MEXICO CITY, Dec 7 (Reuters) - The U.S. Treasury said on Thursday it signed an agreement with Mexico's finance ministry to cooperate on strengthening screening of foreign investments to enhance national security, including regularly sharing information on best practices.

The Biden administration is promoting Mexico as a premier investment destination for U.S. supply chains and wants to ensure that the country has a robust screening regime in place to handle the influx.

The effort is aimed at helping Mexico develop a screening body similar to the Treasury-run Committee on Foreign Investment the U.S. (CFIUS), which reviews purchases of American companies by foreign-owned entities and other inbound investments.

"Like our own investment screening regime, CFIUS, increased engagement with Mexico will help maintain an open investment climate while monitoring and addressing security risks, making both our countries safer," Yellen said in announcing the memorandum of intent with Mexican Finance Minister Rogelio Ramirez de la O.

Yellen wraps up a three-day visit to Mexico City to enhance economic ties and boost cooperation to stem the flow of the deadly opioid fentanyl to the United States via Mexico, where precursor chemicals from China are often mixed.

"NEAR-SHORING" BOOM

Mexico is attracting a major influx of manufacturing investments to supply the U.S. market, raising concerns that China or other countries could use it as a back door to get around restrictions on U.S. export controls for sensitive technologies such as semiconductors.

The near-shoring boom brought Mexico $32.2 billion in foreign direct investment in the first three quarters of 2023, close to the full-year 2022 total of $36 billion.

High profile projects include an estimated $5 billion Tesla electric vehicle factory that has prompted Chinese suppliers to announce plans to invest over $1 billion nearby.

While CFIUS' increased scrutiny in recent years has sharply reduced Chinese investment in the United States, Yellen told reporters she does not want to preclude China from injecting funds into Mexico or the U.S. when there are no national security concerns.

CHINESE INVESTMENT WELCOMED

If Chinese firms want to produce in Mexico for the U.S. electric vehicle battery market, they would have to comply with the Treasury's new "foreign entity of concern" rules that limit Chinese control of a producing subsidiary to 25%.

"If Chinese involvement triggered those rules, which are meant to avoid undue dependence on China, then that's a no," Yellen said.

Private Chinese firms are also investing in the U.S. production of other clean energy goods to take advantage of domestic tax credits, and "they can play a role" in creating a diverse supply base in the sector, she said.

The Treasury and other members of CFIUS, which include the of the U.S. departments of State, Defense, Homeland Security, and Commerce, regularly work with governments to improve their investment screening. More than 20 countries, including Mexico, have implemented or enhanced their regimes over the past decade.

PAYMENTS COOPERATION

Yellen said that Treasury and Mexican Finance Ministry officials on Thursday also discussed cross border payment systems, including possibly integrating them more deeply, which could enhance trade and investment benefits.

"I see real potential here and potential here and welcome further exploration of the possibility of interlinkage and other ways to improve connectivity between the U.S. and Mexican payment systems," Yellen added in prepared remarks.

(Reporting by David Lawder; Editing by Richard Chang)