WASHINGTON, Nov 14 (Reuters) - The U.S. Congress should consider tougher screening laws for investments made by China's huge state-owned enterprises (SOEs) because of the threat they pose to U.S. companies, an advisory committee said in its annual report on Wednesday.
The U.S.-China Economic and Security Review Commission, which typically takes a tough view of relations with China, said Beijing lavishes special favors on its state-owned companies that could give them an unfair advantage even if they build facilities in the United States.
"Once invested in the United States, Chinese SOEs may continue to benefit from Chinese government subsidies that would allow the Chinese to sell their products at less than the cost of production. Once their U.S. competitors are driven out of business, Chinese SOEs might dominate the market and even raise prices," the panel said in its annual report.
The commission's 32 recommendations also called on Congress to carry out an in-depth assessment of Chinese cyber-spying and to weigh tougher penalties on companies found to cash in on industrial espionage.
A separate study released last week by the commission forecast Chinese investment to rise rapidly in coming years.
The study noted private economists put Chinese direct investment in the United States at $30 billion through the end of 2011, compared to official government estimates of just $5.8 billion through 2010.
In its report on Wednesday, the U.S.-China commission urged Congress to require mandatory screenings of all investments by Chinese state-owned or state-controlled companies where they would gain an controlling interest in a U.S. operation.
The Committee on Foreign Investment in the United States, made up of executive branch agencies, should also be required to consider the net economic impact of a foreign investment on the United States in addition to its current focus on any potential threat to national security, the commission said.
The U.S.-China panel also recommended the U.S. Securities and Exchange Commission be directed to look more closely at state-owned and -affiliated companies seeking to be listed on U.S. stock exchanges "to assure U.S. investors have sufficient information to make investment decisions."
The report follows Fortune magazine's latest list of the world's 500 biggest companies, which showed the United States still in the lead with 132, down one from 2011.
China passed Japan to move into second place on Fortune's list. It now has 73 of the world's biggest firms, up from 61 in 2011 and just 16 in 2005.
Many of the big Chinese firms are owned or controlled by the state, the U.S.-China commission said.
They generally receive more favorable treatment in China than foreign firms, and because of those favors and subsidies have become formidable competitors in both the United States and other markets around the world, the panel said.
Congress should require the U.S. Commerce Department to annually track Chinese investment in the United States, with a particular focus on state-owned enterprises, the panel said.