National
Review Online
Friday,
August 11, 2023
Americans should
not help the Chinese Communist Party build weapons and perfect technologies
that it might one day deploy on the battlefield. But that’s what we’ve been
doing.
For
decades, we have fueled China’s military buildup and the construction of a vast
surveillance state by providing capital and technical know-how to Chinese
technology firms enmeshed in Beijing’s military-civil fusion system. We’ve done
this mostly unwittingly, through passive investments made through
retirement-savings plans and other investment vehicles. Roger Robinson, the
former chairman of the U.S.–China Economic and Security Review Commission,
recently estimated that the total sum of U.S. investment in Chinese entities
over the past decades is $2 trillion to $3 trillion.
On
Wednesday, the White House rolled out an important executive order that will
address a sliver of the problem. It will restrict U.S. investment in Chinese
military–connected firms operating within certain critical technology sectors —
semiconductors, quantum computing, and artificial intelligence.
This
measure takes on the distinct challenge posed by investments made by
private-equity and venture-capital firms in Chinese start-ups with ties to the
military and security forces. In one case noted by the Washington Post,
4Paradigm, a Chinese artificial-intelligence start-up, received investment
totaling hundreds of millions of dollars from prominent U.S. firms, while also
holding a contract with a People’s Liberation Army institute that trains tank
drivers on software with military applications. That’s not an unusual
case.
The very
promulgation of the rule is an important first step. But the executive order,
which had been anticipated for months, has been significantly watered down,
according to reporting on the matter and congressional China hawks. It only
prohibits investment in three critical technology sectors, while a few other
sectors had initially been considered. Administration officials unveiling the
plan on Wednesday also said that it would apply only to investments in
privately held companies and not to other types of investments. Or, as
Representative Mike Gallagher, the chairman of the House’s new committee on
China, put it: “The loopholes are wide enough to sail the PLA Navy fleet
through.”
The
White House told reporters that it had crafted the rule in consultation with
industry, which explains its relatively restrained nature. No doubt, industry
players with an interest in keeping the door open to making investments in
Chinese tech firms will also seek to use the comment period to water it down
even more.
Now,
it’s up to Congress to make sure that this new regime has teeth. Previous
attempts to pass a law heavily restricting outbound investment in Chinese
military–linked firms have failed. But in July, the Senate overwhelmingly
passed, as part of the annual defense-policy bill, a provision that would
require notification of outbound investment. Ideally, the final version of the
defense package would complement the new executive order in a way that
strengthens this new tool — going further than the unambitious Senate-passed
provision.
Some
lawmakers in the House are expected to try to block even that measure from the
final bill, arguing that existing U.S. sanctions and tools to block exports to
Chinese military firms are enough. But this argument ignores the fact that
these other tools did little or nothing to constrain significant investments
that have already been directed toward companies within China’s military-civil
fusion complex.
The
situation on the Hill is even more important considering the White House’s
continued effort to mollify the Chinese Communist Party. This was evident in
Janet Yellen’s assurances to Chinese officials during her recent trip to
Beijing that the outbound-investment rule would be very narrowly tailored. The
administration is clearly trying to have it both ways by continuing to seek
détente with Beijing while also advancing new measures to address its ongoing
military buildup.
That’s
not sustainable, and Congress should push the administration in the more
realistic, prudent direction.
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