House Financial Services Calls on Congress to Reject Outbound Investment Measure in NDAA

Republican leaders of the House Financial Services Committee urged Congress this week to exclude a measure from the upcoming 2024 defense spending bill that could lead to new guardrails around U.S. outbound investments into China. They said existing sanctions and export control measures are sufficient to target Chinese military and technology companies, and any new investment restrictions would only limit American “control, influence, and intelligence gathering” in China.

“No one in the [Chinese Communist Party] is proposing an outbound investment regime that would block Chinese nationals from taking over America’s technology innovators,” said the lawmakers, led by Committee Chairman Patrick McHenry of North Carolina. “Anyone who claims there is a ‘gap’ in government authorities does not understand the authorities that exist, or they find sanctions and export controls too hawkish on China.”

Their letter, addressed to the leaders of the Senate and House Armed Services committees, came about a week after a bipartisan group of lawmakers urged both committees to ensure the outbound investment measure is included in the National Defense Authorization Act when the two chambers work on a compromise text for the legislation (see 2311210068). They specifically said a new notification requirement for certain outbound investments would give the U.S. “visibility” into how U.S. companies are helping fuel Chinese advancement in sensitive dual-use technologies.

But the House Financial Services Committee's leaders, while they “appreciate the intentions and objectives” of the measure, said it would “strengthen rather than weaken” the Chinese government. They said it’s “unclear why the U.S. would want to prevent Americans from going abroad to pry open the world’s most opaque major economy.” Investments in China can lead to Americans sitting on the boards of Chinese companies, allowing them to spread “Western standards” and compliance with U.S. laws, the letter said.

A “far more effective solution” to target Chinese military technology companies would come from the Chinese Military and Surveillance Companies Sanctions Act, the lawmakers said, a bill advanced by the committee in September that could extend blocking sanctions to a host of Chinese companies included on various government denied party lists (see 2310110028).

“Since China is in no way dependent on capital from U.S. investors, the only way to undermine its military companies is by cutting off revenues and technology, which is the advantage of a sanctions regime,” the letter said. And if the U.S. goal is to target the technological “know-how” that comes with U.S. outbound investments, “then U.S. export controls already prohibit knowledge transfer abroad, often in cooperation with our allies,” the lawmakers said.

“We stand ready to support strong and effective action that strengthens the U.S.’s competitive edge against China. Unfortunately, in our view, Section 1085,” the outbound investment provision being considered for inclusion in the NDAA, “misses the mark,” they said. “We encourage the conference committee to explore alternatives” so “that we can finally impose meaningful blocking sanctions on China.”