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McHenry Calls on Biden Administration to Work with Congress on Efforts to Regulate Outbound Investment to China
A unilateral Executive Order will not lead to an enduring China investment policy
Washington, Oct 4 -
The top Republican on the House Financial Services Committee, Patrick McHenry (NC-10), sent a letter to National Security Advisor Jake Sullivan urging the Biden Administration to thoughtfully and transparently work with Congress on efforts to confront the generational threat posed by the Chinese Communist Party, rather than acting unilaterally by Executive Order. It is especially critical that the Administration work with Committees of jurisdiction on any effort to regulate certain investment flows to China. Read the full letter to National Security Advisor Jake Sullivan here. Read key excerpts from the letter below: “Dear Mr. Sullivan: “I am writing with regard to the Administration’s reported plans to issue an Executive Order regulating certain investment flows to China. In 2018, the House Financial Services and Senate Banking Committees enacted the bipartisan Foreign Investment Risk Review Modernization Act (FIRRMA) and Export Control Reform Act (ECRA), which overhauled, respectively, the Committee on Foreign Investment in the United States (CFIUS) and U.S. export controls. This inbound and outbound policy arose from numerous public hearings across multiple congressional committees; robust, line-by-line engagement on legislative text with the interagency; and countless discussions with domestic and foreign stakeholders. Such a thorough process strengthened the final products, protecting our national security with clear democratic legitimacy. “I am therefore concerned that the Administration may choose to resort to unilateral measures, such as the International Emergency Economic Powers Act (IEEPA), rather than work with Congress to address the threat posed by China. An enduring investment policy toward China will embrace, not evade, regular-order deliberations. Effective policy will also recognize that the problems posed by Chinese technological advancements are not so much ‘unusual and extraordinary’ as they are a generational challenge that implicate government action for the long haul. … “Coherence “When certain kinds of Chinese investment in U.S. technology firms became a concern, Congress responded with FIRRMA. Rather than claiming that Beijing must be worried by Chinese investors ‘funding American defense capabilities,’ the U.S. government of course argued the opposite: foreign investors’ home government may pose a risk to the country receiving investment. This is the basic premise behind investment screening. If supporters of outbound restrictions believe this idea is stood on its head when Americans invest in China, the Administration should ensure that their theory of risk is internally consistent. … “Appropriate Methods “In 2021, CFIUS approved virtually all of the covered transactions it reviewed and processed 90 percent of notices without mitigation measures. The President blocked no transactions. Even so, CFIUS regularly exhausts the maximum statutory time allowed for reviews, with a number of notices withdrawn and later refiled to restart the clock. By law, a transaction subjected to a CFIUS assessment, review, and investigation may be evaluated for over four months. In other words, CFIUS is bureaucratically complex even as it greenlights nearly all transactions. Though this works for a screening regime that ‘support[s] unequivocally such investment, consistent with the protection of the national security,’ it is the last method one would choose to cut off support for bad actors in China. “The President should discount accordingly outbound proposals that cling to reviews at all costs. They reflect a lack of understanding of investment screening as it exists, and they seem to believe that mitigation agreements would be enforced in China – an absurd idea. Reports that the Administration still needs to understand outbound investment flows, potentially through company notifications, highlights how backwards the development of outbound policy risks becoming: to effectively combat China, we should first map out the problem and then design solutions, not the other way around. A ready-fire-aim approach would run counter to decades of U.S. investment policy. “Unintended Consequences “When Congress enacted FIRRMA, it understood that CFIUS would serve as a reference point for foreign countries’ own investment screening efforts. Congress refused to weaponize CFIUS for non-national security purposes, knowing this would encourage others to indulge in the same. The fact that some proponents of an outbound regime want to inject a vast array of extraneous goals into a screening framework should thus alarm the Administration. By imposing such a framework through Executive Order, the President would invite all future administrations to extend restrictions beyond their original intent, no matter how narrowly drafted they are initially. … The previous two administrations developed rigorous plans to reform CFIUS and export controls, working closely with congressional committees of jurisdiction to address long-term problems. I urge the Biden Administration to act with similar transparency and thoughtfulness so that we counter the threat posed by China with maximum effectiveness.” ###