This week, House Financial Services Committee Chairman Patrick McHenry (NC-10) sent a letter to Treasury Secretary Janet Yellen regarding Treasury’s plans to transform CFIUS into a committee on foreign investment in the United States and China through a rumored Executive Order on outbound investment. In the letter, Chairman McHenry expresses concern that restricting outbound investment to China would prove futile in its intended effect and further serve the Chinese Communist Party’s goal of limiting the influence of Western firms in Chinese markets.
This follows a letter Chairman McHenry sent last fall, calling on the Biden Administration to work with Congress on efforts to regulate outbound investment, as an Executive Order will not lead to a lasting China policy.
Read the full letter here.
Read an excerpt from the letter below:
“I am writing in regard to the Administration’s proposed Executive Order on outbound investment, the imminent release of which has been rumored since last year. According to briefings provided by the Administration, the Department of the Treasury (Treasury) may transform CFIUS into a committee on foreign investment in the United States and China, prohibiting deals in certain Chinese technology sectors and mandating investor notifications in others. As we prepare for your testimony before the Committee, I would request your feedback on the following matters.
“Last year, China recorded a current account surplus of $417.5 billion, the highest level since 2008. The last time an Administration tried to restrict financing against a large current account surplus country, in 2014, it failed. 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?
“To be clear, this kind of policy was attempted as part of the federal government’s financing restrictions against Russia. Those restrictions not only failed to deter Moscow from its war in Ukraine, but also left targeted entities so unaffected that Treasury had to re-sanction them last year. Given Treasury’s longstanding principle that coercive measures must achieve clear objectives, it is unclear why the Administration now wants to repeat the same policies in China but expects different results. It is also unclear why the Administration believes that prohibiting know-how solely linked to investments would be more effective than comprehensively using export controls or sanctions.
“The Administration further claims that U.S. investments in early-stage Chinese companies may require the declaration of a national emergency. However, U.S. venture capital deals in China have fallen by 87 percent since 2018. At their height, these investments were concentrated in later-stage companies. Moreover, U.S. venture capital firms typically acquire control, substantive decision-making rights, board seats, or material nonpublic technical information when they invest. As your colleagues in the Office of Investment Security know, these represent potential national security risks to the target country – in this case, China. It is inexplicable that the Administration hopes to rescue China from these risks before Beijing can. 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.”
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