A runner runs near the US Capitol as the deadline approaches to avoid a partial government shutdown at the end of the day on Capitol Hill in Washington, US, September 30, 2023.
Ken Cedeno | Reuters
BEIJING — The U.S. Congress is increasingly monitoring U.S. capital that has allegedly financed Chinese military development, suggesting that greater scrutiny of U.S. investments in China may last beyond presidential terms and become part of the law.
After a few false starts in 2023, which never ended up derailing American investment in some Chinese industries, some in the House are still forging ahead.
“I think Congress needs to step up and legislate a permanent solution to this problem, because otherwise, we're going to be going back and forth between different administrations and different executive orders, or different regulators saying different things,” Mike Gallagher said. The chairman of the House Select Committee on Strategic Competition between the United States and the Chinese Communist Party said in a statement to CNBC this week.
“I think, at least in the high-tech sectors, we need to cut off the flow of money. We can't continue to fund our own destruction,” said Gallagher, who is also chairman of the House Armed Services Subcommittee on Cybersecurity. Information Technology and Innovation, and on the Permanent Select Committee on Intelligence.
The House Committee on the Communist Party of China, established in January last year, led the legislation to essentially ban TikTok in the United States if Chinese parent company ByteDance does not sell the popular social media app. The bill was approved in the House of Representatives last week, and now must be approved by the Senate if it is to become law.
The House Select Committee in February also published a report alleging that US venture capital firms invested billions “in PRC companies to fuel the Chinese Communist Party’s military, surveillance state, and Uyghur genocide.”
It is unclear how aware US companies are of such links, if any. Beijing has denied accusations of genocide.
Similar research detailing the links between US venture capital, Chinese venture firms, and Chinese technology startups has been making its rounds in mainstream media since late 2023.
The study was produced by Future Consortium, which describes itself as “a bipartisan advocacy organization aiming to combine private sector capitalism and progressive thought leaders to address a new wave of emerging technology and security challenges facing the United States and its allies.”
“In order to ensure that these competing, leading-edge technologies have the opportunity to excel, capital is critical,” the report said. “As such, we need to return to the level of accountability and fidelity to the rule of law that has made our capital markets and private sector the envy of the global order.”
Future Union also published a list of what it considers to be major technology and defense investors who “advance America's interest through visible action.”
Nothing else about the advocacy group's background is available to the public, other than its executive director, Andrew King, who said in an interview with CNBC that he only funded the group.
“We're not getting money from any outside group,” he said. “It's a bipartisan group. I'm the one who can be public, but there's no vested interests.” “No one is trying to make money from this.”
“It's just people… who have kind of seen the evolution of the economy and the abuse and exploitation of private markets (that) have kind of cost us a generation of technology,” said King, who is also a managing partner. At venture capital firm Bastille Ventures in San Francisco.
Political obstacles
So far, it has been difficult for the US government to pass sweeping restrictions on investments in China, although getting tough on Beijing has been described as a rare area of bipartisan agreement.
The Senate in July overwhelmingly passed a bill requiring US investors in advanced Chinese technology to notify the Treasury Department. Although this was a watered-down version of previous proposals that would have restricted such investments, the legislation did not pass the House of Representatives.
The Biden administration in August issued an executive order aimed at restricting US investments in semiconductor, quantum computing and artificial intelligence companies over national security concerns. The Treasury Department was tasked with implementing the plan after a public comment period. No further details have been revealed yet.
But based on the executive order, House Foreign Affairs Committee Chairman Michael McCaul and Ranking Member Gregory W. Meeks introduced the Preventing Adversaries from Developing Critical Capabilities Act to restrict investments in hypercomputing and high-performance computing.
It is unclear whether these proposals will become law.
When Biden's executive order was issued, China's Ministry of Commerce called on the United States to “respect the market economy and principles of fair competition” and “refrain from artificially obstructing global trade and creating obstacles to the recovery of the global economy.”
China's National Financial Regulatory Administration did not immediately respond to a request for comment on this story.
What then?
King said he expects US companies will need to notify Washington about investments in China related to quantum computing and artificial intelligence, but not much more than that.
“I think the element of transparency is definitely still on the horizon,” he said. “And I think it will happen. I would be surprised if it doesn't happen before the middle of the year.”
“I don't think there's enough appetite to get enough from Congress on both sides of the aisle to step up efforts (in a) meaningful way to impose tough restrictions because there are too many vested interests,” he said, without elaborating. He pointed out that the legislation focuses more on companies that have military industrial ties, ties to sanctions, entity lists, or export controls.
In addition to blacklisting specific Chinese companies, the US Commerce Department in the past two years has announced sweeping restrictions aimed at blocking China's access to advanced semiconductor technology.
While US institutional investment in China has largely stalled due to uncertainty over regulation and growth, King said that once China goes through its own economic cycle, “I fully expect it to be a lucrative market.”
“A lot of large asset managers and investment managers who are global in nature, or who want to have a larger footprint in China, (they) don't want to lose the option to be able to plan on (both) sides of that divide, regardless of how things go.” , He said.
