Vol.54: A New U.S.-China Cycle? The America First Investment Memo
Summary
- The “America First Investment Policy” released on February 21 is a policy-setting presidential memorandum, but it maps out how the Trump administration may simultaneously tighten Chinese investment in the U.S., U.S. investment in China, and financing for U.S.-listed Chinese companies. Most measures still require rule changes or updates by the Treasury, Commerce Department, SEC and other agencies, and Skadden expects implementation to be gradual through the end of 2025; but 庄明浩’s market judgment is more direct: “give up the fantasy” (放弃幻想), because Trump is not only preserving the Biden-era framework but seeking to expand it substantially.
- The core risk for Chinese investment in the U.S. is that CFIUS moves beyond M&A reviews into greenfield investment, existing assets and traditional strategic sectors. Healthcare, agriculture, energy, raw materials, farmland and real estate could all be covered; previously completed transactions that were never filed could face retrospective review and even forced divestiture. 张鹏’s warning is that the review standard will keep falling as companies find ways around it: “They will push you into a corner until you decide it simply won’t work, and then you leave.”
- The so-called welcome for Chinese “passive investment” leaves only a narrow door for something close to pure financial capital. Investments cannot carry voting rights, board seats, management influence or access to nonpublic technical information; combined with rules that lower the Chinese-ownership threshold from 50% to 25% or even 20%, and Tencent’s exit from the boards of Epic Games and Riot Games, “choosing sides” is becoming a hard constraint on ownership and governance rather than a political slogan.
- Reverse CFIUS could expand from advanced semiconductors, quantum technology and frontier AI into biotechnology, hypersonics, aerospace, directed energy, advanced manufacturing and areas tied to “military-civil fusion.” “Advanced manufacturing” and “military-civil fusion” are both expandable catch-all concepts, potentially covering robotics and new-energy vehicles; the bigger change is that publicly traded securities could lose their exemption, exposing U.S. holdings of Chinese stocks, index funds and related ETFs to restrictions and, in extreme cases, creating delisting pressure.
- U.S.-listed Chinese companies face four overlapping pressures—financing, audits, VIE structures and pricing power—not a single regulatory change. The Trump administration could revisit the 2022 cross-border audit arrangement, investigate VIE structures, and restrict Chinese investment by LPs such as pension funds and university endowments. Lily says support from leading pension funds and university endowments for China-focused dollar funds may already have fallen by “80% to 90%”; 庄明浩 says fundraising for smaller funds now resembles “gig work.”
- Suspending or terminating the 1984 U.S.-China tax treaty is the least-discussed measure, but potentially the most far-reaching. 张鹏 notes that eligible individuals could previously claim an exemption on roughly $130,000 of foreign income; protections against double taxation, the 183-day permanent-establishment threshold and arrangements for cross-border employees could also disappear. If companies and individuals are taxed by both countries, the most realistic response may be to shrink cross-border operations rather than optimize structures, adding another force behind the separation of capital and talent.
- The investment policy needs to be read alongside the technology and tariff wars: Trump has left room for negotiation but shown no sign of structural détente. Markets had previously turned optimistic on DeepSeek, the re-rating of Chinese assets and Trump’s invitation for Chinese EV makers to invest in the U.S.; they are now seeing reports that H20 chips could face restrictions and that the U.S. may ask the Netherlands and South Korea to stop servicing or supplying parts for China’s existing equipment. 庄明浩’s conclusion is that “the main theme of U.S.-China confrontation will not change in any way,” while 张鹏 reserves one final conditional judgment: the actual scope will depend on agency rules and the next stage of negotiations.
Deep dive
1. The Presidential Memorandum Sets the Direction; Agency Rules Will Create the Real Constraints
张鹏 explains that executive orders typically cite authorities such as the International Emergency Economic Powers Act, while presidential memoranda are more flexible: the White House lays out the strategic objective and assigns implementation tasks to federal agencies without spelling out the legal basis item by item.
The February 21 memorandum lists 12 measures, broadly divided into three groups: welcoming allied investment, restricting foreign adversaries’ access to the U.S., and limiting U.S. capital support for China. It is not a complete set of implementation rules; the Treasury, Commerce Department, SEC and other agencies will still need to amend regulations or seek legislation from Congress.
Lily cites Skadden’s view that the regulatory perimeter could expand, but the practical impact is expected to be “gradual and moderate.” Some changes, including CFIUS review of greenfield investment, require legislation, and relevant rules could emerge by the end of 2025.
2. The Condition for “Welcoming Foreign Capital” Is Cutting Ties with China
The memorandum first emphasizes that the U.S. remains open to foreign capital, particularly from allies and partners, to avoid being read as a blanket market closure. 张鹏 believes the real strategy is to divide countries into six categories of “foreign adversaries,” including allies, partners and China.
The memorandum proposes an expedited approval channel for allied investment in advanced sectors in the U.S., provided investors do not cooperate with foreign adversaries. 张鹏 believes the broader welcome for partner countries also comes with conditions aimed at controlling or even severing their cooperation with China; Southeast Asian and Middle Eastern countries may have less room to keep “one foot in each camp.”
What the U.S. welcomes is capital that funds domestic companies without allowing investors to acquire control or technology. The money can come in, but strategic assets, governance rights and know-how must remain in American hands.
3. The Memorandum Suddenly Broke the Market’s Hopes for Détente
庄明浩 recalls that Trump had previously described DeepSeek as technological progress rather than a major threat, while signaling openness to cooperation with China. Markets briefly expected him to prioritize domestic issues and pursue a relatively softer China policy.
U.S. technology giants were adjusting at the same time, while U.S.-listed Chinese stocks had performed well and optimism around “the East rising and the West falling” and a re-rating of Chinese assets was building. Hong Kong stocks barely reacted on the day the memorandum was released, but U.S.-listed Chinese stocks suffered a “bloody” selloff the following night. 庄明浩 summed it up in four words: “Give up the fantasy” (放弃幻想).
4. CFIUS Has Shifted from Case-by-Case Review to a Tool of Technology Competition
张鹏 believes that under Obama, CFIUS was still broadly case-specific: outright prohibitions were relatively rare, and companies could often secure conditional approval through national-security agreements, remediation and other mitigation measures.
The inflection point came during Trump’s first term and the U.S.-China trade war. The 2018 Foreign Investment Risk Review Modernization Act, or FIRRMA, expanded the authority from controlling acquisitions to noncontrolling minority investments involving critical technology, critical infrastructure and sensitive personal data—the TID sectors.
CFIUS is led by the Treasury and involves multiple agencies. 张鹏 notes that the 2024 National Defense Authorization Act also brought the Agriculture Secretary into the process, giving the department a greater voice in reviews of farmland and agricultural-land acquisitions.
5. Data Security Could Once Be Addressed through Remediation; Trump 2.0 May Not Accept That
One of the first Trump administration’s most prominent concerns was sensitive personal data. Common mitigation arrangements included data localization, the appointment of external oversight bodies, reporting to the government and the creation of dedicated data-security compliance officers inside companies.
Semiconductor transactions received harsher treatment, with some Chinese acquisitions rejected outright and no opportunity to propose mitigation measures. But the sectoral perimeter remained relatively concentrated, and many transactions could still close after remediation.
The emerging change under the new memorandum is that the review scope could expand while the government becomes less willing to accept mitigation agreements. Lily therefore believes that on TikTok, policy has shifted from “allowing control to exist subject to compliance” toward demanding a rapid sale or divestiture, in a more pragmatic direction.
6. TikTok Proved That CFIUS Can Reopen Old Deals Years Later
庄明浩 traces the TikTok dispute back to ByteDance’s acquisition of Musical.ly. The transaction never went through CFIUS review at the time, allowing the U.S. later to seize on that defect and investigate retroactively; whether Musical.ly qualified as a U.S. company was itself disputed.
The first proposed solution involved Oracle, Walmart and a local U.S. data arrangement, later evolving into “Project Texas” and then into a ban. TikTok went offline and returned, and cloud providers were not fined on a user-by-user basis, but the dispute’s core issues—U.S. user data and control—never disappeared.
庄明浩 declines to predict the outcome, describing “undercurrents” instead: a return to normal on the surface does not mean the conditions have changed, and any new trigger could produce a TikTok 3.0.
7. Bringing Farmland, Real Estate and Healthcare into Scope Extends MAGA’s Asset-Sovereignty View
Healthcare, agriculture, energy and raw materials are not emerging technologies, but they have long been used by Congress and state governments as security issues. Chinese purchases of farmland are portrayed as threats to agricultural security, while Chinese homebuyers are accused of driving up prices and buying up American assets.
张鹏 believes this both answers domestic political concerns and fits MAGA’s underlying logic: “Foreigners—especially a foreign adversary like China—cannot be allowed to buy up my assets.” Investment review is expanding from technology security into asset ownership and economic security.
8. “Emerging and Foundational Technologies” Were Always Dynamic Catch-All Terms
The 2018 Export Control Reform Act, or ECRA, required agencies to identify emerging and foundational technologies not yet on existing lists but relevant to national security. Together with FIRRMA, it created a pincer movement: blocking Chinese acquisitions on one side and restricting U.S. technology exports to China on the other.
The Commerce Department has never produced a stable, authoritative list. 张鹏 attributes this to limited government expertise and the speed of technological change: “You draw up the list today, and it is obsolete tomorrow.”
The term therefore functions more like a dynamic catch-all. Advanced semiconductors, quantum technology, AI, biotechnology, power batteries and EVs can all move in and out of scope as technology and competition evolve; the policy’s flexibility is itself a source of regulatory power.
9. Greenfield Investment Review Brings Talent Flows into National Security
Greenfield investment means establishing a new entity, business or R&D center locally rather than acquiring an existing U.S. company. Traditional CFIUS principles generally did not cover it, and even after FIRRMA the authority was limited to the TID sectors.
The new policy focuses on Chinese companies obtaining U.S. “talent” and “operations” through greenfield investment. 张鹏 gives the example of a Chinese AI company opening a U.S. branch and hiring local engineers and scientists: even without acquiring any U.S. assets, it could eventually need to file for review.
“Talent” is clearly targeted because chips, data and talent are the building blocks of AI competition, and talent has become even more important after DeepSeek. 张鹏 acknowledges that the meaning of “operations” remains “quite puzzling,” and that the rules will be needed to clarify it.
10. Building Overseas Is Shifting from Routine Expansion to a Potentially Negative Act
庄明浩 believes that whether it is a Chinese internet giant opening a U.S. R&D center or a small AI startup team, activities that were previously benign or routine—incorporating a U.S. company, hiring local employees and taking U.S. capital—could enter the review perimeter.
Under the broadest interpretation, TMT, AI, internet and other applications handling large volumes of user data would all face a new hurdle. The impact would not stop with legal departments; it could become a front-end issue for every entrepreneur, independent developer and domestic investor.
He compares it to Japanese companies’ large-scale purchases of Manhattan buildings and calls it “yesterday once more.” The difference is that geopolitics is now the central variable, leaving Chinese companies with a more difficult and far broader test.
11. Existing Investments Cannot Be Assumed to Be Grandfathered In
The memorandum does not explain how existing R&D centers, farmland, energy or healthcare investments will be treated. But CFIUS can open retrospective reviews of completed transactions that were never voluntarily filed and can require divestiture.
张鹏 specifically warns that many traditional-sector investments did not require filings under the old rules, meaning the existing exposure could be substantial. Conservative proposals such as Project 2025 have explicitly argued that existing Chinese assets in strategic sectors should also be forced to sell.
Whether this is implemented comprehensively will depend on its impact on U.S. industries, foreign-investor confidence and U.S.-China negotiations. But “existing-asset safety” can no longer be treated as a baseline assumption.
12. The Narrow Door for Passive Investment Almost Permits Only the Money
The memorandum welcomes noncontrolling investments that carry no voting rights, board seats, management influence, substantive decision-making authority or access to nonpublic technical information. Lily’s instinct is that these are precisely the rights commonly attached to ordinary minority investments, meaning the supposed welcome may amount to a rejection in practice.
庄明浩 characterizes the document’s style as “an unlimited expansion of scope with an unlimited fallback”: leave an opening for welcome capital, then layer on enough restrictions to make investors abandon the idea as soon as they have it.
张鹏 adds that the Biden-era focus on semiconductors, Reverse CFIUS and the Inflation Reduction Act already recognized the importance of voting rights and board rights, because even small equity stakes can influence personnel, commercial decisions and access to technology and data.
13. As Equity Thresholds Fall, Governance Rights Become the New Hook
Under some federal rules, identifying a “Chinese company” no longer depends solely on more than 50% control. The threshold has begun trending toward 25% or even 20%; the precise percentage varies by rule, but the direction is consistent: narrowing the room to evade scrutiny through minority ownership.
Tencent owns roughly 40% of Epic Games and wholly owns Riot Games. 庄明浩 notes that Tencent recently exited the boards of both companies, showing that strategic investments completed years ago can come under renewed pressure because of governance rights.
张鹏 recalls that CFIUS reviewed Tencent’s Epic investment around 2020 but struggled with its 40% stake, after which antitrust scrutiny shifted toward board seats. The regulatory logic updates alongside avoidance tactics: “Anything with a connection or affiliation can be pulled into the discussion.”
14. Reverse CFIUS Could Grow from Three Frontier Technologies into an Industrial Network
Biden-era rules primarily covered advanced semiconductors and microelectronics, quantum information technology and specific frontier AI applications. AI was not banned wholesale; large models were subject to concrete thresholds such as 10^26 computational operations.
The Trump memorandum adds biotechnology, hypersonics, aerospace, advanced manufacturing, directed energy and other areas affected by China’s military-civil fusion strategy. Hypersonics, aerospace and directed energy are more military-oriented, and actual U.S. investment in them is already limited. The harder-to-measure categories are the two catch-all concepts.
张鹏 expects the Treasury to revise Biden-era federal regulations, potentially expanding restrictions from a small number of frontier projects to a much broader range of manufacturers, technology companies and fund investments.
15. “Advanced Manufacturing” and “Military-Civil Fusion” Give the Government Maximum Discretion
The memorandum does not define advanced manufacturing. 张鹏 found that the White House Office of Science and Technology Policy and other agencies have described it as improving manufacturing methods for existing products and using advanced technologies to produce new ones, but that definition remains extremely broad.
Robotics and new-energy vehicles could both be covered. Lily cites Unitree as well as “Nio, Xpeng and Li Auto” and Zeekr; 张鹏’s answer is that it is “entirely possible,” though the final outcome will depend on agency definitions.
“Military-civil fusion” is an explicit catch-all provision. The U.S. Department of Defense has used the standard to place around 166 Chinese companies, including Tencent and CATL, on its Chinese military companies list. What specific contribution qualifies remains exceptionally vague.
16. If the Secondary-Market Exemption Disappears, U.S.-Listed Chinese Stocks Could Face Direct Capital Flight
Biden-era Reverse CFIUS rules explicitly exempted publicly traded securities, index funds, mutual funds, ETFs and certain business development company securities, allowing U.S. investors to continue buying U.S.-listed Chinese stocks in the secondary market.
The new memorandum points toward including listed-company securities in the restrictions. 张鹏 believes it is “very likely” that the Treasury will remove the existing exemption. If implemented, the change would affect not only direct holdings but also passive fund allocations, and could create delisting pressure for companies listed in the U.S.
New-energy vehicle companies are especially exposed because Nio, Xpeng, Li Auto and Zeekr could fall under industrial restrictions while also being U.S.-listed, allowing the two rules to stack.
17. U.S. Institutional LP Support Was Retreating Long before Any Formal Ban
Lily says that even without the memorandum, support from leading pension funds and university endowments for China-focused dollar funds had already fallen by “80% to 90%” over the past several years. 庄明浩 adds that the largest China dollar funds can still turn to family offices in the Middle East, Singapore and Europe, as well as renminbi funds.
For smaller dollar funds, fundraising increasingly resembles “gig work”: when an internet entrepreneur, listed-company co-founder or individual investor is willing to commit $5M to $10M, the fund takes it, making it difficult to build a stable LP profile.
Even leading funds face a tougher environment. Mid-tier funds are disappearing, and the market is polarizing between a handful of large firms and a large number of micro-institutions.
18. Audit-Working-Paper Disputes Could Become a Negotiating Chip Again
Luckin Coffee’s accounting fraud in April 2020 drove Congress to swiftly pass the Holding Foreign Companies Accountable Act, requiring U.S.-listed Chinese companies to submit to PCAOB inspections. If audit working papers remain inaccessible for 3 consecutive years, a company can be forced to delist.
After difficult negotiations, the U.S. and China reached a cross-border audit oversight agreement in 2022. The U.S. could conduct inspections in Hong Kong with Chinese personnel present, while the working papers remained in China. After completing its inspections, the PCAOB said it had found no major fraud, and the U.S.-listed Chinese stock crisis temporarily faded.
The new memorandum directs the SEC and PCAOB to “engage as appropriate,” without explaining what that means. 张鹏 worries that Trump may reject the compromise reached under Biden, demand audits by U.S.-based firms and the transfer of working papers to the U.S., or even renegotiate or scrap the original agreement.
19. VIE Review Brings Listing Structures into the National-Security Narrative
The memorandum calls for reviewing VIE structures used by foreign subsidiaries on U.S. exchanges, with a focus on the lack of ownership protection for U.S. investors, insufficient transparency and allegations of fraud. The SEC has long warned about these risks but has been constrained by jurisdiction and congressional authority.
张鹏 offers three possible explanations that could coexist: addressing a longstanding investor-protection problem; reflecting MAGA’s preference that “American money should invest in American companies”; or simply adding leverage and deterrence to negotiations with China.
He summarizes Trump’s personal preference with the words “money” and “face”: policy should ideally make the U.S. collect money rather than spend it, while also conveying respect and victory. Restricting U.S. capital from flowing to Chinese companies fits that political psychology, though he emphasizes that this is only his personal judgment.
20. Hong Kong’s Attempt to Escape U.S. Equity Pricing May Reinforce the Narrative
庄明浩 describes the past linkage between U.S.-listed Chinese stocks and Hong Kong stocks as “Cloud Ladder”: U.S. stocks rose first, Hong Kong followed, and the U.S. then took over again. On the way down, the markets also stepped on each other’s feet, leaving Hong Kong as a long-term follower.
Hong Kong and U.S. stocks have recently diverged in the short term. Companies such as Xiaomi, Meituan and Tencent that are not primarily listed in the U.S., together with AI and the re-rating of Chinese assets, have revived discussion about “taking back pricing power.” He emphasizes that the sample is only 1 or 2 weeks long and does not support a premature conclusion.
DeepSeek offers a similar metaphor. The U.S. narrative is about spending hundreds of billions or even trillions of dollars on chips, data centers and model training while preserving a monopoly; Chinese companies appear to be saying, “I can play without following your rules.” The valuation gap between U.S.-listed Chinese stocks and Hong Kong stocks is one expression of that power struggle.
21. “Reciprocity” Is the Political Through Line behind U.S. Investment Restrictions
Asked whether Trump is learning from China, 张鹏 says it is impossible to disentangle who learned from whom. China initially restricted foreign investment in areas tied to national welfare and critical infrastructure, while the U.S. accepted that arrangement because American capital could still earn substantial returns in other sectors.
The U.S. later concluded that China should gradually open across the board, but China did not do so as expected. That created a powerful demand for “fairness” and “reciprocity”: if China does not open a sector to U.S. capital, the U.S. should not open it to Chinese capital.
China’s 2020 Measures for the Security Review of Foreign Investment also absorbed elements of the CFIUS framework, including reviews of sensitive sectors and remediation in exchange for approval. The two sides learned from each other through interaction, but the result was that both strengthened their regulatory tools.
22. The Policy Directions on the Two Sides of the Strait Are Becoming Sharply Asymmetric
张鹏 emphasizes that China is still reducing its negative list for foreign investment, piloting the opening of value-added telecommunications in free-trade zones, allowing wholly foreign-owned financial institutions, and even permitting wholly foreign-owned tertiary hospitals.
The U.S. is moving in the opposite direction: sectors that were previously open, including healthcare and agriculture, are beginning to close to Chinese capital. The two sides of the Pacific are not tightening in sync; one continues to send signals of openness while the other keeps pushing the boundary of economic security outward.
23. Ending the Tax Treaty Would Turn Double Taxation from an Exception into the Norm
The core function of the 1984 U.S.-China tax treaty is to prevent individuals and companies from being taxed twice by both countries, while providing mechanisms for tax consultations and information exchange. The memorandum’s proposal to suspend or terminate it has received far less attention than CFIUS.
张鹏 gives the example of a U.S. citizen or green-card holder who is also a Chinese tax resident. Under the treaty, that person could previously claim an annual exemption on roughly $130,000 of foreign income; if the treaty expires, the protection could disappear while U.S. tax authorities continue to pursue payment.
A company incorporated in the U.S. but managed primarily from China could also be treated as a tax resident by the U.S. based on its place of incorporation and by China based on its place of effective management. The two countries could previously resolve the conflict through consultation; without the treaty, the company might simply have to “pay both sides.”
24. Lower Tax Thresholds Would Directly Change Corporate and Talent Allocation
Under 张鹏’s example, a company generally needs a fixed place of business in the U.S., a project lasting more than 183 days or a sales contract to create a permanent establishment under the treaty. If the treaty ends, even a 90-day stay could create a U.S. tax obligation as long as recurring income exceeds $3,000.
Existing tax-allocation and exemption arrangements for cross-border employees, directors, artists, athletes, teachers and students would also disappear. Chinese citizens working temporarily in the U.S. could have to pay tax in both countries, and the reverse would also apply.
Lily’s inference is that once the costs become high enough, U.S. companies and Americans will reduce activity in China, while Chinese companies and Chinese citizens will withdraw from the U.S. 张鹏 agrees that this could become “a force driving two-way capital decoupling,” though the actual tax burden will depend on each country’s domestic law.
25. The Memorandum Is Both a Blueprint for Expansion and a Box of Negotiating Chips
庄明浩 concludes that the document is short but touches institutions and arrangements built over decades. A presidential memorandum is the lightest tool available to the president and one that preserves the most optionality and room for maneuver, so not every extreme option should be treated as certain to take effect.
张鹏 recommends watching investment alongside technology and trade. Tariffs once fell from the market-feared 60% to 10% targeting the fentanyl issue, showing that negotiation remains possible. But H20 chips could face further restrictions, and the U.S. may also ask the Netherlands and South Korea to stop servicing China’s existing semiconductor equipment or supplying parts for it.
The previous optimism around investment has already reversed. Trump welcomed Chinese EV investment in the U.S. during his campaign, but current policy is broader and harder than under Biden. The final scope will depend on agency rules and U.S.-China negotiations, but “complete capital decoupling” has become a major trend that cannot be ignored.
庄明浩 closed without offering investors false actionable advice: “There is really very, very little we can do, so we should watch and wait.” He again quoted the ending of an earlier article: “Salute to everyone working to promote cooperation between the two countries and avoid decoupling.”