Ralls Corp, which had been installing wind turbine generators made in China by Sany Group, has four wind farm projects that are within or in the vicinity of restricted air space at a naval weapons systems training facility, according to the Obama administration.
"There is credible evidence that leads me to believe" that Ralls Corp, Sany Group and the two Sany Group executives who own Ralls "might take action that threatens to impair the national security of the United States," Obama said in issuing his decision.
Ralls Corp had filed a lawsuit against the Committee on Foreign Investment in the United States (CFIUS) for ordering it to stop all construction and operations at its projects while the government panel completed its investigation and finalized its recommendation to Obama.
After the decision was announced on Friday, the company said it was confident that the courts would vindicate Ralls Corp's rights under the law and the Constitution.
Sany Group is the parent company of Shanghai-listed Sany Heavy Industry Co., China's largest construction equipment maker and the seventh biggest in the world.
Another group company, Sany Heavy Equipment International Holdings, is listed in Hong Kong. The U.S. court documents name only Sany Group, not the listed companies.
Sany's chairman and controlling shareholder, Liang Wengen, is China's fifth richest man, according to the latest ranking by Hurun Report, down from number one in 2011.
Although CFIUS reviews dozens of foreign investment deals for potential national security concerns every year, the president is rarely called upon to issue a formal order as companies usually abandon their deals or divest assets when the panel takes issue with their transaction.
The last time a president formally blocked a deal on national security grounds was in 1990 when then President George H.W. Bush stopped a Chinese aero-technology company from acquiring a U.S. manufacturing firm.
"This is a big deal because it is the first time since 1990 that the president of the United States has either blocked a transaction from occurring or divested a transaction that has occurred," said Clay Lowery, a former assistant secretary at Treasury who oversaw the CFIUS process and now is with Rock Creek Global Advisors.
Ralls Corp had hired the George W. Bush administration's top lawyer Paul Clement to help represent the company as well as a former U.S. assistant attorney general, Viet Dinh, who helped the Republican administration develop the Patriot Act. But that appeared to do little to convince the current administration to allow the company to resume operations.
The presidential order gives the Chinese company 90 days to divest all its interests in the projects. However, sources close to Ralls Corp said the company was still evaluating the order and had no immediate plan to unwind its activities.
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