Lawmaker Questions Effectiveness of Outbound Investment Regime Over Export Controls, Sanctions
The chair of the House Financial Services Committee is asking the Treasury Department for more information about potential outbound investment restrictions in China, including what types of investments in specific technologies would be targeted, whether the Biden administration plans to establish the regime through a national emergency and if the restrictions would be more effective than traditional trade restrictions. Rep. Patrick McHenry, R-N.C., is concerned outbound investment restrictions “would prove futile,” the lawmaker’s news release said, and would “further serve” China’s goal of “limiting the influence of Western firms in Chinese markets.”
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In a letter last week to Treasury Secretary Janet Yellen, McHenry said China recorded a current account surplus of $417.5 billion last year, the highest level since 2008. “Do Treasury and the Administration really believe that investment restrictions will be effective this time -- particularly against a surplus country that holds $3 trillion in reserves?” McHenry wrote.
McHenry said he has been told in administration briefings that the U.S. is considering turning the Committee on Foreign Investment in the U.S. into a “committee on foreign investment in the United States and China,” which would block “deals in certain Chinese technology sectors” and require “investor notifications in others.” He said he isn’t yet on board with the idea, adding he doesn’t understand why the administration “believes that prohibiting know-how solely linked to investments would be more effective than comprehensively using export controls or sanctions.”
Outbound investment restrictions could also aid Beijing, McHenry said, noting U.S. venture capital deals in China have fallen by 87% since 2018, and China is hoping to further limit U.S. control of companies in the country. “At a time when the Chinese Communist Party is already cracking down on Western firms and business intelligence services, the Administration should reject an E.O. that advances Beijing’s goals,” he said.
McHenry asked Treasury to provide more information about the upcoming restrictions, including which “discrete Chinese technologies have been developed as a result of U.S. investments” that would be blocked under a new outbound investment regime, what percentage of venture capital funding rounds in the most recent year supported those Chinese technologies and what kind of “know-how or other essential information” has been transferred by those investments. The lawmaker also asked how far the proposed restrictions would “delay” China’s development of advanced technologies compared with the use of export controls and sanctions, and whether Treasury would endorse secondary sanctions against third-country funds that invest in covered Chinese technologies.
He said the administration's “interest in capital controls requires rigorous scrutiny by Treasury and thorough oversight by Congress.” A Treasury spokesperson didn’t comment.