The US is investigating the national security implications of a Chinese-owned property in Manhattan – a review which indicates that the Trump administration might be unsheathing a new weapon in its trade war with China.

Chinese conglomerate HNA bought a 90 per cent stake in the midtown building at 850 Third Avenue it uses as its US headquarters in 2016. The building, which is 10 minutes’ walk from US President Donald Trump’s New York residence, now poses concerns because of its proximity to Trump Tower and a police station it houses that oversees the Trump building.

Concern over the building is legitimate: foreign-owned facilities can be used to eavesdrop on sensitive conversations. When the Waldorf Astoria hotel was sold in 2014 to another Chinese conglomerate, Anbang, then-President Barack Obama stopped staying there on his trips to New York.

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The choice to examine HNA’s 2016 real estate deal, however, sends a strong signal that the US has begun to cast a very wide net over Chinese investments in the United States.

While many believe that the technology sector is America’s main concern for national security considerations, the scope of deals subject to review by the newly expansive Committee on Foreign Investment in the US (CFIUS) goes well beyond that.

It is also telling that the US is extending its investigations into purchases made years ago.

As the world’s two largest economies engage in tit-for-tat trade wars, levying duties on billions of dollars worth of goods – and threatening billions more – revoking Chinese investments could be a potent punitive measure the inter-governmental agency CFIUS employs against China.

“The new law gives CFIUS a lot of new powers,” said Christopher Griner, the chair of the national security and CFIUS practice in the Washington office of the Stroock & Stroock & Lavan law firm. “It has greatly expanded the committee’s authority.”

For one thing, the US could force the sale of the building. HNA, which had gone on a global acquisition binge only to face crushing debt payments recently, has already announced it is putting up for sale US properties worth billions of dollars – including the midtown building under review. A forced sale, though, would complicate matters for HNA, including how good a price it could get on the sale.

The investigation into the HNA building began months before US lawmakers passed new legislation called the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).

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The law, which aimed to clamp down on China’s theft of critical US technologies through mergers and acquisitions, was approved two weeks ago after an eight-month debate in Congress. Trump signed it into law on Monday.

It will take another year or two before the law takes effect. During the transition period, it is uncertain how it will be interpreted, said John Du, partner at the US office of the Beijing-based law firm Jun He, in a Thursday report.

The new legislation, though, added real estate purchases by foreign investors to the list of deals for review. It specifically authorised CFIUS to review the purchase or lease by, or concessions to, a foreign company of US real estate that is “in proximity to a US military installation or another facility or property of the United States government that is sensitive for reasons relating to national security”, according to an analysis by the Gibson Dunn law firm.

The new legislation does not rule out CFIUS’s ability to investigate assets sold to China prior to its passage – indicating that deals done years ago are not off-limit.

“Under the new law, CFIUS will have a greater ability to review transactions that were never notified to the committee before, empowering CFIUS with a bigger bite,” said Mario Mancuso, head of the international trade and national security practice at the Kirkland & Ellis law firm, commenting on the general impact of the new legislation, not specifically the HNA review.

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Foreign investors ought to be concerned because it’s not always easy to know if investments were made in areas close to sensitive areas, Mancuso said. Such facilities, given their secretive nature, are often not well known.

In HNA’s case, when it bought the stake in the 21-floor property, Donald Trump wasn’t president. Nor has the US made a fuss over the location or the police tenant it houses – until recently.

A spokesperson at HNA didn't immediately respond to a request seeking comment. But when Trump signed the bill to expand the CFIUS mandate on Monday, China took official notice.

Within a day, China's Commerce Ministry in a statement urged the US to “objectively and fairly treat Chinese investors, and avoid CFIUS becoming an obstacle to investment cooperation between Chinese and US firms”.

In a separate statement, China’s Foreign Ministry noted that the US passed the act despite China's strong objections, adding that China urges the US to abandon cold war thinking and correctly and objectively view relations.

For investors beyond China, a move against HNA in a real estate property could have a chilling effect on deal-making over all, suppressing the appetite for foreign companies to invest in operations including offices, production facilities and other buildings.

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“I don’t want the brush [of the new law] to be so broad that we knock out money or investments or collaborative partnership that we need,” warned Michael Allen, managing director at the advisory firm Beacon Global Strategies.

In going forward with its investigation of 850 Third Avenue, CFIUS did not seek other solutions such as moving the New York Police Department’s 17th Precinct into another building.

But that may be the point – and HNA’s New York office is now a poster child for what the US can do to hurt China beyond the punitive tariffs.

As the second batch of duties on US$16 billion Chinese products become effective in a week – and with the Trump administration threatening US$200 billion more – Beijing has been considering alternative ways to respond. Analysts have said that may include blocking major merger deals.

The US is showing it can hit back just the same.