Washington Urged to Curb Ties To Beijing on Security Worries

 

"A commission of security and economic experts convened by Congress recommended that the U.S. take more aggressive steps to dial back commercial ties with China, warning of heightened national-security risks.

 

The annual report from the influential U.S.-China Economic and Security Review Commission called for imposing restrictions on U.S. investment in China and limiting investors' ability to buy U.S.-listed Chinese stocks.

 

The report, whose publication Wednesday follows a Monday virtual meeting between President Biden and Chinese President Xi Jinping that sought to ease U.S.-China tensions, underscores the challenges the Biden administration faces keeping its powerful adversary in check.

Although rhetoric between Washington and Beijing has been tense, the bilateral trade imbalance is returning to levels last seen before the U.S. government imposed tariffs on Chinese imports in 2018, and U.S. capital flows to China are on the rise, the commission said in its report.

That economic interdependency is particularly concerning now, the panel said, because of Mr. Xi's recent moves to "assert unassailable authority" over China's corporate sector, blurring the lines between ostensibly private Chinese companies and those that are officially state-run by the Chinese Communist Party.

In turn, "U.S. businesses and investors must recognize that their participation in the Chinese economy is conditioned by the CCP's policy priorities and subject to its control," the panel warned.

Mr. Biden said he was clear with Mr. Xi during the Monday meeting about the need to protect American workers and industries from China's "unfair trade and economic practices." Mr. Xi said the U.S. should stop suppressing Chinese companies through the lens of national security, according to state media.

 

While the U.S.-China Commission had been known for its hawkish perspective on China, its views have found a mainstream audience as members of the Trump and Biden administrations, and both parties in Congress, have sought its input on policies.

 

One of the panel's top recommendations is that Congress create an authority to screen -- and potentially block -- U.S. investments in China that could harm national security.

Sens. Bob Casey (D., Pa.) and John Cornyn (R., Texas) are sponsoring legislation with a similar aim, and national security adviser Jake Sullivan said in a July speech that the administration is "looking at the impact of outbound U.S. investment flows that could circumvent the spirit of export controls or otherwise enhance the technological capacity of our competitors in ways that harm our national security."

Any push by lawmakers or the Biden administration to clamp down on U.S. investment in China is likely to face stiff opposition from business groups. The U.S.-China Business Council is lobbying against the Casey-Cornyn bill.

The commission also suggested that Congress consider banning investment in U.S.-listed companies operating Chinese businesses through so-called variable interest entities. Many Chinese companies seeking to list on U.S. exchanges use VIE structures to get around China's foreign ownership restrictions. "A U.S.-listed company and its China-based VIE might appear to be the same company. . .but they are not," a September Securities and Exchange Commission bulletin said.

The commission also recommended that Congress create an interagency Technology Transfer Review Group with the defense secretary as chairman to identify critical technologies and to direct the Commerce Department to implement associated export controls.

The recommendation follows a June report by the commission concluding that the Commerce Department had "failed to carry out its responsibilities" to create lists of technologies earmarked for protection from foreign rivals.

At the time, Commerce said that because "innovation is not static and technology triggering national security concerns can evolve over time, the goal to identify these technologies will be a continuous effort and will not be an objective that is 'finished' or 'complete.' "" [1]

1. U.S. News: Washington Urged to Curb Ties To Beijing on Security Worries
O'Keeffe, Kate.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 18 Nov 2021: A.2.