Chinese Property Ownership as a National Security Problem

On May 22, 2023, four Chinese nationals and one local real estate company filed a suit in the U.S. District Court for the Northern District of Florida challenging Florida law SB 264, enacted July 1, 2023, which prohibits land ownership by Chinese individuals who are non-U.S. citizens and resident in the state of Florida. In this first-of-its-kind case, the claimants argue that the Florida law violates equal protection, due process, federal preemption, and the Fair Housing Act. On Aug. 17, 2023, Judge Allen Winsor, a Trump appointee, denied the preliminary injunction, and the claimants subsequently appealed to the U.S. Court of Appeals for the Eleventh Circuit, which, in February, granted a partial injunction against the Florida law pending appeal. 

A storm is brewing, and the case, Shen v. Simpson, is at its center. On the one hand, state executives and legislatures in both red and blue states have in recent years proposed over a hundred of such bills that restrict Chinese ownership rights over property. These bills are part of an even larger body of state legislation that seeks to sever state ties with the People’s Republic of China (PRC), affecting not just property rights but also a wide range of controversies—from TikTok and semiconductors to educational exchange and Confucius Institutes to human rights and forced labor in Xinjiang. States have become laboratories of China-delinking. 

Specific to property law, states are concerned that Chinese ownership of real estate or control of digital infrastructures could endanger U.S. national, military, data privacy, and food security. Florida has taken the lead in linking Chinese land ownership to national security threats. In Shen, Florida and other states argue that the Florida law is a permissible exercise of state power, based on long-standing state rights to regulate property within their jurisdiction. 

On the other hand, civil liberty groups, public interest lawyers, the U.S. Department of Justice, and Asian American business communities have decried the discriminatory legislation as stigmatizing Chinese and harkening back to the 1913 California Land Law, which barred “aliens ineligible to citizenship” from full ownership of agricultural land. The claimants in Shen counter the state rights position by arguing that the Florida law exceeds state authority by touching on matters of immigration, foreign commerce, and national security, which are the purview of the federal government and thereby preempted.  

Shen is potentially a turning point for the country. A win for Florida could embolden other states to pass such legislation, but a victory for the claimants could stem the tide of Sinophobic state laws.

Yet the stakes are even higher. First, Shen occurs against the background of worsening U.S.-China relations, the most important bilateral relationship in the world. Chinese propagandists have seized the opportunity to spotlight such state laws as an instance of U.S. hypocrisy in its treatment of racial minorities. During both World War II and the Cold War, how the U.S. treated aliens domestically influenced how foreign powers engaged with the country. Second, the Florida law and others like it show how national security is no longer shaping just cross-border areas of law such as foreign investment but also bedrock U.S. law—like property. 

Indeed, I’ve gathered a data set of 152 China-related state bills and laws regulating property rights (broadly construed), almost all of them introduced in 2023, including not just land but also business transactions and data privacy. Based on an analysis on this data set, I argue in a recent article that while there are valid national security concerns posed by Chinese actors in the U.S., the state statutes often overreach, violate the U.S. Constitution, and show U.S. property law trending toward illiberalism. The reason for the proliferation of state statutes targeting non-national property ownership is both epistemic and doctrinal. 

Pursuant to the literature on national security law, the epistemic dimension refers to the knowledge economy underwriting those who make determinations about the types of threats posed to national security, including evidentiary claims and bases of expertise. In this case, state statutes are often the products of ambitious state governors and corporate lobbyists, although in today’s environment, being perceived to be “too soft” on China is such a negative in political terms that lawmakers may support such legislation even if they do not carry an anti-China animus. 

Yet political and economic drivers find purchase because there are underlying structural or doctrinal features of U.S. property law that enable them to do so. Specifically, state legislatures draw on a long line of exclusionary jurisprudence that discriminates against noncitizens. While laws historically have excluded Black and Native American people, in the late 19th century they centered on Asian and Chinese people in particular, for example, the 1882 Chinese Exclusion Act. Racial nativism crystallized in the 1913 California Alien Land Law, which in practice excluded Japanese nationals and Japanese Americans, paving the way for Korematsu v. United States (1944), which notoriously did not reject the idea that the World War II concentration camps were racially motivated. 

As with some of the historical legislation, the current China-related state statutes are often quite broad in their scope and language. While there is undoubtedly a symbolic dimension to the bills and laws in that they function to communicate governors’ will and capacity to “do something” about the China threat, even symbolic statutes can have real-world downstream effects. For example, Michigan’s HB5073, which was passed into law by the state legislature, sets forth, in part, “[A] foreign principal shall not directly or indirectly own or acquire by purchase, grant, devise, or descent any interest in agricultural land or real property located within 20 miles of any military installation or key facility in this state.” Yet the way in which “key facility” is defined in the Michigan Penal Code is so broad as to effectively shut “foreign principals” out of most urban markets in the state. Likewise, the Florida law contains a provision that imposes penalties on would-be sellers to Chinese buyers, and, according to interviews I have conducted with attorneys representing the claimants, this provision has had a chilling effect on many lenders and title companies that have stopped working with Chinese clients—unless they have green cards—out of fear of violating the law. This is just one example of the issues caused by many of the recent China-related statutes.

In the full article, I analyze how the recent China-related state statutes face, in particular, challenges on grounds of equal protection and federal preemption issues. Thus far, the Eleventh Circuit has supported the federal preemption claim and Reps. Judy Chu (D-Calif.) and Al Green (D-Texas) have sought to introduce federal legislation that would preempt laws like the Florida one. In the meantime, courts must grapple with the constitutionality of laws and administrative officials must implement them despite their broad language. 

The question, then, is how should the federal government, state governments, and concerned publics respond to these trends? First and foremost, and somewhat in tension with prevailing trends in the literature on “foreign affairs federalism” that point to the disaggregation of foreign affairs powers between the federal and state governments, in the context of the U.S.-China relationship, the argument for the government speaking with “one voice” makes sense here. The U.S.-China relationship is as consequential across a broad swath of fundamental areas—trade, commerce, security, human rights, development, emerging technologies, and environmental protection—as it is fragile. If a U.S. state were, for example, to recognize Taiwan as an independent state in contravention of the long-standing “One China” policy, aside from the issue of whether such a declaration would have legal effect, the diplomatic fallout would be heavy. Hence, some measure of centralization of foreign relations powers within the federal government during this turbulent period is warranted.

At the same time, though, states are already shaping U.S.-China relations. Completely shutting state governments out of foreign relations with the PRC is both unrealistic and undesirable. Excluding states may conceivably exacerbate “uncooperative federalism.” Arguably, subnational diplomacy is here to stay if Gov. Gavin Newsom’s (D-Calif.) recent high-profile trip to Beijing is any indication. Given their diverse trade profiles with the PRC, various investment strategies, and geographically shaped Chinese diasporas, states will continue to have important economic, diplomatic, and cultural connections with China, despite current “derisking” trends. In short, there needs to be a recalibration of the state-federal allocation of foreign relations powers that both invites states to the table but also ensures, pursuant to the Supremacy Clause, that federal law and the Constitution have superordinate authority over state laws, especially in the area of national security. 

If the root causes for the rash of China-related statutes is epistemic and doctrinal, then, equally so, solutions to the problem should begin with these epistemic and doctrinal foundations. Starting with the problem of how knowledge is brought to bear on national security threats as pertaining to Chinese property ownership, one of the fundamental issues is that many of the statutes are drafted without any real knowledge of China. This is problematic on multiple levels and introduces another example of “epistemic closure,” though a version in which experts are shunted out of the system and not its beneficiaries. The national security literature has pointed to opening up national security claims to the public in a move to enhance transparency, a policy reform that should generally be encouraged, but in the case of China-related legislation, populism and nativism work to exclude experts with suboptimal results. 

The integration of China expertise into state lawmaking presents both supply and demand issues. On the supply side, there are a number of organizations that foster greater interaction between China scholars and policy- and lawmakers. For example, the National Committee on U.S.-China Relations (NCUSCR) has organized subnational symposia that feature state and municipal officials from the U.S. who work on a range of issues in order to improve their China knowledge and facilitate best practices. The NCUSCR has a database of experts who work on a number of areas from Chinese corporate governance to the Chinese Communist Party (CCP) and its influence operations around the world. This expertise should be marshaled rather than sidelined to produce better laws.

The more pressing issue is the demand side. Many governors or mayors are averse to consulting intellectuals, particularly those they view as members of the liberal coastal elite. Nowadays, in certain quarters of the United States, any China scholar is perceived to be “contaminated” by their China ties. Such views are as extreme as they are myopic. First, experts working on China are located throughout the country and can be found in most regions of the United States and not only in cities but also smaller college towns. Many, in fact, have close ties to local communities. Second, China experts themselves are multicultural and exhibit a range of views on China and engagement with the PRC. For instance, those scholars working on Xinjiang may have views critical of China as strong as those of any governor, the difference being that the Xinjiang expert would likely perceive such measures as prohibiting Chinese students from studying in that state to be shortsighted and more likely to hurt the local economy, industries, and educational systems than those of the PRC. 

At the level of law-making, while not a panacea, China experts can ensure a tighter nexus between perceived threat and legislative response. They could do so through expert panels or committees that could be prescribed by state constitutional provision or resolution to discuss China-related concerns. They could work with state and municipal officials to understand the issues within the legal remit of their respective panel or committee and identify areas for the body to consider within its jurisdiction. To be clear, establishing expert bodies is not in any way to deny that security threats exist; instead, the panel would be empowered to make such determinations and identify proportionate responses.

Yet some subnational officials are more interested in pushing the symbolic effects of China-related bills than in producing optimal law that more accurately balances national security with constitutional protections. For these instances, the epistemic closures will likely persist. While ensuring that racially motivated and discriminatory laws are not appropriate ways to win electorates is a long-term goal for America’s democracy, in the meantime, a second check on such laws lies with the judiciary. 

As a doctrinal matter, courts can fine-tune their review of potentially unconstitutional laws. According to the strict scrutiny standard as developed for equal protection claims, a law must be narrowly tailored to serve a compelling government interest. The strict scrutiny test should apply to the Florida law in Shen as the classifications made by the law (as with many of the recent China-related laws) are based on nationality and proxies for race, which are protected classes. State courts have already recognized that state legislation that regulates the acquisition of land by aliens is subject to equal protection. The China-related laws, however, make different kinds of distinctions in terms of which groups, entities, or individuals are targeted by the legislation. For example, the Florida law is exceptionally broad, applying to the Chinese Government, CCP, Chinese corporations, and those individuals “domiciled” in China. 

Such enumerated lists may challenge the requirement of narrow tailoring of the law. Yet judges may have insufficient knowledge of China to make distinctions between such targets of the law. The key factual question in many instances is the nature of the relationship between a target and the PRC authorities, including the government and the CCP. Rather than assuming that all such Chinese entities and individuals are CCP agents, and thus making overgeneralizations that are constitutionally suspect, judges need to conduct finer fact-based analyses of such political ties. While the Committee on Foreign Investment in the United States is already doing some of this work under the Foreign Investment Risk Review Modernization Act of 2018, its review of real estate transactions is still limited.

As a doctrinal adaptation, one could imagine a metaphorical analogue to the “piercing the veil” or “alter ego” method in corporate law. Rather than being used against limited liability corporations to go after the assets of shareholders, in the case of the China-related legislation, “piercing the veil” means identifying the nature of the relationship between the target (which could equally be an entity or an individual) and the PRC authorities and thus better ascertaining the extent of a potential threat to national security. 

Courts could develop sets of factors to consider in determining whether to pierce the veil of the Chinese entity or citizen, and such factors would differ according to the target. For instance, for private companies, factors include ownership and control and identification of the ultimate beneficial owner. For individuals, a fact-based analysis would consider such factors as the individual’s reason for entering or being in the United States. There are many challenges to conducting such an analysis, even with China expertise to which the parties to litigation would make recourse. Nonetheless, veil piercing would help ensure that laws are sufficiently tailored to bring about a compelling government interest and would do so by line-drawing. For example, a law that prohibits Chinese state-owned enterprises from purchasing property within 10 miles of “critical infrastructure” in a U.S. state is one thing; but another one that prohibits any Chinese national, including those who have resided in a state for five or more years, from purchasing any property in that state is another matter entirely. 

The U.S.-China relationship is entering a critical phase. While numerous human-made and environmental crises require greater coordination between the two largest economies in the world, “strategic competition” remains the prevailing policy orientation in Washington and Beijing. Yet U.S. states are also becoming powerful shapers of the bilateral relationship. While state and federal officials need to protect national security against Chinese spying and surveillance, intellectual property and technology theft, disinformation and propaganda, as well as other means of influence in the United States, doing so requires careful balancing with protecting property rights and other personal liberties pursuant to the U.S. Constitution.