A runner runs past the US Capitol late afternoon on Capitol Hill in Washington, US, September 30, 2023, as a deadline approaches to avert a partial government shutdown.
Ken Cedeno | Reuters
BEIJING – The US Congress is increasingly turning its attention to American capital, which is allegedly financed China’s military developmentThis suggests that greater scrutiny of US investment in China could outlive the presidency and become law.
After several false starts in 2023 that failed to block U.S. investment in some Chinese industries, some House members are still moving forward.
“I really think Congress needs to step up its efforts and legislate a long-term solution to this problem, because otherwise we’re going to be ping-ponging back and forth between different administrations and different executive orders or different regulators saying different things.” — Mike Gallagher, 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 advanced technology sectors we need to cut off the flow of funds. We cannot afford to continue funding 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 Select Committee on CCP, created last January, led to legislation that would essentially ban TikTok in the US unless its Chinese parent company ByteDance sold the popular social media app. The bill passed the House last week and must now pass the Senate to become law.
The House Select Committee also released a report in February claiming that US venture capital firms have invested billions “in the company of the PRC, fueling the CCP army, the surveillance state and the Uyghur genocide.”
It is unclear to what extent, if any, the U.S. firms were aware of such connections. Beijing has rejected accusations of genocide.
Similar studies detailing the connections between US capital, venture capital firms in China and Chinese technology startups have begun to be conducted in the US. mainstream media retail outlets from the end of 2023.
The study was conducted by Future Union. which describes itself as “a bipartisan advocacy organization dedicated to bringing together private sector capitalism and visionary leaders to address the new wave of emerging technology and security challenges facing the United States and its allies.”
“To ensure that competing and leading technologies have the opportunity to succeed, capital is a critical element,” the report said. “So we need to return to the level of accountability and commitment to the rule of law that has made our capital markets and private sector the envy of the global system.”
Future Union also published a list of the top tech and defense venture capitalists who they believe are “advancing America’s interests through clear action.”
Little is known about the advocacy group’s background, other than its executive director, Andrew King, who said in an interview with CNBC that he solely funded the group.
“We did not take money from any outside groups. This is a bipartisan group. I am someone who can be public, but we don’t have any vested interests,” he said. “Nobody is trying to make money from this.”
“People just… sort of saw how the economy was developing, how private markets were being abused and exploited. [that have] it cost us a generation of technology,” said King, who is also managing partner of San Francisco-based venture capital firm Bastille Ventures.
Political obstacles
So far, the U.S. government has found it difficult to pass broad restrictions on investment in China, although getting tough on Beijing has been touted as a rare area of bipartisan agreement.
In July, the Senate overwhelmingly passed a bill that would have required U.S. investors in advanced Chinese technology to notify the Treasury Department. Although it was a watered-down version of previous proposals that would have limited such investments, the legislation failed to pass the House of Representatives.
In August, the Biden administration issued an executive order aimed at limiting U.S. investment in semiconductor, quantum computing and artificial intelligence companies, citing national security concerns. The Treasury Department was tasked with implementing the project after a public comment period. No additional details have been released yet.
But, based on the decree House Foreign Affairs Committee Chairman Michael McCaul and Ranking Member Gregory Meeks presented “Preventing Adversaries from Developing Critical Capabilities Act“Also limit investments in hypersonics and high-performance computing.
It is unclear if or when the proposals will become law.
When Biden’s order was released, China’s Ministry of Commerce called on the US to “respect the market economy and the principles of fair competition” and “refrain from artificially obstructing global trade and creating obstacles that impede global economic recovery.”
China’s National Financial Regulatory Administration did not immediately respond to a request for comment for this story.
What’s next?
King said he expects U.S. firms will have to notify Washington about investments in China related to quantum computing and artificial intelligence, but nothing more.
“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 this didn’t happen before the middle of the year.”
“I don’t think there’s a desire on either side to get enough members of Congress to step up. [in a] This is a sensible way to impose strict restrictions because there are many entrenched interests,” he said, without elaborating. He noted that the legislation is more focused on companies with military-industrial relationsor connection with sanctions, entity lists or export controls.
In addition to blacklisting specific Chinese companies, the U.S. Commerce Department has announced sweeping restrictions over the past two years aimed at blocking China’s access to advanced semiconductor technologies.
While U.S. institutional investment in China is largely on hold due to regulatory and growth uncertainty, King said that once China goes through its own economic cycle, “I fully expect that market to become profitable.”
“Many large asset managers and investment managers who are global in nature or want to have a greater presence in China, [they] don’t want to lose their ability to plan [both] sides of this gap, no matter how it plays out,” he said.