Key lawmaker: Biden mulling broad prohibitions on U.S. investments in Chinese tech
The administration is considering a more aggressive walling off of American capital flows into Chinese high-tech sectors than previously known, says House Foreign Affairs Committee Chair Michael McCaul.
The White House is considering new action to block U.S. business with entire swaths of the Chinese tech economy — an investment blockade stricter than previously reported — according to the new chairman of the House Foreign Affairs Committee and four other congressional and former national security officials.
For months, Biden’s team has considered new oversight or rules on American investments in China. But House Foreign Affairs Chair Michael McCaul (R-Texas) said in an interview that he has learned in recent conversations that the administration is considering a complete ban on U.S. investments in certain high-tech areas of the Chinese economy. While the administration has said before that it would examine U.S. investments in certain sectors, the possibility of sector-wide prohibitions on American capital flowing into China has not been previously reported.
The Biden administration “is talking about a theory where they would stop capital flows into sectors of the economy like AI, quantum, cyber, 5G, and, of course, advanced semiconductors — all those things,” said McCaul, recalling recent meetings with administration officials. “They actually want to say, right, you can’t invest in any [Chinese] company that does AI. You can’t invest in any company does cyber” or other similar sectors.
McCaul’s comments were backed up by three recent veterans of national security agencies, as well as one congressional staffer with knowledge, who said that sector-wide capital flow rules are part of the ongoing discussion on an executive order limiting American outbound investments into the Chinese economy.
The Texas lawmaker’s remarks represent a window into the opaque, yearslong process of crafting an outbound investment executive order — meant to stop U.S. firms from funding Chinese technological and military advancements. Throughout those deliberations, the Biden administration has stressed that any eventual rules will be “carefully tailored” to hit only high-end Chinese technologies that threaten U.S. national security. But McCaul’s comments suggest that the approach could still include broad, sector-wide investment controls, albeit in a limited number of industries.
A spokesperson for the White House National Security Council declined to comment on which sectors could be covered by the outbound investment executive order. But they stressed that McCaul’s comments do not represent a change in the administration’s thinking on the executive order, and that officials would still seek to curtail trade only in technologies that could threaten U.S. security.
“I won’t get into specific sectors,” the spokesperson said. “But we know the importance of precisely defining which investments would be covered under an outbound investment regime and which would not be, particularly given the dual-use nature of the technologies that would be under consideration for any regime.”
“As we have said,” the spokesperson added, “this would include engagement with industry before any approach went into effect regarding its scope and implementation, to ensure it is tailored to national security concerns.”
Even if they only apply to a few industries, sector-wide prohibitions on U.S. investment would represent the most aggressive action the U.S. has taken to separate — or decouple — critical sectors of the American economy from China. Momentum for so-called “strategic decoupling” has been building throughout the federal government since the late days of the Obama administration, as the U.S. increasingly sought to combat China’s state-supported dominance in a number of high-tech sectors. That campaign has seen the U.S. greatly expand its commercial blacklists of individual Chinese firms, as well as bar U.S. companies from working on high-end semiconductors in China. But sector-wide investment rules or export controls would represent a significant escalation.
McCaul’s comments also illustrate that debate is ongoing in the administration on the scope of the executive order. Only a few weeks prior to his remarks, Treasury Secretary Janet Yellen reportedly pushed the White House to narrow the executive order to apply to a smaller set of Chinese sectors. Taken alongside the hawkish stance of sector-wide investment rules, the reports indicate that policy debate between agencies, ongoing since the Trump administration, continues in the administration.
Alongside the White House efforts, China hawks in Congress have also sought to craft legislation to review or limit American investments in China. Sens. Bob Casey (D-Pa.) and John Cornyn (R-Texas), who failed to get their outbound investment bill attached to multiple pieces of legislation last year, say they will soon reintroduce the measure. The incoming Republican leadership of the Financial Services Committee and China Select Committee in the House have both indicated interest in the issue, and McCaul said he hopes his panel will work closely with them to shape legislation over the coming year.
“I just think we can give certainty to the marketplace and our private industry” about where they can and cannot invest, McCaul said. “Moving forward, that’s how we need to do it.”