China surpasses UK in US deal scrutiny

Gina Chon

Chinese companies have overtaken U.K. firms for the first time in the number of transactions reviewed by a U.S. government committee for national security concerns as they increasingly hunt for American deals.

There were 23 proposed transactions involving Chinese investors that were reviewed by the Committee on Foreign Investment in the United States (CFIUS) in 2012, compared with 10 deals in 2011. The U.K. was trailing with 17 deals in 2012, according to the group's 2012 report to Congress.

(Read more: US blames China for breakdown in trade talks)

CFIUS is made up of various U.S. agencies, including the Defense Department, and is overseen by the Treasury Department. Cases under review by CFIUS, which examines deals that result in the change of control of a U.S. company, are confidential.

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Canada had the third highest number of covered transactions in 2012 with 13 deals, Japan had nine and France came in with eight. Overall in 2012, CFIUS reviewed 114 transactions, and investigated further 45 of those deals.

Out of those 114 investments, 22 parties withdrew their CFIUS notices and 10 of those cases led to revised deals being filed in 2012.

CFIUS can decide not to clear a transaction or suggest divestitures or other moves, which can sometimes lead dealmakers to decide it is not worth going ahead.

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One of those resubmissions to CFIUS came from the Chinese National Offshore Oil Company (Cnooc), which announced the $15.1 billion acquisition of Canada's Nexen, the energy group, in 2012.

It was Cnooc's boldest move since a failed $18 billion bid for U.S. energy producer Unocal in 2005 amid strident political opposition. Since then, Cnooc and other Chinese energy companies have gradually returned to the U.S. market on a smaller scale, taking minority stakes in the assets of U.S. oil and gas companies.

Assessing China's credit outlook

Cnooc resubmitted its Nexen deal to CFIUS in November 2012 and was cleared by the body in February 2013, but only after giving up operating control of Nexen's Gulf of Mexico assets, which was a significant sacrifice.

President Barack Obama blocked one deal in 2012. Ralls, a Delaware-based company owned by two executives from Sany Group, China's biggest machinery manufacturer, was forced to unwind its purchase of wind farm assets due to "national security risks" raised by the proximity of the farms to navy airspace.

The statistics in the CFIUS report do not include the biggest Chinese takeover of a U.S. firm, which occurred earlier this year with the $4.7 billion acquisition of pork producer Smithfield Foods by Shuanghui International.

(Read more: Smithfield's acquisition by Shuanghui cleared by US)

That deal was cleared by CFIUS in September, despite opposition from some U.S. senators, who asked Treasury Secretary Jack Lew to give it greater scrutiny

Deals involving Chinese companies covered by CFIUS jumped from six in 2010, to 10 in 2011. At the same time, U.K. transactions declined from 26 in 2010 to 25 in 2011.

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Most of the Chinese transactions were in the manufacturing sector, while mining, utilities and construction was next favored, and finance and information the third most sought-after area. The U.K. also favored manufacturing, while finance and information came in close behind, and wholesale and retail was a distant third.

However, certain companies in sensitive sectors, such as telecommunications, may always find it difficult to do deals in the U.S.. In 2011, the Chinese telecoms company Huawei decided to abandon its efforts to acquire $2 million worth of assets from U.S. technology company 3Leaf Systems after Cfius declined to clear the deal.