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White House Reverses 2018 Investment by Mainland Chinese Company

President Trump on 6 March ordered based on national security concerns the divestiture of the 2018 purchase of StayNTouch, a mobile hotel property management system, by mainland China-based Beijing Shiji Information Technology Co. Ltd. and its Hong Kong subsidiary Shiji (Hong Kong) Ltd.

Shiji purchased 15 percent of StayNTouch in January 2016 and completed full acquisition of that company in September 2018. A review of the acquisition by the Committee on Foreign Investment in the United States (CFIUS) has now led the Trump administration to order Shiji and any shareholders, partners, subsidiaries or affiliates to fully divest from StayNTouch within 120 days, unless that deadline is extended by no more than 90 days with CFIUS consent.

The required divestiture applies to StayNTouch and its assets, intellectual property, technology, data (including customer data managed and stored by StayNTouch), personnel and customer contracts, as well as related operations. The order specifies that until the divestiture has been completed and verified to the satisfaction of CFIUS, Shiji must refrain from accessing, and must ensure that any of its subsidiaries or affiliates refrain from accessing, hotel guest data through StayNTouch. The executive order claims that there is credible evidence that Shiji might take action that threatens to impair the national security of the United States.

In April 2019, CFIUS forced divestiture of two other firms with access to U.S. citizens’ data: Grindr (a dating app) and PatientsLikeMe (a patient information firm). CFIUS regulations were updated following passage of the Foreign Investment Risk Review Modernization Act of 2018, with emphasis on transactions involving critical technology and infrastructure or operations that collect sensitive personal data on U.S. citizens and the degree of foreign control of those arrangements, among many concerns. Unanticipated CFIUS actions add another element of uncertainty to an already challenging time for many industries, especially for any investment that could be perceived as providing foreign firms with access to U.S. citizens’ data.

Content provided by Picture: HKTDC Research
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