President Barack Obama blocked on Friday a privately owned Chinese company from building wind turbines close to a Navy military site in Oregon due to national security concerns, and the company said it would challenge the action in court.
The rare presidential order to divest interests in the wind farms comes as Obama campaigns for a second term against Republican Mitt Romney, who has accused him of being soft on China.
Ralls Corp, which had been installing wind turbine generators made in China by Sany Group, has four wind farm projects that are within or in the vicinity of restricted air space at a naval weapons systems training facility, according to the Obama administration.
"There is credible evidence that leads me to believe" that Ralls Corp, Sany Group and the two Sany Group executives who own Ralls "might take action that threatens to impair the national security of the United States," Obama said in issuing his decision.
Ralls Corp had filed a lawsuit against the Committee on Foreign Investment in the United States (CFIUS) for ordering it to stop all construction and operations at its projects while the government panel completed its investigation and finalized its recommendation to Obama.
After the decision was announced on Friday, the company said it was confident that the courts would vindicate Ralls Corp's rights under the law and the Constitution.
Sany Group is the parent company of Shanghai-listed Sany Heavy Industry Co., China's largest construction equipment maker and the seventh biggest in the world.
Another group company, Sany Heavy Equipment International Holdings, is listed in Hong Kong. The U.S. court documents name only Sany Group, not the listed companies.
Sany's chairman and controlling shareholder, Liang Wengen, is China's fifth richest man, according to the latest ranking by Hurun Report, down from number one in 2011.
Although CFIUS reviews dozens of foreign investment deals for potential national security concerns every year, the president is rarely called upon to issue a formal order as companies usually abandon their deals or divest assets when the panel takes issue with their transaction.
The last time a president formally blocked a deal on national security grounds was in 1990 when then President George H.W. Bush stopped a Chinese aero-technology company from acquiring a U.S. manufacturing firm.
"This is a big deal because it is the first time since 1990 that the president of the United States has either blocked a transaction from occurring or divested a transaction that has occurred," said Clay Lowery, a former assistant secretary at Treasury who oversaw the CFIUS process and now is with Rock Creek Global Advisors.
Ralls Corp had hired the George W. Bush administration's top lawyer Paul Clement to help represent the company as well as a former U.S. assistant attorney general, Viet Dinh, who helped the Republican administration develop the Patriot Act. But that appeared to do little to convince the current administration to allow the company to resume operations.
The presidential order gives the Chinese company 90 days to divest all its interests in the projects. However, sources close to Ralls Corp said the company was still evaluating the order and had no immediate plan to unwind its activities.
Only one of the four wind farms was in restricted airspace and CFIUS never came up with a plan that would require the company to only divest interests in that particular project, the sources said.
In addition, the sources said there are other wind farms in the same area also operated by foreigners: one Danish company and another German.
Not a Precedent
Obama's decision comes as two other Chinese companies are vying for CFIUS approval.
China's state-owned oil company CNOOC Ltd is trying to buy Canada's Nexen in a $15.1 billion deal, and auto parts company Wanxiang Group Corp wants to take over U.S. battery maker A123 Systems Inc.
Though Nexen is based in Canada, the CNOOC takeover is still subject to CFIUS approval because Nexen has extensive business in the United States.
The Treasury Department stressed that Obama's decision was not a precedent for other investments from China or any other country. Acting Commerce Secretary Rebecca Blank said the United States generally welcomed investment from China, but not in every case.
(Read More:Obama Foreign Policy Bright Spot Now Looking Dimmer)
"Particularly when you're talking about China, but there's other countries where this is true too, one has to be worried about national security concerns," Blank said in remarks at the Council on Foreign Relations earlier on Friday.
China's Minister of Commerce said this week that the country's state-owned companies act in the same way as privately owned firms.
Neither Sany Group's headquarters nor the Ministry of Commerce could be reached for comment on Saturday.
The decision to block Ralls Corp and Sany echoes some of the difficulties China's largest telecom equipment manufacturer, Huawei Technologies Co, has faced in its efforts to crack the U.S. market.
CFIUS has blocked three deals by Huawei in recent years. Last year Huawei dropped plans to buy assets from 3Leaf Systems, a computer services company, after problems with CFIUS.
Like Sany, Huawei is privately owned, but CFIUS expressed concerns about informal links between Huawei's founder and CEO, Ren Zhengfei, and the Chinese military. Ren retired from the military in 1984, and Huawei says he has not maintained ties.
Less high-profile Chinese deals in the U.S. are often approved.
"There have been many Chinese investments in the U.S. that have gone through without trouble," said Benjamin Powell, a former general counsel to the director of national intelligence who is now a partner at Wilmer Hale.