After a few tough years, a California-based company called Ekso Bionics signed a promising deal with two Chinese firms in early 2019. The company designs robotic mechanical suits called exoskeletons, and it agreed to form a joint venture that would shift some of its production to China and help sell its equipment in Asia. 

At the time, shares of the small, Nasdaq-listed company were depressed. And after years of working with the United States military, including participating in a failed project to build an “Iron Man” combat suit, the company was shifting its focus to produce outfits more suited to the medical market. China held out the promise of lots of new customers.

But this month, the federal government told Ekso Bionics to call the deal off. The Committee on Foreign Investment in the United States, a federal inter-agency body that weighs whether business transactions are a threat to national security, blocked the joint venture after deciding that giving Chinese companies access to the American company’s exoskeleton technology presented a national security risk, the company’s chief executive, Jack Peurach, told The Wire.

The committee, known as CFIUS, has turned into a key weapon in the Trump administration’s arsenal as it embarks on an effort to push a growing number of Chinese companies out of the U.S. It has the authority to block or unwind deals between U.S. companies and foreign partners, and with China in mind, the scope of its authority has been steadily expanded. On May 20, for instance, CFIUS announced plans to expand the category of deals for which companies are required to notify it.

The decision to block the Ekso joint venture caps a month of sustained assaults against Chinese companies. The Senate passed a bill this month that threatens to delist some Chinese companies that trade on U.S. stock exchanges. In mid-May, the White House stopped the $600 billion federal retirement plan from shifting more of its savings into Chinese stocks. And last week, federal authorities added 32 new Chinese companies and institutions and one Chinese government agency to the Commerce Department’s Entity List, severely restricting their ability to do business with U.S. partners.

The Trump administration is also in the process of forcing Chinese telecommunications providers to shut down their U.S. operations and asking U.S. operators to rip Huawei and ZTE out of their systems.

This onslaught is taking place as a growing number of U.S. lawmakers seek to blame China for the Covid-19 pandemic, and to make China a central issue in the 2020 elections. In the shadows, CFIUS is seeking to prevent sensitive, trans-Pacific partnerships before they begin.

---

The decision to block the Ekso joint venture caps a month of sustained assaults against Chinese companies.

---

“In the Trump administration, CFIUS is being used as a weapon to combat what it considers to be Chinese efforts to gain access to or steal sensitive U.S. technology and threaten U.S. national security,” said Thad McBride, who runs the international trade practice of Bass, Berry & Sims, a law firm in Washington. 

CFIUS,  often pronounced as “siff-ee-yus,” is led by the Treasury Department and staffed by national security and trade agencies. In recent years, it has played a role in stopping Ant Financial, an Alibaba spinoff, from purchasing MoneyGram, an online payment system, and also intervened to block a Singapore company from acquiring semiconductor-maker Qualcomm. The committee also forced a Chinese company to sell the dating app Grindr shortly after it had purchased the American firm over concerns about Chinese access to sensitive data.

The committee does not announce when it is reviewing a transaction or when it takes actions. But companies that come before it often make the decisions public.

President Gerald Ford established CFIUS in 1975 to study the impact of foreign investment, and in 1988, fear of rising Japanese influence led lawmakers to give it the power to block mergers, acquisitions, and transactions involving foreign companies if they were deemed a threat to national security. In 2018, after a consensus emerged that China’s industrial policies posed a serious threat to national security, Washington lawmakers further broadened its authority. 

This is how Ekso Bionics, a company that for the past few years has focused on developing exoskeletons to help stroke victims relearn how to walk, got caught in the web of international conflict. 

Ekso Bionics was founded in 2005 at the University of California at Berkeley. It worked on a variety of technologies for the military before shifting its focus to the medical sector. It went public in 2012 through a reverse merger and listed on the Nasdaq stock market in 2015. The company has not performed well in years — it is valued at around $20 million by the stock market, down from over $600 million in 2015 — but things were looking up. In 2019, the company cut losses substantially and was on track for profitability.

That year, Ekso formed a joint venture with two Chinese partners to build exoskeletons in China and sell them in the nascent Chinese stroke recovery market. The two Chinese partners agreed to invest $10 million for a minority stake in Ekso (An initial $5 million investment was made). They also got rights to some of the California company’s technology, moves that CFIUS is empowered to block.

One of the partners, Zhejiang Youchuang Venture Capital Investment Co., has over 40 billion yuan (roughly $5.6 billion) in assets under management, according to its website. Ekso described the other partner, Shaoxing City Keqiao District Paradise Silicon Intelligent Robot Industrial Investment Partnership, as state-owned, although the company’s website lists it as part of a private-equity firm. Neither Chinese company responded to requests for comment.

Peurach, Ekso’s chief executive, says he decided to submit the details of the joint venture to CFIUS for review. If the committee approves such a deal, it cannot later unwind it.

The company’s military ties seemed likely to raise a red flag with the U.S. government. Ekso had worked on a variety of defense contracts since its founding and still touts military research on its website, although the company said it hadn’t worked on a military contract since 2017.

Exoskeletons have many applications: they can help people with injuries achieve mobility, help construction workers to carry heavy loads, and potentially enhance the capabilities of soldiers in combat, allowing them to move farther and faster and carry heavier weapons.

But it’s not clear the military still has ties, or even an interest, in Ekso technology. The U.S. Special Operations Command, which led the project to develop a combat suit that some likened to the “Iron Man” armor of the Marvel Comics hero, shut the project down in 2019, after having paid the company more than $2 million. Although the Special Operations Command still works with some contractors from the project, Ekso says it is not among them. 

“We are not even moving in that direction any longer,” Lieutenant Commander Timothy Hawkins, a spokesperson at the Special Operations Command in Tampa, Florida, told The Wire, referring to exoskeleton development. However, the Army is continuing to explore uses for exoskeletons, according to Robyn Mack, an U.S. Army Futures Command spokesperson,

Peurach hoped that regulators would agree the technology was not a threat. “Our product is a very specialized neurological rehabilitation project. There are proprietary aspects of it, but those are very related to neurological rehabilitation — helping people walk again. I did not feel that the exoskeleton part made it a sensitive device,” he said.

---

Like what you’re reading? Subscribe today for more in-depth, data-driven storytelling and expert analysis.

---

But CFIUS disagreed. “Their concerns were that there were national security risks associated with the technology, and they didn’t think these risks were mitigatable,” Peurach said.

Experts see this as part of a movement to restrict access to a growing number of fields, far beyond those that might have seemed sensitive just a few years ago. “What qualifies as national security has expanded,” said Sale Lilly, a senior policy analyst who researches Chinese development and military systems at the Rand Corporation, a think tank. 

One key reason may be that China has called for increasing robotics development. Following Made in China 2025, Beijing’s strategic plan to become a world leader in high-tech industries, the country plans to achieve 70 percent self-sufficiency in mechanical technology within five years.

“Any individual U.S. company isn’t going to contribute to the downfall of the U.S. military,” Lilly said. But as China implements programs designed to acquire foreign technology, in part to strengthen its military, there is concern that U.S. firms sharing emerging technologies would pose a threat, he added. 

The Pentagon views China’s military as a “near-peer” competitor. “That alone seems sufficient to try to limit dual-use technologies that seem on their face to be benign,” Lilly said. 

Chinese investors are getting the message. “The belief that it would be hard to successfully pass a CFIUS review has led to a dramatic reduction in Chinese willingness to invest in U.S. companies,” said John Kabealo, a lawyer who often represented U.S. and foreign companies that go before the committee. 

Less than 60 percent of deals involving China that are sent by companies to CFIUS for review have been approved, a recent study from Hong Kong-based law firm King & Wood Mallesons found. Those rejections are concentrated in the technology industry.

“Basic commercial transactions that don’t involve critical or foundational technologies are still very much open for business,” said Michael Wessel, a member of the U.S.-China Economic and Security Review Commission, the congressional panel that studies the national security implications of trade and economic ties with China.

CFIUS, it seems, has decided the exoskeleton industry is not open for business. 

Although many exoskeleton companies got their start with defense funding, often to build devices for wounded veterans, there has been a broad shift towards the medical and manufacturing industries, said Eugene Demaitre, a robotics expert and senior editor at the Robot Report, an industry publication. The technology is not advanced enough to be helpful to soldiers and still too expensive to implement, although some companies continue to develop exoskeletons for combat, he added. 

Most exoskeleton companies, like Ekso Bionics, have yet to make a profit, Demaitre said.

About the failed joint venture, Peurach, the Ekso chief executive, said: “I have to accept it and figure out the best way to move forward. It’s disappointing, but we will recover just fine.”

---