House Committee Calls on Yellen to Accelerate Investment Restrictions on CCP-linked Firms

Subcommittee Chairman Rep. Mike Gallagher (R-Wis.) speaks on cyber, information technologies, and innovation during a House Armed Services Subcommittee hearing about artificial intelligence on Capitol Hill in Washington on July 18, 2023. Drew Angerer/Getty Images

The House Select Committee on the Chinese Communist Party (CCP) has urged the treasury secretary to implement President Joe Biden’s executive order on outbound U.S. investment restrictions in key technology areas in China.

In a letter dated Oct. 30 to Treasury Secretary Janet Yellen, Reps. Mike Gallagher (R-Wis.), and Raja Krishnamoorthi (D-Ill.), made a number of recommendations needed to prevent American capital from flowing into restricted Chinese firms.

“As Treasury deliberates on the definitions and scope to be issued in these guidelines, the Chinese Communist Party (CCP) is developing advanced technologies, with the help of American capital and know-how,” they said in the letter, urging Ms. Yellen to issue rules and guidelines so that U.S. firms can be aware of what investment restrictions to avoid.

In August, President Biden signed an executive order banning outbound American investments in key technologies that “significantly advance the military, intelligence, surveillance, or cyber-enabled capabilities of countries of concern.”

The order, which is set to be effective next year, will authorize the Treasury Department to issue regulations that restrict U.S. investments in Chinese firms in three sectors, including “semiconductors and microelectronics, quantum information technologies, and artificial intelligence.”

The committee recommended the Treasury Department to “adopt a broad definition” of three restricted sectors as the CCP uses an “expansive concept of national security” and “blurs the line between national security and normal commercial matters,” as well as evades narrowly defined restrictions. The committee noted that it does not recommend exceptions as they can weaken the effectiveness of the measures. It also seeks maximum penalties for those who violate the regulations.

In addition, the committee suggested that the United States cooperate with allies and partners to limit the CCP’s military modernization efforts.

It also noted that the regulations should not just apply to active investment. Still, passive investments via public markets, such as mutual funds or index funds, should be taken into consideration, as many U.S. investments in Chinese tech firms are made via those types of public funds.

In August, the Senate also passed legislation that would require American firms to notify the Treasury if they have investments in Chinese firms with sensitive technologies over national security concerns.

Preventing Investment in the Chinese Military

The committee has repeatedly sounded the alarm on U.S. firms investing in China’s technology firms that strengthens the CCP’s military.

In July, the panel launched a probe into four venture capital firms, accusing them of strengthening the Chinese military via their investment.

In one of the letters sent to leaders of those firms, the committee said that “[China] is actively seeking out and using advancements in AI to perpetrate human rights abuses and enhance its military capabilities.”

“It is likewise using advancements in quantum computing and semiconductor manufacturing to support the People’s Liberation Army (PLA).”

The letters also request that the leadership of each of the funds answer a series of questions regarding their investments in Chinese companies, including what companies they are investing in, the dollar amounts of each investment, their policies concerning investments in such companies, and what course of action the funds would take if companies they invested in were sanctioned by the U.S. government.

“American venture capital and private equity investments in [Chinese] AI, quantum, and semiconductor companies directly contribute to the PRC’s human rights abuses, military modernization, expansion of authoritarianism around the globe, and the [CCP’s] overall effort to supplant U.S. technological leadership,” the letter said, referring to the country’s official name, the People’s Republic of China.

“We’re concerned that some of the investments by these funds into China-based companies may aid the CCP in modernizing its military, building its techno-totalitarian surveillance state, and perpetuating serious human rights abuses – including the ongoing genocide against the Uyghur people. This is the beginning of a broader investigation.”

Passive Investment

As mentioned in the letter to Ms. Yellen, the panel wants to address passive investment flow into Chinese firms.

In July, the committee opened an investigation into asset management firm BlackRock and index provider MSCI, alleging that these firms facilitated passive investments into blacklisted Chinese companies.

In letters on July 31, the panel expressed concerns that BlackRock and MSCI’s activities funnel American capital into more than 60 Chinese companies flagged by U.S. agencies for security or human rights reasons. Although these activities are not illegal, the committee contends that they exacerbate national security threats and “undermine American values.”

The investigation revealed that BlackRock had invested over $429 million from five funds in such companies. The company manages over $9 trillion in assets and handles investments for millions of Americans.

The committee expands its focus by examining asset managers and index compilers like BlackRock and MSCI, even though they may not directly involve Chinese companies in their portfolios or indexes. However, according to the panel, their role in directing substantial amounts of Americans’ retirement savings into these companies is considered crucial and a cause for concern.

The Epoch Times has reached out the Treasury Department for comment.

Andrew Thornebrooke contributed to this report.