At a time when Washington is working to improve its relationship with China, several states in the US are embracing anti-Chinese sentiment and implementing extensive regulations aimed at severing economic ties with Beijing. These measures, seen in states like Florida, Utah, and South Carolina, are part of a growing political movement to reduce economic dependence on China and mitigate the perceived national security risks posed by Chinese investment. The Biden administration shares these concerns and has been actively promoting domestic manufacturing as well as strengthening trade ties with allies to decrease reliance on China. However, the state efforts have the potential to be more expansive than what the administration is currently pursuing, raising concerns among business groups that state governments are moving towards protectionism and deviating from their longstanding tradition of welcoming foreign investment. The proposed or enacted laws in nearly two dozen states, mostly leaning right, seek to restrict Chinese purchases of land, buildings, and houses. Some of these measures may be more stringent than the federal level regulations overseen by a committee led by the Treasury secretary, which reviews and blocks transactions that could potentially give foreigners control over American businesses or real estate near military installations. The state laws go beyond that, preventing China, and in some cases other “countries of concern,” from buying farmland or property near broadly defined “critical infrastructure.” These restrictions coincide with a surge in anti-China sentiment fueled, in part, by a Chinese spy balloon that crossed the US this year and heated political rhetoric leading up to the 2024 election. The state-level restrictions present another challenge for the Biden administration, which has been taking measures to stabilize economic ties with China by sending top officials to engage with their Chinese counterparts in recent weeks. However, state and local officials seem determined to sever economic ties with China, even as the federal government views a relationship with China as a necessary evil. The shift towards states taking actions to regulate investments is a recent development, gaining strength alongside a broader push by the federal government to reshape its China strategy. Despite China owning less than 400,000 acres of land in the US, accounting for less than 1% of all foreign-owned land, Chinese landownership has become a major target. This movement gained momentum in 2021 when Fufeng USA, a subsidiary of a Chinese company that produces animal feed components, faced backlash for planning to construct a corn mill in North Dakota. The proposal was reviewed by the Committee on Foreign Investment in the United States (CFIUS), but the Air Force, citing national security risks due to the mill’s proximity to a military base, opposed the project. As a result, local officials abandoned the plan. Since then, states have been introducing or strengthening restrictions on foreign investment, sometimes targeting a broad range of countries, including Iran and North Korea, and other times focusing specifically on China. These state efforts have faced criticism from business groups concerned about burdensome regulations, as well as opponents who view them as discriminatory. Some proposals have been scaled back due to backlash. For example, a proposal in Texas to ban infrastructure projects funded by investors with ties to China and to restrict land purchases by Chinese citizens and companies was revised to only prohibit agricultural land purchases by individuals or companies with ties to China, Iran, North Korea, or Russia. The bill ultimately expired in May. In South Dakota, Governor Kristi Noem attempted to create a state version of CFIUS to review and investigate agricultural land purchases and leases by foreign investors, but the legislation failed due to pushback from farming groups and concerns about granting too much power to the governor. Governor Ron DeSantis of Florida, a Republican candidate for president, has been particularly vocal about China, signing a law in May that prohibits Chinese companies or citizens from purchasing or investing in properties within 10 miles of military bases and critical infrastructure. Critics argue that the law is written so broadly that even an investment fund or company with a small ownership stake from a Chinese entity and the intention to buy property would violate the law. The legislation is currently being challenged in federal court, with the Justice Department arguing that Florida’s landownership policy is unlawful. Despite the objections, Republican attorneys general across the country have backed Governor DeSantis. The broad language used in the Florida law and similar laws in other states creates uncertainty for investors and fund managers looking to invest in Florida, potentially forcing them to reconsider their plans or exclude Chinese investors. These laws, while intended to be tough on China, may have unintended consequences, such as harming state revenues and property markets, while failing to address genuine national security concerns. Restrictions on foreign investment also coincide with congressional efforts to prevent Chinese businesses from acquiring farmland in the US and impose new mandates on Americans investing in China’s national security industries. The Senate passed these measures with overwhelming support in July, but they still need to clear the House to become law. The combination of state-level and federal restrictions is likely to complicate relations with China and may provoke retaliatory actions. Beijing is concerned about the increasing hostility towards Chinese investments at both the national and state levels, viewing them as signs of rising antipathy towards China. The Chinese government is particularly worried about an escalation of state-level restrictions. Overall, the state-level regulations represent a significant shift in the US approach to China and are causing tensions at the federal level.
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