House Committee Advances China Sanctions Bill Seen as ‘Most Severe’ Ever Considered

The House Financial Services Committee advanced legislation this week that could apply full blocking sanctions on a host of Chinese companies in what Rep. Andy Barr, R-Ky., described as the “most severe set of financial restrictions the House of Representatives has ever considered.” Barr’s bill, the Chinese Military and Surveillance Company Sanctions Act (see 2302060005 and 2306130062), could lead to new financial sanctions on companies subject to certain U.S. investment restrictions and export control licensing requirements, including China’s Semiconductor Manufacturing International Corp., Huawei and other major Chinese technology companies.

The bill would require the administration to make annual determinations on whether sanctions should be applied to companies listed on the Defense Department’s list of Chinese military companies and the Commerce Department’s Entity List or Military End-User List. The Treasury Department would also be required to annually determine whether companies listed on its Non-Specially Designated National Chinese Military Industrial Complex (CMIC) list -- which includes a list of Chinese companies subject to certain U.S. investment restrictions -- should be sanctioned, Barr said.

“I fully expect that Treasury would conclude that CMIC companies fall under this bill’s sanctions authorities,” the lawmaker said during a committee markup this week. But even if Treasury doesn’t decide to impose sanctions against CMIC List companies in the first year after the bill is enacted, the agency will be required to make a similar determination the following year, Barr said. “During that time, a sword will be dangling over every CMIC company,” he said, “and compliance departments around the world will ask themselves whether or not dealing with such an entity is really worth the risk. Many will conclude it is not.”

It’s unclear when and if the bill will receive a vote on the House floor, but Republicans during the markup expressed optimism that it will be considered, stressing the legislation’s bipartisan support. Rep. Maxine Waters of California, the committee’s top Democrat who also voted to advance the bill, said it builds on the Biden administration's efforts to counter Chinese surveillance technology companies, including its 2021 expansion of a Trump-era policy that banned investments in Chinese military companies (see 2106030067).

Waters said the bill received input from Democrats and officials with the Treasury Department to ensure it’s “sufficiently narrow and executable.” She said she expects the Commerce and State Departments will also have “views to add.”

Technology policy experts have called on the U.S. to expand the scope of the CMIC List to also include privately held Chinese companies that attract venture capital investments. The list currently applies restrictions only on publicly traded securities (see 2302030023 and 2308300044).

Barr’s bill would go much further, potentially leading to a host of financial restrictions on a range of major Chinese technology companies. Committee Chair Patrick McHenry, R-N.C., called the legislation “arguably the strongest measure the House has ever taken up to target China's military industrial complex.”

“We've heard a lot of tough talk on China around the Capitol,” he said, “but today the House Financial Services Committee is walking the walk.”

The bill comes as the Biden administration writes regulations to restrict outbound investments in certain Chinese technology sectors. Rep. Blaine Luetkemeyer, R-Mo., called the administration's outbound executive order “surprisingly targeted and thoughtful,” but “like previous actions taken against Russia and China, it doesn't completely solve our problem.”

“Chinese companies like Huawei aren't dependent on investment. They rely on the sale of goods and services, the importation of cutting edge technologies and access to the dollar-led financial system,” Luetkemeyer said. “Mr. Barr’s sanctions will make much of this impossible.” He called it a “targeted” and “well-crafted bill.”

Barr said the bill will look to impose “meaningful” costs on Chinese companies added to the CMIC List, which he said hasn’t had much of an impact. He said SMIC since being added to the list has seen double digit increases in gross profits. “This fixation on investment has distracted us from securing real results,” Barr said. “Blocking sanctions will cut defense-related companies off from revenues, technology and hard currency.”

He also said it would allow compliance departments to more easily comply with U.S. restrictions on China, adding that American firms often have to navigate complex licensing restrictions and gray areas in existing investment restrictions. “This is a red light, green light approach,” Barr said. “This gives certainty and confidence to the private sector and to investors around the world to what is off limits and what is benign.”