Congressional Scrutiny on U.S.-China Investments: Future Impact and Regulations

Any such regulations or limits may survive presidential administrations and become part of U.S. law due to increased congressional scrutiny of American business in China.

TFD – Delve into the escalating congressional scrutiny on U.S.-China investments and its potential repercussions for American businesses.

BEIJING — American capital purportedly used to finance China’s military expansion is coming under closer examination by Congress, suggesting that increased oversight of American investments in China may transcend presidential terms and become a legal requirement.

After a few false starts in 2023 that never ended up blocking U.S. investments into certain Chinese industries, some in the House of Representatives are still pushing ahead.

“It is imperative that Congress takes action and passes a long-term solution to this issue, as opposed to having successive administrations and executive orders, or regulators expressing divergent views,” stated Mike Gallagher, the chairman of the House Select Committee on the Strategic Competition Between the US and China Communist Party, in a statement to CNBC this week.

“I believe that we need to stop the flow of funding, at least in the sophisticated technological industries. Gallagher, the chairman of the Permanent Select Committee on Intelligence and the House Armed Services Subcommittee on Cyber, Information Technologies, and Innovation, stated, “We can’t afford to keep funding our own destruction.”

Established in January of last year, the House Select Committee on the CCP oversaw the legislative act that, should its Chinese parent company ByteDance fail to sell the well-known social media app, would effectively outlaw TikTok in the United States. In order to become law, the bill needs to pass the Senate after passing the House last week.

In February, a report by a House select committee claimed that American venture capital firms had made billion-dollar investments “into PRC companies fueling the CCP’s military, surveillance state, and Uyghur genocide.”

It’s unclear if American companies were aware of these connections at all. China has refuted claims of a genocide.

Since late 2023, comparable research highlighting the connections between Chinese tech startups, venture capital firms in China, and U.S. funding has been making the rounds in major media publications.

The research was created by “Future Union,” a bipartisan advocacy group that aims to address the security and future technology issues that the United States and its allies face by fusing private sector capitalism with forward-thinking leadership.

“Capital is a critical element to ensure that those competing and leading technologies have the opportunity to excel,” the research stated. Because of this, we must go back to the degree of responsibility and devotion to the law that made our private sector and capital markets the envy of the international community.

A list of the leading venture capitalists in technology and military who, in Future Union’s words, are “advancing America’s interest through explicit action” was also released.

Apart from the advocacy group’s executive director, Andrew King, who claimed in a CNBC interview to be the group’s only funder, not much more about the organization’s history is known to the public.

“We have not accepted funds from any external entities. The group is bipartisan. There are no vested interests, but I’m the one who can be public,” he stated. “Nobody is trying to profit from this,”

King, who is also a managing partner at the San Francisco venture capital firm Bastille Ventures, said, “It’s just people that have sort of seen the economics play out and the abuse and use exploitation of the private markets [that have] sort of cost us a generation of technology.”

Obstacles of politics

Restricting investments in China has proven to be a challenging task for the U.S. government thus far, despite the fact that imposing severe penalties on Beijing has been hailed as an uncommon area of bipartisan consensus.

A bill that would have forced American investors in cutting-edge Chinese technology to notify the Treasury Department was overwhelmingly approved by the Senate in July. The legislation did not pass the House, despite the fact that it was a watered-down version of previous bills that would have limited such expenditures.

Citing worries over national security, the Biden administration issued an executive order in August that aims to limit US investments in semiconductor, quantum computing, and artificial intelligence companies. Implementation was left to Treasury following a period for public feedback. As of yet, no more information has been made public.

However, House Foreign Affairs Committee Chairman Michael McCaul and Ranking Member Gregory W. Meeks expanded on the executive order by introducing the “Preventing Adversaries from Developing Critical Capabilities Act” to further limit funding for high-performance computing and hypersonic vehicles.

It’s uncertain if and when those measures will be passed into law.

China’s Ministry of Commerce urged the United States to “respect the market economy and the principles of fair competition” and to “refrain from artificially hindering global trade and creating obstacles that impede the recovery in the global economy” in response to Biden’s executive order.

An inquiry for comment on this article was not immediately answered by China’s National Financial Regulatory Administration.

What comes next?

King stated that he anticipates American businesses will have to report to Washington on any investments made in China pertaining to artificial intelligence and quantum computing, but not much more.

He stated, “I believe that the transparency aspect is still very much in the future.” And I believe that will take place. If that didn’t go through by the middle of the year, I would be shocked.

Without providing further details, he stated, “I don’t think there’s the appetite for getting enough of Congress on both sides to step up [in a] meaningful way to have hard restrictions because there’s a lot of entrenched interests.” He pointed out that businesses with links to sanctions, entity lists, or export controls, or those with military industrial linkages, are the subject of increased laws.

Aiming to prevent China from obtaining cutting-edge semiconductor technology, the U.S. Department of Commerce has established broad limitations during the past two years in addition to placing individual Chinese businesses on blacklists.

King stated that once China completes its own economic cycle, “I fully expect that to be a lucrative market,” despite the fact that institutional investment from the United States into China has largely stopped owing to uncertainty regarding growth and regulation.

The speaker expressed that a significant number of global asset managers and investment managers, as well as those seeking to expand their presence in China, are adamant about maintaining their flexibility to strategize for both ends of the divide, no matter how things turn out.