreign investors. But the state-owned companies from China usually receive additional scrutiny. Fair or not, that's the real practice," Lewis said.
Latest comments