Members of a US Senate committee said they are considering new rules to block investments in China’s hi-tech sectors, a move they said was needed to stop American money from financing Beijing’s tenacious efforts to out-compete Washington, even as they differed on what form the rules should take.
“We know that our adversaries will use any means they can to close the gaps between our technological capabilities and theirs, without much care to how legal their tactics actually are,” Sherrod Brown, the Ohio Democrat who is chair of the Senate Banking Committee, said.
“What we don’t know is to what degree US investments are helping them close those gaps.”
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The committee hearing was the latest sign of a growing sense of alarm throughout the US government about whether deep business and economic ties with China – built up over the last two decades – have ultimately harmed US national security.
Senators on the committee said that investments in Chinese hi-tech companies – still legal despite a slew of US actions targeting many sectors in China – should be viewed as a dangerous loophole in Washington’s export controls.
In particular, they questioned whether a Chinese company that was already prohibited from receiving US equipment should still be allowed to receive US money. Researchers have estimated that about US$118 billion in American capital is invested in China.
But committee members did not fully agree on how far the US should go to stop such investments.
Senator Pat Toomey of Pennsylvania, the committee’s senior Republican, warned against moving too quickly with an overly broad mandate to block the flow of capital in and out of the US – especially if it is done by executive action, not the legislative process.
“I’m concerned that the White House is reportedly rushing to issue an executive order that establishes an outbound investment regime unilaterally,” he said.
“Why would you start a firm in the US if you knew that doing so would risk precluding you from investing in China, the second-largest economy in the world?”
Other lawmakers, though, have recently urged the White House to act quickly, with an executive order by US President Joe Biden, while Congress continues to debate the issue and come up with a final bill that can pass.
Biden weighs curbs on US investment in China tech
“We’re seeing the vulnerabilities of an open door between our economies,” said Senator John Cornyn, Republican of Texas, who co-wrote a pending bipartisan bill to review outbound investments in “foreign adversaries”, including China.
“There’s an old saying attributed to Vladimir Lenin: ‘The capitalists will sell us the rope with which we will hang them,’” Cornyn said.
“That’s exactly what China’s trying to do, using the enterprising minds of Americans to choke our own economy.”
In recent years, Congress and the White House have issued a string of new rules meant to stop the flow of American know-how, money and technology to various parts of China’s economy.
Those restrictions have included a ban on equipment sales to Chinese telecommunications giants, whose equipment the US says could be used by the Chinese government to conduct espionage; and sanctions on cutting-edge surveillance companies that the US says have been used to target Uygurs and other ethnic minorities in China’s far-west Xinjiang region.
Even as many US policymakers insist they do not want a full decoupling from the world’s second-largest economy, they have become increasingly clear that they see unfettered business ties with Chinese firms as a large and growing risk.
They contend that their urgency has increased because Chinese leader Xi Jinping has stressed that even nominally private businesses ultimately should be loyal to the Communist Party.
Senators at the hearing also stressed that the US needed to stay competitive not just by blocking the flow of knowledge and funding to China, but by creating advanced technologies at home.
Senator Cornyn was also a co-author of the CHIPS and Science Act, which became law last month and will pour billions of dollars into the American semiconductor industry.
At a separate event on Thursday, US Commerce Secretary Gina Raimondo said that the US would be “hard-nosed” in policing the CHIPS law, ensuring that any companies accepting federal subsidies to build chips in the US would not be allowed to transfer their technology to Chinese firms.
“The whole point of this is to secure national security,” Raimondo said at the Atlantic Council, a think tank in Washington. “And we’re pretty eyes-wide-open about China’s threat.”
“The minute you take this money, we don’t want you building the most sophisticated chips in China,” she said.
At the hearing, the senators said they hoped at least some new legislation to block outbound investments would be included in this year’s annual defence authorisation bill, which is expected to pass before the end of the year.
Additional reporting by Kinling Lo
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