Biden is reportedly beefing up the national security panel CFIUS to scrutinize Chinese investment in US tech startups

• Under President Joe Biden, CFIUS will scrutinize Chinese investment in US startups, the Wall Street Journal reported.
• CFIUS will likely order divestments of US tech firms during 2021, officials told WSJ.
• It will examine deals where investors have bought into US firms via intermediaries, they said.

A government body that scrutinizes foreign investment has been staffing up with experts from investment banks, VC firms, and tech companies, and under President Joe Biden will hunt for Chinese investment in American startups, according to a Wall Street Journal report.

The Committee on Foreign Investment in the US (CFIUS), built up a new enforcement arm under President Donald Trump of about two-dozen people, anonymous government officials and national security lawyers told the Journal.

This team focused on foreign investment that could threaten national security. Under Biden, it has VC investments that can be traced back to China in its sights, including small deals, the people said.

The group is this year expected to hand out fines, order companies to change their governance structure, or even demand divestment if it detects Chinese investment in certain deals, the people said.

It has recently sent letters to several dozen companies and requested details of foreign investment, according to anonymous lawyers, investors, and national security officials who spoke to the Journal.

It is specifically concerned about Chinese investment into US tech firms through intermediaries, because it's not always clear where the money comes from, people with the knowledge of the matter told the paper.

The Journal reported that CFIUS will become central to Biden's attempts to constrain China's influence in the tech world.

Reid Whitten, an attorney leading the CFIUS practice at law firm Sheppard Mullin, compared the enforcement group to a "buzzy SWAT team."

The Biden administration will give the enforcement group clarity on the technologies that are deemed central to security and should therefore be off-limits to Chinese investors, as well as those from Russia and elsewhere, national security officials and others involved with CFIUS told the Journal.

A spokeswoman for the Biden administration told the Journal the White House "will ensure that CFIUS evolves into a 21st-century committee and is able to appropriately evaluate new and evolving risks."

CFIUS ordered divestments under Trump

One person with knowledge of the matter said that over the past year, CFIUS told several startups it was looking into seed-stage investments of $500,000 or less that involved a China-linked investor.

Separately, another source said that in 2020, CFIUS ordered Chinese investors to sell their stakes in two US semiconductor companies. The sources did not name the companies.

CFIUS was also central to Trump's plans to force Huawei to sells its US arm.

"A more assertive CFIUS is here to stay," Sarah Bauerle Danzman, assistant professor of international studies at Indiana University Bloomington and a former CFIUS employee, told the Journal.