WASHINGTON — A leading House Republican voice on the national security threat posed by China says the White House’s plan to restrict outbound investment in Chinese military and defense companies falls short of addressing the real problem.
to President Joe Biden orders from superiorsexpected to take effect next year, is “taking an important step in the right direction,” but it should consider public market investments in Chinese companies that cooperate with China’s military or are complicit in abuses human rights, Rep. Mike Gallagher, said on CNBC’s “Squawk Box” on Friday.
The executive order would also require outbound US investors inform the Treasury Department regarding transactions involving certain technologies that may pose a threat to the United States.
The Wisconsin Republican is the chairman of the House Select Committee on the Chinese Communist Party and a leading voice in the House on the risks of US investment in China.
Americans who invest in corporate stocks, mutual funds, ETFs and public market bonds risk unwittingly contributing to technology that poses a potential threat to national security if they rely on US financial firms to invest to companies blacklisted for supporting the CCP.
The House CCP Committee has flagged around 50 companies, including machinery, aircraft and technology companies and created a de facto blacklist.
Gallagher argued that investment restrictions could be used both defensively for national security, and as a weapon to weaken China’s economic stature and its military capabilities by cutting off funds.
“The CCP is an adversary and you don’t defeat an adversary or stop an adversary by shoveling billions of dollars into their military and technology program,” he said.
He also argued that investments such as Americans’ retirement plans should not rely on profits in companies that could pose a threat to the long-term security of the plans’ investors.
“We have to ask ourselves if we want the pension fund, the overall retirement health of millions of Americans, to depend on the success of investing in things like [Chinese] aircraft, artillery, and fighter jets.”
China is currently the third largest trading partner of the US behind Mexico and Canada, a reality that puts the White House in the difficult position of trying to restrict specific investments in the US while keeping the overall bilateral trade relationship stable.
Gallagher’s remarks came as the Chinese government announced Thursday that it was considering countermeasures to Biden’s order.
Last month, the House CCP Committee sent questions to US-based global investment firms MSCI and Black stone seeking more information about how companies can direct US investments to Chinese companies on the committee’s blacklist.
“We don’t think that Blackrock or MSCI should be funneling American dollars to some companies like this, and we need to close the loopholes and at the very least, make sure that Americans don’t knowingly or unknowingly fund the Chinese Communists. Party,” Gallagher said Friday.
MSCI provides investment data and analytics to help clients make investment decisions in various global markets. In a statement to CNBC, the company said it was “cooperatively engaged with the House Select Committee” and “complies with all applicable US laws.”
BlackRock is the world’s largest asset manager and has previously said it offers options to its clients to avoid investing in certain Chinese sectors. The company told CNBC on Friday that it complies with applicable laws and that “the majority of our clients’ investments in China are through index funds.”
The executive order gives Treasury Secretary Janet Yellen broad authority to determine what constitutes a covered investment — too much authority, according to Gallagher.
The brewing debate over how broadly to apply the restrictions pits the White House against China skeptics on Capitol Hill, both Republicans and a significant group of Democrats.
Yellen has it’s a sign that he intends to keep any investment restrictions “narrowly targeted” to protect US national security, and insists they are not intended to undermine China’s economy.
“Although these policies may have economic effects, they are driven by direct national security considerations,” he said in a speech in April.
The Treasury is receiving public comment on the proposed rules in the executive order until September 28. So far, however, no formal timeline has been issued for the release of final rules on restrictions on outbound investment.
