At a moment when Washington is trying to mend its strained ties with China, states across the country are tilting anti-Chinese sentiment and drafting or enacting sweeping rules aimed at severing economic ties with Beijing.
The measures in countries like Florida, Utah and South Carolina are part of a growing policy push to make the United States less economically dependent on China and restrict Chinese investment over concerns they pose a national security risk. These concerns are shared by the Biden administration, which is trying to reduce America's dependence on China by boosting domestic manufacturing and strengthening trade ties with allies.
But government efforts can be far larger than what the government orchestrates. They have faced backlash from business groups over concerns that state governments are shifting towards protectionism and retreating from their longstanding tradition of welcoming foreign investment to the United States.
Nearly two dozen mostly right-wing states — including Florida, Texas, Utah and South Dakota — have proposed or enacted legislation that would restrict Chinese purchases of land, buildings and homes. Some of the laws could potentially be stricter than what happens at the federal level, where a committee headed by the Secretary of the Treasury has the power to review and block transactions if foreigners could gain control of American companies or real estate near military installations.
Laws proposed or enacted by states would go well beyond this, preventing China – and in some cases other “countries of concern” – from buying farmland or land near what is commonly defined as “of concern.”critical infrastructure.”
The restrictions coincide with a resurgence in anti-China sentiment, fueled in part by a Chinese spy balloon touring the United States this year and heated political rhetoric ahead of the 2024 election. They are likely to pose another challenge for the government, which has dispatched several top officials to China in recent weeks to try to stabilize economic ties. But while Washington views a relationship with China as a necessary evil, state and local officials appear determined to sever economic ties with America's third-largest trading partner.
“The federal government in the United States has been quite vigorously tightening its China strategy across industries, with strong bipartisan support, and regulating investments is only part of it,” said Mario Mancuso, an attorney at Kirkland & Ellis specializing in international trade and human rights issues national security. “The shift we've seen toward states is relatively new, but it's gaining strength.”
One of the biggest targets was Chinese land ownership, although China owns fewer than 400,000 acres in the United States. according to the Ministry of Agriculture. That's less than 1 percent of all foreign-owned land.
Such restrictions have gained momentum since 2021 after Fufeng USA, the American subsidiary of a Chinese company that makes components for animal feed, faced backlash over plans to build a corn mill in Grand Forks, ND. The Committee on Foreign Investments in the United States, a powerful inter-agency group called CFIUS that can stop international business transactions, considered the proposal but ultimately concluded that it had no authority to block the plan. However, this year the Air Force, citing the plant's proximity to a US military base, said China's involvement posed a national security risk, prompting local officials to scrap the project.
Since then, states have expanded or attempted to tighten their restrictions on foreign investment, and in some cases blocked land acquisitions from a variety of countries, including Iran and North Korea. In other cases, they have specifically targeted China.
The government measures, some of which include investments from Russia, Iran and North Korea, have drawn the ire of business groups who fear the rules will be too strict or opponents who see them as discriminatory. Eventually, due to backlash, some of the proposals were watered down.
This year, Texas lawmakers proposed expanding a 2021 ban that would affect the development of infrastructure projects funded by investors with direct ties to China, and would prevent Chinese citizens and businesses from buying land, houses or other real estate. Despite the support of Texas Gov. Greg Abbott, a Republican, the proposal was scaled back to ban the purchase of farmland, quarries and mines by individuals or companies with ties to China, Iran, North Korea and Russia. The final bill expired in the Texas Legislature in May.
In South Dakota, Gov. Kristi Noem, a Republican, is pushing for legislation that would create a state version of CFIUS to review and investigate purchases, leases and land transfers of agricultural land by foreign investors. Ms. Noem has argued that the federal government does not have enough clout to protect South Dakota from bad actors at the state level.
The law foundered on opposition from farmers' groups worried about who could buy or lease their land, and lawmakers who said it would give the governor too much power.
One of the most provocative restrictions was advocated by Governor Ron DeSantis of Florida, a Republican running for president. In May, Mr. DeSantis signed legislation banning Chinese companies or citizens from buying or investing in real estate within 10 miles of military bases and critical infrastructure such as refineries, LNG terminals and power stations.
“Florida is taking action to confront the United States' greatest geopolitical threat — the Chinese Communist Party,” Mr. DeSantis said when he signed the lawadding, “We stand by our commitment to crack down on communist China.”
But the legislation is so broad that a mutual fund or investment company with even a small stake in a Chinese company or investor buying a property would be breaking the law. Business groups and the Biden administration have criticized the law as excessive, while Republican attorneys general across the country have sided with Mr. DeSantis.
Florida legislation targeting “countries of concern” and imposing specific restrictions on China is being legally challenged in federal court. A group of Chinese citizens and a Florida real estate agency represented by the American Civil Liberties Union sued the state in May, alleging that the law codifies and expands discrimination in housing. The Justice Department filed a “statement of interest” arguing that Florida's land tenure policy was unlawful.
A US district judge hearing arguments about the case in July said last week that the law can still be enforced while it is challenged in court.
The restrictions are creating uncertainty among investors and fund managers looking to invest in Florida, who must now decide whether to back down from those plans or shut out their Chinese investors.
“It creates a lot of thorny problems, not only for the foreign investors but also for the funds, because some of these laws try to give them a choice of whether they can keep investors or invest in those states,” said J. Philip Ludvigson , a partner at King & Spalding. “It's really a gamble for states to pass some of these very sweeping laws.”
Mr Ludvigson, a former Treasury official who headed the office that CFIUS heads, added: “You might want to crack down on China, but if you don't really think about what the second- and third-order implications might be, you might.” do it.” You end up hurting your government revenues and real estate market while failing to solve a real national security problem.”
The government investment restrictions also coincide with Congressional efforts to block China-based companies from buying farmland in the United States and to issue new regulations to Americans investing in the country's national security industry. The Senate in July overwhelmingly voted in favor of the measures, which still need House approval to go into effect.
The combination of these measures is likely to complicate diplomacy with China and could result in retaliation.
“Officials in Beijing are very concerned about hostility towards Chinese investment at both the national and state levels in the US, and see this as another sign of growing antipathy towards China,” said Eswar Prasad, former head of the International Monetary Fund's China Department . “The Chinese government is particularly concerned about an increase in state restrictions in addition to federal restrictions on investments from China.”
He added, “They fear that such measures would not only deprive Chinese investors of good investment opportunities in the US, including real estate, but could ultimately limit Chinese companies' direct access to American markets and hamper technology transfers.”