Senators urge White House to investigate Nippon Steel ties to China

Three US senators have voiced concern about Nippon Steel’s business ties in China, opening a new front in a political effort to stop the Japanese group from completing its proposed $14.9bn acquisition of US Steel.

Sherrod Brown, an Ohio Democrat who chairs the Senate banking committee, on Monday asked US President Joe Biden to investigate Nippon’s business relationships in China, according to a letter obtained by the Financial Times.

Brown raised concerns based on a report by Horizon Advisory, a consultancy, which said Nippon’s market exposure and operations in China created a “material national security risk”.

The Ohio lawmaker said it was “imperative” that the Biden administration “thoroughly examine” Nippon’s exposure to the Chinese steel industry with which it had been “fundamentally intertwined” for four decades.

Brown sent the Horizon report to Biden, and his position was backed by two other industrial state senators — Ohio Republican JD Vance and Pennsylvania Democrat Bob Casey — in comments to the FT.

“Nippon’s connection to the Chinese steel ecosystem and industrial policy agenda has concerning implications regarding ties to China’s military-civil fusion strategy and quest for global economic power,” Brown wrote, referring to a Chinese government requirement for domestic groups to share new technology with the military.

Biden last month objected to the acquisition, saying it was “vital” that US Steel remained domestically owned and operated. Biden made no mention of Nippon’s business in China, however, focusing instead on the need to retain American jobs.

Biden’s intervention came after Nippon had submitted the transaction to the Committee on Foreign Investment in the US, an inter-agency government panel that vets inbound investments for national security threats.

Biden’s move was designed to boost union support in Pennsylvania, a key swing state in November’s presidential election that he narrowly won against Donald Trump in 2020. Brown is up for re-election in Ohio, which Trump won in 2016 and 2020, while Casey is in a tight re-election race in Pennsylvania.

Biden will next week host Japanese Prime Minister Fumio Kishida in Washington. His statement has soured an otherwise rock-solid alliance with Japan but Japanese officials privately say that Tokyo wants to avoid being drawn into US presidential politics. Trump, the presumptive Republican presidential nominee, has said he would immediately block the deal if he beats Biden.

Two other senators briefed on the Horizon report who have previously opposed the deal said it raised red flags about allowing Nippon to acquire the Pittsburgh-headquartered US Steel. All three senators are from states where the United Steelworkers union has a large presence.

“Nippon Steel’s deep ties to the Chinese Communist party are troubling, and its relationship with the CCP must be scrutinised as it pursues an acquisition of US Steel,” Casey said.

Vance, who is seen as a possible vice-presidential running mate for Trump, urged Biden to block the acquisition, saying that “the foreign takeover of US Steel poses significant national security risks”.

“We cannot allow one of the largest American steelmakers to be gobbled up by a foreign entity with ties to the Chinese Communist party and its military-industrial apparatus. The president must find the courage to do what’s right and block this deal without delay,” Vance told the FT.

Nippon said the Horizon report was “rife with inaccuracies and misrepresentations” and stressed that it had only limited operations in China which amounted to less than 5 per cent of its global production capacity. China and Japan are strategic rivals in east Asia, and Tokyo has, with US support, been rapidly increasing its defence spending to counter mounting Chinese aggression in the region.

“We have no [research and development] facilities in China,” Nippon said. “The entities in which we invest in China have no control over our operations or business decisions outside of China, including in the US, and our Chinese partners do not have any access to information about Nippon Steel’s operations, including about its R&D and engineering, outside of China.”

The Horizon report does not allege any legal wrongdoing by Nippon. But it says its joint venture partners in China include “keystone backbone players” in the country’s steel industry, meaning that Nippon indirectly supports China’s civil-military fusion strategy.

For example, it says one partner, Beijing Shougang International Engineering Technology Co, has a clear affiliation with Chinese military-civil fusion strategies that meet the criteria for groups to be included on a Pentagon list of Chinese military groups that pose concerns for US national security. It is not on the Pentagon list, however.

The concern comes as US and multinational companies face rising scrutiny from Washington lawmakers over their operations in China across a wide range of industries, including microprocessors and other so-called dual-use technologies.

The Horizon report says Nippon has been instrumental in helping the Chinese steel industry to develop, including through one joint venture involving Baosteel, the largest Chinese steel company.

Brown said he was concerned about allegations that Baowu, the conglomerate that includes Baosteel, may have been involved in implementing Chinese government policies in Xinjiang that are viewed as enabling forced labour. The Chinese government has repeatedly denied that it is engaging in repression against Uyghur Muslims in the region.

Horizon’s report said there was some evidence that Nippon maintained an office in Xinjiang. Nippon told the FT that it has never had an office in the north-western region.

Nippon has nine facilities in China that can produce 3.6mn tonnes per year, according to its latest annual report. According to the World Steel Association, Chinese groups make up six of the world’s top 10 steel producers, with Baowu the biggest. Nippon Steel is the fourth largest.

Financial Times

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