New Rules for U.S. Investments in China Face Fresh Hurdle: Biden’s Team

(Bloomberg) -- Bipartisan efforts in Congress to shield sensitive U.S. technology from China face a new hurdle: the Biden administration, which is divided over whether to intensify scrutiny of American investments in the world's second-largest economy.

Legislation supported by Democrats and Republicans aims to better regulate what's known as outbound investments in U.S. adversaries such as China and Russia, seeking to move more of the supply chain for critical sectors like technology to either the U.S. or friendlier countries.

Washington has long had a process for vetting inbound investments, through the Committee on foreign investment in the U.S. -- CFIUS -- and has used that to block numerous Chinese purchases. But lawmakers are now looking to add outbound controls, a move the American business lobby has opposed, given the importance of China's market to many firms.

The Treasury Department, which oversees CFIUS, earlier this month sent lawmakers a proposal for a watered-down version of a draft measure that Congress is considering. The Treasury's framework suggested the government could trial monitoring U.S. investments in China without any new enforcement measures.

The Treasury's proposal wasn't shared with White House national security officials before it was sent to Congress, and doesn't reflect the Biden administration's views, people familiar with the matter said. Lawmakers in both parties shot down Treasury's suggestion, calling it weak, and said the White House should clarify its position.

Eager to Hear

A Treasury official said it's standard practice to provide technical assistance to both sides of the aisle on a range of legislation. A spokeswoman for the National Security Council declined to comment.

Representative Rosa DeLauro, cosponsor of the House version of the China legislation, said she'd “be eager to know” the administration's position on what's known as outbound investment.

“I appreciate the administration's interest in this critical issue, and I would welcome the opportunity to have a more clarifying discussion,” she said in a statement.

The administration's internal disagreement adds to complications surrounding a legislative package that's aimed at strengthening U.S. competitiveness against China. The bill includes $52 billion to support domestic semiconductor research and manufacturing, as well as other innovation programs that President Joe Biden and many lawmakers in both parties believe can help relieve logjams in U.S. supply chains.

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The dispute over scrutinizing outbound investments is just one example of the administration's struggles to settle on a comprehensive China policy. Officials have sparred privately -- and in some cases made contradictory statements in public -- over whether to maintain the Trump administration's tariffs and the former president's trade deal with China. Months of deliberations have yet to produce a consensus.

While Biden has described China as the U.S.'s top economic competitor, officials at the National Security Council, State Department, Treasury and other agencies are split over how adversarial the government should treat Beijing.

Secretary of State Antony Blinken told lawmakers this week that he's going to lay out the administration's China strategy in coming weeks, though it's not clear if that will include new policy announcements.

In its proposal to lawmakers considering the China legislation, the Treasury recommended creating a pilot program to collect data “on certain investments by U.S. persons in businesses outside the United States that could affect the nation's critical supply chain.”

Pilot Program

“The data collected through the pilot program should enable the United States to understand national security concerns that could arise from such transactions and the extent to which existing authorities are capable of addressing those risks,” according to the Treasury document, obtained by Bloomberg News. It would also “identify any new authorities that should be established to address those risks.”

The Treasury suggested a notification system for covered transactions but did not include any enforcement tools to block or unwind objectionable deals. Politico reported on the Treasury's proposal on Tuesday.

China hawks were displeased by the Treasury's attempt to water down the draft measure.

“A pilot program that only collects data is an effort to defeat through delay,” said Mike Wessel, a labor strategist who is a member of the U.S.-China Economic and Security Review Commission -- a panel created by Congress in 2000 to review national security implications of trade and economic ties with China.

One person familiar with the process said that the White House is sometimes but not always involved in the provision of technical assistance from the executive branch to Congress. The person added that technical assistance doesn't amount to a statement of administration policy.

But congressional aides said the Treasury document represented more than technical assistance, as it proposed an entirely new program.

National Security Advisor Jake Sullivan said last year that the administration is considering a mechanism to review outbound investment, and the White House has been contemplating an executive order. But administration officials haven't yet settled on the scope of any executive action, according to people familiar with the matter.